Q3 2021 Lufax Holding Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Leigh Fox Holdings Limited third quarter 2021 earnings call.
At this time all participants are in a listen only mode.
After the managements prepared remarks, we will have a Q&A session.
Please note this event is being recorded.
Now I'd like to hand, the conference over to your speaker host today, Mr. Yu Chen the Companys head of Florida Office and capital markets. Please go ahead Sir.
Thank you operator, Hello, everyone and welcome to our third quarter of 2021 earnings Conference call, Our quarterly financial and operating results were released by our Newswire services earlier today on our currently available online.
Today, you will hear from our chairman Mr. <unk>, who will start the call with some general updates on our achievements for the quarter and share our thoughts on recent regulatory developments and industry dynamics, our co CEO Mr. Greg.
I'll then provide a review of our progress on details of our development strategy.
Afterwards, our CFO James John we're all for a closer look into our financials before we open up the call for questions.
In addition, Mr. Why it's Charles our co CEO and Mr. David Troy CFO of our credit facilitation business will also be available during the question answer session.
Before we continue I would like to refer you to our safe Harbor statement in our earnings press release, which also applies to this call as we will be making forward looking statements. Please also note that we will discuss non effort measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the international financial reporting standards in our earnings release and filings with the SEC.
With that I'm now pleased to turn over the call to Mr. Qi Chairman of Loopnet.
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<unk> Hello, everyone and thank you for joining our 2021 third quarter earnings call today's call I will start with an update of our key achievements in the quarter.
<unk> top concerns that investors and analysts raised in our recent communications and finally share our views on the latest market development.
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First key achievements in 2020, one Q3 overall, we achieved steady and healthy growth during the third quarter at the same time, we improved our regulatory compliance and corporate governance, we published our initial Postaxial ESG report as part of our proactive effort in establishing ourselves as a role model for regulatory compliance and corporate governance amount oversea.
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In the third quarter, our total income increased by 22% year over year, excluding the impact of non recurring expenses in the third quarter of 2020 net property in the third quarter increased by 18% year over year, while our net property in the nine months ended September 32021 increased by 28% year over year.
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Due to the steady and healthy growth of our operational results and our confidence towards market outlook on business prospects. The board of directors decided to pay out 20% to 40% of our net profit in the previous year's dividend starting from 2022, we will release the details of our dividend payout planning in the fourth quarter earnings report.
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Following the completion of our U S 300 million shares repurchase program in the second quarter, we announced additional $700 million in August as of September <unk> 2021, we had bought back about $60 million assets for approximately USD $600 million.
With roughly USD 400 million remaining.
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Despite market fluctuations, we made kind of a high level of confidence about our own future build on our steady profit generation excellent operating cash flow abundant capital reserve.
Effective regulatory response, we plan to continue to return value to our shareholders through share repurchases and dividend payout.
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On the compliance front, we proactively follow regulatory guidance have fully completed the run off of our legacy peer to peer products in the third quarter that accomplishing a smooth victors withdraw from the online lending business setting a role model for the industry.
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In mid October Mr. Costa <unk> Chairman of <unk> stated publicly that the process rectifying reforming the 14th Internet based lending platforms. The financial regulators raised close to 1000, new stores, the majority of which have been addressed but about half of which have been resolved.
We anticipate more material substantive progress by the end of this year.
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I want to reiterate amount those companies undergoing regulatory review <unk> has maintained constructive dialogue with the regulatory authorities on progress smoothly through all aspects of the ratification by leveraging our domain expertise financial DNA onstar understanding of regulation. Our early understanding is reasonably consistent with recent.
And we periodically review all of our business lines to ensure compliance.
Our principal preemptive diagnosis and Swift operational adjustment for timely ultimate results.
And we will proactively adjust our business direction as to more closely align with regulatory trends as always.
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Put simply catching on the ESG front, we devoted substantial resources to establishing ourselves as a role model for overseas list. The Chinese companies in terms of compliance and governance. Our initial post IPO yesterday report published in September of this year showcased our achievements implementing strong governance Green finance and consumer services and protection.
Also our include our inclusion in the FDIC Russells two major ESG indices demonstrated marketing dose and that of our accomplishments ESG and corporate responsibility and social value.
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I don't want to share some of the key investor concerns since releasing our Q3 results. Our management team have maintained frequent communications with investors by hosting more than 60 events, including closer in is called non deal Roadshows and other meetings.
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We received 320 questions from investors, among which 253 questions or 79% of the total or about macroeconomics and regulatory trends.
51, or 16% of the total questions were about our business operations and the reminder, we're about our capital market initiatives, such as dividend payout and share buybacks.
Share our thoughts on macroeconomics and regulatory direction, then Greg and Jamie will discuss our operational and financial details.
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Macroeconomics some investors are concerned about the impact of our future business from the tightening of the Chinas property market and the slowdown of overall economic growth.
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Our direct and indirect client exposure to the real estate industry is rather small also bearing in mind that even though the macro economy may be under pressure in the near term medium small and micro sized businesses extremely resilient.
As crucial blood vessels of the Chinese economy.
Consequently, we have seen healthy stable numbers in business at risk matrices at the same time, we will make forward we remain vigilant closely monitor all aspects.
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Nations Performative on open stance remains unchanged as capital market stays connected to the world economy needs investment from around the globe to develop a healthy domestic capital market and its regulatory authorities aim to maintain lots of market stability.
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Speech given at the opening ceremony of the fourth China International import Expo President she reaffirmed China's willingness to open to the rest of the world.
2020 annual financial straight Forum held in late October Vice Premier the Hood declared that the objectives of China's financial system should include promoting a high level of openness.
Establishing a clear market environments protecting the legal rights of foreign enterprises in China prioritizing the development of financial technology, and improving the quality and efficiency of financial services.
We believe that the government will keep refining regulatory policies to foster stable a sustainable environment.
Capital market development.
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When it comes to implementing industry specific regulations, such as licensing requirements will credit, scoring preventing loan facilitators on co lenders from Shannon Burke data directly with financial institutions.
And reducing borrowing costs the direct impact on our business is rather muted our business model and operational performance remained steady and healthy thanks to our preemptive regulatory assessment.
Proactive operational adjustments and anticipatory business realignment going forward, we will continue to maintain open a frequent dialogues with regulators at all levels and through all available channels.
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Certainly <unk> unique business model I would like to reiterate the complaint of unique nature of our retail credit facilitation business as well as the core competitive advantages of our business model.
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First of all we focus on serving small and micro businesses in the third quarter of 2021, 81% of our new loans with distributed through small and micro business owners as of the end of September we had provided credit facilitation services to $16, two 1 million cumulative borrowers.
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We conduct our business activities through licensed financial Guaranty subsidiaries, what's differentiates us from those unlicensed than pure play loan facilitators is that we have a business license to provide financial guaranty backed with registered capital that we participate in the lending business mature manner. So that we can ensure a strict strict.
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Third would be our credit risks on those new loans that would facilitate comments with regular shakeout is it requirements. We have established a sustainable risk sharing business model and increased our risk exposure in the third quarter of 2021, excluding our consumer finance subsidiary, our credit risk exposure to the new loans facilitated increased to 20%.
Going forward to stay in sync with regulatory guidance, we plan to make additional preparation for further expansion of our credit risk exposure.
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Third we continue to reduce our borrowers cost thanks to our technology advancement and manage our efficiency improvement since third quarter, we have reduced the all in costs with new loans facilitated 21, 8% going forward, we will continue to optimize our cost structure through technology and fulfill our commitment to financial inclusion.
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Retail credit facilitation and wealth management businesses are fully aligned with China's policy objective of supporting small and micro businesses to a tank comments horsepower yes.
Constantly evolving regulatory environment, our unique business model strong corporate governance enable us to accomplish graduate business transformation and achieve steady growth.
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Thank you Chairman G.
We delivered strong revenue and profit growth in the third quarter of 2021, despite the changing economic and regulatory environment. We grew our revenue by 21, 8% and our net profit by 98% year over year, respectively. Excluding the impact of the <unk> restructuring expenses in the third quarter of 2020, our adjusted net profit.
Increased by 18, 1% year over year.
Before gains takes you through our detailed operational and financial updates I'd like to cover three broad areas related to our business first didn't see concerned on the real estate sector second an update on the regulatory rectification progress and third our financial position and capital related plant.
Concerns on the real estate sector, while we've observed that risk in the broader economic environment, including increased credit risks and the real estate sector. There has been no impact on our business performance to date, we do not provide lending services to property developers, although some of our small business customers produce construction materials and provide home.
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Those are to borrowers who are directly or indirectly linked to the property sector is quite limited.
To date, we have not detected any signs of credit deterioration in our secured or unsecured loan facilitation portfolios and we will remain vigilant and adjust credit policy quickly if needed.
This third quarter flow through rates, indicating future credit quality remained stable and in line with the previous several quarters.
Wealth management business and proprietary investment book have limited exposure to the real estate sector.
Second a little bit more on the regulatory rectification progress as mentioned by Chairman T regulators recognize that the current industry rectification efforts should see substantial progress by the end of the year and some industry observers believe the current stage of regulatory changes is reaching finalization.
Based on our understanding of the current regulatory requirements, we do not anticipate any major changes to our business model a more substantial impact on future business development.
Over the last year regulatory rectification of lending businesses is really included the following elements with platforms.
Separating lending services from other financial and payment services.
Rationalizing personal consumption risks facilitating lower loan pricing to support the real economy, and having skin in the game to share credit risk with requisite licenses and capital requirements. Electrification has also required partnering banks to demonstrate independent risk management set limits for cooperation with any one platform and limit length.
To their geographic footprint finally, rectification requires data sharing between platforms and finance institutions to be conducted by a a credit rating licensed by the mid of 2023.
<unk> continues to make consistent progress on all electrification requirements.
<unk> conducts lending facilitation independent of any other financial service about 81% of all new loans facilitated as of the third quarter with small business owners in line with policy priorities.
All in pricing for loan balances dropped to 23, 1% as of the third quarter. This year down from 26, 6% a year ago.
As of this third quarter, we now bear risks on 20% of all new loans are nationwide guarantee companies with share credit risk on all new lending operate with a leverage ratio under three times as of September 30, This year, given our strong capital position and likely future regulatory requirements, we expect to bear risk on 30% of all new.
New loans in the future probably about by the end of next year.
All of the aforementioned operating metrics exclude those of our consumer finance subsidiary.
We in fact is $58 nine bank partners operate with their independent risk systems, given our diversified partnerships current cooperation is fully aligned with the regional footprint matching requirements in each partnership operates within the single platform concentration limits. We are currently in discussions with a number of parties to establish a credit rating license within the.
State and rectification period, if this indeed becomes a requirement and here I'll just elaborate a bit.
Prepared we will be prepared to connect to a third party credit rating licensed by March of next year and based upon our latest understanding the cost of that connection will not exceed more than 100000 men per month. So indeed, it will not bring additional substantial cost the way that we operate.
Third on our financial position and capital plans.
Through this third quarter, we have been able to meet the rectification requirements and optimize customer pricing, while sustaining both our revenue take rates and net profit margins at or above historical levels as of September 31, our net asset is around 93 billion liquid assets maturing in 90 days or less totaled 47 billion, providing us with <unk>.
<unk> strength to maximize shareholder value and make ongoing investments in the business.
In terms of capital management as just mentioned, we've completed about 60% of the $1 billion in shareholder buyback that we've announced in recent quarters.
Spine, our plans to increase skin in the game in the lending facilitation business.
Strong ongoing cash flow allows us to announce today that starting next year, we will begin to pay 20% to 40% of net profit of the previous year in cash dividends to shareholders.
These plans should allow us to continue to improve shareholder return on equity.
And leave us with more than sufficient resources to continue to invest in our core business, while taking advantage of opportunities, which may arise medium term due to the changing industry and regulatory landscape.
Within the core business are priority areas for investment remain upgrading our lending services direct sales force with new technology enablement tools.
Turning deployment of AI capabilities in risk management and collections infrastructure.
Adding new functionality to our product lines and sharing technology capabilities with financial partners in both lending facilitation and wealth management.
The main goals for our technology deployment, our increasing market reach enhancing our unique <unk> business model productivity deepening partner connectivity and further automating services to improve both service quality and cost efficiency.
Worthy of note is we did increase our <unk> sales force, serving primarily small business owners in Q3 two.
<unk> around 64000 up from 59000 at the end of Q2 to further expand market reach the increase in direct sales was masked by an increase in sales force productivity, excluding new recruiting sales force in Q3, our productivity rose, 8% quarter on quarter and 7% year over year. If we include the new recruited.
Sales force productivity rose, 4% quarter on quarter.
This increased investment.