Q2 2024 Lufax Holding Ltd Earnings Call

August 22, 2024

Ladies and gentlemen, thank you for standing by and welcome to the Blue facts, holding second quarter 'twenty 'twenty four earnings call.

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Lufax Hldg second quarter 2024 earnings call.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Liu Fax Holding second quarter 2024 earnings call. At this time, all participants are in a listen-only mode.

Operator: At this time, all participants are in a listen-only mode.

Y. S. Cho: So we focus more on consumer finance and relatively large case size consumption loan to cope with declining SBO loan demand in near term, especially in the regions where our loan volume contraction is more significant.

Speaker Change: At this time all participants are in a listen only mode. After the management's prepared remarks, we will have a Q&A session. Please note. This event is being recorded now I'd.

Operator: After the management's prepared remarks, we will have a Q&A session.

Operator: After the management's prepared remarks, we will have a Q&A session. Please note this event is being recorded.

Xinyan Liu: Now, I'd like to hand the conference over to your speaker host today, Ms. Liu Xinyan. The company's head of board office and capital markets. Please go ahead, madam.

Speaker Change: Like to hand, the conference over to your speaker host today, Ms do Shenzhen the companies had a board office and capital markets. Please go ahead Madam.

Y. S. Cho: And for your second question, we all know that it is not easy to improve C2M3 flow rate, while loan balance keeps declining.

Xinyan Liu: Thank you very much.

Operator: Please note this event is, being recorded.

Y. S. Cho: But with continuous portfolio mixed improvement, what I mean is now we see that more and more accounts from 2023 and 2024 vintage takes a bigger, part of the whole portfolio, which is better quality accounts. So we believe our asset quality measured by C2M3 flow rate will continue its improvements.

Speaker Change: Thank you very much Hello, everyone and welcome to our second quarter 2024 earnings Conference call, our financial and operating results were released by our Newswire services earlier today and are currently available online today, you will hear from our chairman and CEO, Mr. Why as Joel.

Xinyan Liu: Hello, everyone, and welcome to our second quarter 2024 earnings conference call. Our financial and operating results were released by our NewsWire services earlier today in a currently available online.

Y.S. Chou: Today, you will hear from our Chairman and CEO, Mr. Y.S. Chou, who will provide an update of the recent developments and strategies of our business.

Speaker Change: Who will provide an update of the reason the development and the strategy of our business. Our CFO. Mr. <unk> will then provide more details on our financial performance and if this is operation before we continue I would like to refer you to our safe Harbor statement in our earnings press release, which.

Peiqing Zhu: Our CFO, Mr. Peiqing Zhu, will then provide more details on our financial performance in the business operations.

Xinyan Liu: 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.

Speaker Change: Also applies to this call as we will be making forward looking statements with that I'm now pleased that you turn it over the call to Mr Y S Chou, chairman and CEO of <unk>.

Y.S. Chou: With that, I'm now pleased to turn over the call to Mr. Y.S. Chou, chairman, and the CEO of Liu Vax. Please.

Operator: Now, I'd like to hand the conference over to your speaker host today, Ms. Liu Xinyan, the company's head of board office and capital markets.

Y. S. Cho: And also, we put tremendous effort in our risk model, underwriting model, and also collection model upgrade, and then a sales quality management process.

Speaker Change: Please.

Y.S. Chou: Thank you for joining us today for our second quarter 2024 earnings conference. In the second quarter, the macroeconomic environment remained complex for small business owners. Despite this, we saw continued improvements in asset quality across both our food and consumer finance businesses, as you continue to implement our prudent business strategies. We believe this will provide a solid foundation for our future growth.

Speaker Change: Thank you for joining us today for our second quarter of 2024 earnings call.

Xinyan Liu: Please go ahead, madam.

Y. S. Cho: So all in all, we are confident about sustainability of our asset quality going forward.

Speaker Change: In the second quarter, the macroeconomic environment remains complex, what's more visa walnuts.

Speaker Change: Despite this we saw continued improvement in asset quality of course both.

Speaker Change: And consumer finance businesses as you continued to implement our crude on to these strategies.

Speaker Change: We believe this will provide a solid foundation for our future growth.

Xinyan Liu: Thank you very much.

Y. S. Cho: Thank you.

Y.S. Chou: Let me provide some updates on the macroeconomic situation before we discuss the business details. The SM Development Index, 20-down by 0.3 points, quarter-over-quarter to 8-9 in June. Meanwhile, the business conditions index published by the Chungkong Graduate School of Business declined from 50.1 in March to a 49.3 in June, falling below the 50 threshold and reaching its lowest level for the first half of 2024. These indicators underscore the persistent challenges faced by the small business sector.

Speaker Change: Let me provide some updates on the macro situation before we discuss the ph D C H.

Xinyan Liu: Hello everyone and welcome to our second quarter 2024 earnings conference, call.

Yada Lee: The next question comes from Yada Lee with CICC.

Speaker Change: The SME development index, $28 5.3 points quarter over quarter to eight nine in June.

Yada Lee: Please go ahead.

Speaker Change: Meanwhile, the business conditions index published by the Cheung Kong greatly school business.

Speaker Change: <unk> from 51 in March to a $49 three in June falling below the.

Speaker Change: Fresh food and reaching its lowest level for the first half of 2024.

These indicators underscore the persistent challenges faced by the small business sector.

Xinyan Liu: Our financial and operating results were released by our Newswire services earlier today and are currently available online.

Yada Lee: Hello, management.

Y.S. Chou: Now let me provide some updates on our operating results. First, let's take a look at our loan volume. Our total loan sales in the second quarter of 2024 were 45.2 billion, representing a 15.5% year-over-year decline. The decline was mainly caused by a 35% year-over-year decrease of poor loans, which complied 51% of total loan sales in the second quarter. Reflecting our continued emphasis on quality over quantity and sluggish demand for pre-loans among high quality SUVers. Meanwhile, our consumer finance business continues to grow and deliver a solid performance during the quarter. The consumer finance loans saw a 23.6% year-over-year increase in new-run sales, representing 49% of our new-run sales, as a result of our continuous efforts to roll out smaller tests and revolving product structures.

Speaker Change: Now let me provide some updates on all operating resorts first let's take a look at our loan volume our top 200, and you don't say in the second quarter of 2024, well 45.2 billion.

Xinyan Liu: Today, you will hear from our chairman and CEO, Mr. Y. S.

Speaker Change: Representing.

Speaker Change: 15, 5% year over year decline.

Speaker Change: The decline was mainly caused by 35% year over year decrease or who we launched.

Speaker Change: Which comprised 51% of total new I'd say in the second quarter.

Speaker Change: Reflecting our continued emphasis on quality over quantity.

Speaker Change: And sluggish demand for pre launch or more high quality H B O S.

Speaker Change: Meanwhile, our principal finance business continues to grow and delivered a solid performance.

Speaker Change: During the quarter.

Speaker Change: Small finance noise so.

Speaker Change: Three 6% year over year increase.

Speaker Change: In neuro and you didn't say it represented 49% of our new on Sage.

As a result of our continued efforts to roll out smaller tests and revolving product structures.

Y.S. Chou: Furthermore, we are pleased to object a notable improvement in asset quality as we adopt most stringent credit standards, with focus on higher quality customer segments and resilient geographies. Also, the buy our enhanced risk assessment system. For pre-loans, the state-to-M3 flow rate improved to 0.9% from a 1.0% in the previous quarter, mainly driven by the improvements of state-to-M3 ratio of unsecured loans. Our consumer finance loans also saw asset quality improvements, with NPL ratio decreasing to 1.4% from 1.6% in the first quarter.

Speaker Change: Furthermore, we are pleased to absorb a notable improvement in asset quality.

Speaker Change: As we adopt more stringent credit standards with a focus on higher quality customer segments and resilience in geographies or certified all in hedged.

Speaker Change: Risk assessment system.

Speaker Change: So pointless to.

Speaker Change: Mcd flow rate improved to <unk>, 9% from one point to a percent in the previous quarter, mainly driven by the <unk> two months of seed to MCT ratio of unsecured loans.

Speaker Change: Our customer finance.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Liu Fax Holding Second Quarter 2024 Earnings Call.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Liu Fax Holding Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a Q&A session. Please note this event is being recorded.

Speaker Change: Also so after 14 promotion with NPL ratio decreasing to one 4% from one 6% in the fourth quarter.

Operator: At this time, all participants are in a listen-only mode.

Yada Lee: Thank you for taking my questions.

Y.S. Chou: Next, let's take a look at our loan loans under the 1.0% young model, as discussed previously. Since the fourth quarter of 2023, all new pre-loans have been enabled under the 1.0% young model. As our pre-loan balance increasingly represents loans enabled under this model, our balance take rate has 20 upwards, which is 9.3% during the second quarter. As an announcement from our high CGI premiums has been eliminated, thanks to this improved asset quality, our credit costs have remained stable despite increased risk exposure. However, it is worth noting that due to decreasing loan balances, our unit upgrade expenses have increased, which has become a cheat drag on our unit profitability.

Speaker Change: Next let's take a look at our loan launch under the 100% guarantee model S.

Operator: After the management's prepared remarks, we will have a Q&A session. Please note this event is being recorded.

Speaker Change: As discussed previously.

Yada Lee: I have four questions today.

Xinyan Liu: Now, I'd like to hand the conference over to your speaker host today, Ms. Liu Xinyan.

Xinyan Liu: Now, I'd like to hand the conference over to your speaker host today, Ms. Liu Xinyan. The company's head of board office and capital markets. Please go ahead, Madam.

Speaker Change: Since the fourth quarter of 2023, all knew who the laws have been enabled under the 100% to more than <unk> <unk>.

Xinyan Liu: The company's head of board office and capital markets.

Speaker Change: That's helpful umbrella increasingly represents launch enabled under this model our pellets take rate has trended upwards, reaching nine 3% during the second quarter.

Xinyan Liu: Thank you very much. Hello, everyone, and welcome to our second quarter 2024 Earnings Conference call. Our financial and operating results were released by our NewsWire services earlier today in a currently available online.

Xinyan Liu: Please go ahead, Madam.

Speaker Change: As announced from Ah Hi, TJ premiums has been eliminated.

Speaker Change: Thanks to this improved asset quality, our credit costs have remained stable despite increased risk exposure. However.

Xinyan Liu: Today, you will hear from our chairman and CEO, Mr. Y.S. Chou, who will provide an update of the recent developments and strategies of our business. Our CFO, Mr. Peiqing Zhu, will then provide more details on our financial performance in the business operations.

Speaker Change: It is worth noting that due to a decrease in loan balances.

Operating expenses have increased which has become a key drag on unit profitability.

Y.S. Chou: Let me now provide something that is updates on our newly acquired PAO-PAO Bank. By leveraging strategic synergies with Lufix following the acquisition, PAO Bank delivered solid growth in the first half of 2024. Its total loan balance stood at 2.4 billion by the end of the second quarter, representing a 45% year-over-year increase. Going forward, PAO Bank is planning to roll out new initiatives, including insurance, waste management products, to better serve SME and retail customers. To reinforce the strong license variety we have discussed in the past, we recently acquired a nationwide small lending license. We believe this new license will help further reduce our funding cost, diversify our products, and improve our capital management efficiency.

Xinyan Liu: Cho, who will provide an update of the recent developments and the strategies of our business.

Yada Lee: Firstly, I was wondering, in what areas do we see more collaboration potential in the future, with the Ping An Group?

Speaker Change: Let me now provide some business updates on our newly.

Speaker Change: P E P.

A full bank.

By leveraging strategic synergies with <unk> following the acquisition.

Y.S. Chou: With that, I'm now pleased to turn over the call to Mr. Y.S. Chou, Chairman, and the CEO of Liu Vax. Please.

Speaker Change: <unk> delivered solid growth in the first half of 2024 is torturing loan balance stood at $2 4 billion by the end of second quarter.

Xinyan Liu: Thank you very much.

Y.S. Chou: Thank you for joining us today for our second quarter 2024 Earnings Conference. In the second quarter, the macroeconomic environment remained complex for small business owners. Despite this, we saw continued improvements in asset quality across both our food and consumer finance businesses, as you continue to implement our prudent business strategies. We believe this will provide a solid foundation for our future growth.

Xinyan Liu: Hello, everyone, and welcome to our second quarter 2024 Earnings Conference call.

Speaker Change: Representing a 45% year over year increase.

Speaker Change: Going forward.

Speaker Change: <unk> Bank is planning to roll out new initiatives.

Speaker Change: Including issuance waste management products to better serve SME and retail customers.

Speaker Change: Yes.

To reinforce the strong licensed severity, we have discussed in the past.

Speaker Change: We recently held but a nationwide small lending license.

Y.S. Chou: Let me provide some updates on macroeconomic situation before we discuss the business details. The SM Development Index, 20-down by 0.3 points, quarter-over-quarter to 8-9 in June. Meanwhile, the business conditions index published by the Chungkong Graduate School of Business declined from 50.1 in March to a 49.3 in June, falling below the 50 threshold and reaching its lowest level for the first half of 2024. These indicators underscore the persistent challenges faced by the small business sector.

Speaker Change: We believe this new license with has further reduced our funding costs diversify all products and improve our capital management efficiency.

Yada Lee: And secondly, I'd like to ask, do we have any plans to further increase the shareholder returns?

Y.S. Chou: Now turning to the prowess of our special dividends, I am pleased to announce that we completed the distribution of special dividends at the end of July as scheduled after receiving the script dividend. Pingang Group's ownership increased to 56.8%, and Pingang Group now consolidates our financial results. Lufax will remain on independent entity listed on New York's type exchange in Hong Kong. Meanwhile, we seek to enhance synergies with Pingang Group, primarily in the following three key areas. First is branding; Pingang Group is a Fortune 500 company and a leading global financial institution. It's strong global reputation and financial standing will serve as a powerful endorsement for Lufax, deepening trust among our customers and funding partners.

Speaker Change: Now turning to the progress of our special dividend I am pleased to announce that we've completed the distributional special dividend at the end of July if scheduled.

Yada Lee: Looking at the cash at hand and the future loan size, what could be the potential amount available to distribute to the investors?

Speaker Change: After receiving the scrip dividend.

Speaker Change: <unk> group's ownership.

Speaker Change: Increased to 56, 8%.

Speaker Change: <unk> group now consolidates our financial results.

Speaker Change: <unk> remain an independent entity listed on New York Stock Exchange in Hong Kong.

Speaker Change: Meanwhile, we seek to enhance synergies with PR group.

Xinyan Liu: Our financial and operating results were released by our NewsWire services earlier today in a currently available online.

Speaker Change: Primarily in the following three key areas.

Y.S. Chou: Today, you will hear from our chairman and CEO, Mr. Y.S.

Yada Lee: Third, I noticed that the funding cost decreased slightly in the second quarter, and I was wondering what's the outlook for the future funding cost?

Randy: First it's Randy.

Y.S. Chou: Chou, who will provide an update of the recent developments and strategies of our business.

Randy: <unk> is a fortune 500 company.

Randy: And a leading global financial institution.

Randy: Strong global reputation and financial standing we saw so as a powerful endorsement of the full effects.

Peiqing Zhu: Our CFO, Mr. Peiqing Zhu, will then provide more details on our financial performance in the business operations.

Randy: The print crushed almost all customers at funding partners.

Y.S. Chou: This enhanced brand association will improve our domestic and international standing, and it can potentially help lower funding costs. Second is technology. We will leverage Pingang Group's extensive technological resources, including its advanced AI systems, to further strengthen our risk management and forward prevention measures. Our goal is to provide small means of owners and consumers with efficient, secure, and cost-effective financial services. So these channel resources, while adhering strictly to applicable laws and regulations, we aim to expand our reach by tapping into Pingang Group's extensive nationwide network of online and offline channels. This expansion will complement our efforts to strengthen our direct sales force.

Randy: Yeah.

Randy: This enhanced brand association would improve our domestic and international standing.

Speaker Change: Can potentially have lower funding costs.

Speaker Change: Second is technology.

Speaker Change: We will leverage peanuts group's extensive technological resources, including east otherwise AI systems to further strengthen our risk management and fraud prevention measures.

Y.S. Chou: With that, I'm now pleased to turn over the call to Mr. Y.S.

Y.S. Chou: Meanwhile, our consumer finance business continues to grow and deliver a solid performance during the quarter. The consumer finance loans saw a 23.6% year-over-year increase in new-run sales, representing 49% of our new-run sales, as a result of our continuous efforts to roll out smaller tests and revolving product structures. Furthermore, we are pleased to object a notable improvement in asset quality as we adopt most stringent credit standards, with focus on higher quality customer segments and resilient geographies, also the buy our enhanced risk assessment system.

Speaker Change: Our goal is to provide small business owners and clinched most with efficient secure and cost effective financial services.

Y.S. Chou: Chou, Chairman, and the CEO of Liu Vax.

Speaker Change: So this channel resources why.

Speaker Change: Why are the hearing quickly to applicable laws and regulations, we aim to expand our reach by tipping into pound group's extensive nationwide network of online and offline channels.

Y.S. Chou: Please.

Speaker Change: This expansion will complement our efforts to strengthen our direct sales force.

Y.S. Chou: In summary, our expanded relationship with Pingang Group will help us better serve our XB of customers, using their difficulty and expense of financing. With our strength and capabilities, we strive to be a benchmark company with a unique law in supporting the growth of China's vital, small, and micro-enterprise economy.

Speaker Change: In summary, our expanded relationship with <unk>.

Speaker Change: With help us better serve our customers.

Using their digital and experiential financing.

Y.S. Chou: Thank you for joining us today for our second quarter 2024 Earnings Conference.

Y.S. Chou: For pre-loans, the state-to-M3 flow rate improved to 0.9% from a 1.0% in the previous quarter, mainly driven by the improvements of state-to-M3 ratio of unsecured loans. Our consumer finance loans also saw asset quality improvements with NPL ratio decreasing to 1.4% from 1.6% in the first quarter.

Speaker Change: With our strength and capabilities, we strive to be a benchmark company.

Speaker Change: A unique role in supporting the growth of China's biker small and micro enterprise economy.

Y.S. Chou: While the macro-environment remains complex, we are encouraged by the improvements in asset quality and the progress of our strategic initiatives. We remain committed to our deliberate strategic approach as we continue to navigate the economy landscape and have set our sights on achieving sustainable quality growth.

Speaker Change: While the macro environment remains complex, we are encouraged by the improvement in asset quality and the products of our strategic initiatives.

Speaker Change: We remain committed to our deliberate strategic approach as it continued to navigate the economy landscape.

Y.S. Chou: Next, let's take a look at our loan loans under the 1.0% young model, as discussed previously. Since the fourth quarter of 2023, all new pre-loans have been enabled under the 1.0% young model, as our pre-loan balance increasingly represents loans enabled under this model, our balance take rate has 20 upwards, which is 9.3% during the second quarter. As an announcement from our high CGI premiums has been eliminated, thanks to this improved asset quality, our credit costs have remained stable despite increased risk exposure. However, it is worth noting that due to decreasing loan balances, our unit upgrade expenses have increased, which has become a cheat drag on our unit profitability.

Speaker Change: And headset.

Speaker Change: Right on what achieving sustainable quality growth.

Xinyan Liu: Our CFO, Mr. Peiqing Zhu, will then provide more details on our financial performance in the, business operations.

Peiqing Zhu: I will now turn the quote over to Beijing. We provide more details on our financial performance and business operations.

Speaker Change: I will now turn the call to <unk> to.

Speaker Change: <unk> <unk>.

Speaker Change: We provide more detail when I'll financial performance and business operations.

Xinyan Liu: Before we continue, I would like to refer you to our safe harbor statement in our earliest press release, which also applies to this call, as we will be making forward-looking statements.

Yada Lee: And at last, I want to ask, why the OPEX to income ratio hike in the second quarter?

Peiqing Zhu: Thank you, Vice. I will now provide a close look into our future results. Please note that all numbers are R&B terms. And all comparisons are on your year basis unless advised data. and the Q2220-24. Our total income is decreased by 35.5% to 6 billion from 9.3 billion in the Q22-23. Mainly due to a decrease of outstanding loan violence by 44.8 from 4.6.4 billion as of June 30, 2023, to 2.35.2 billion as of June 30, 2024. Partially offset by our interest increase, the take rate as loans enabled and 100% guarantee model constitute a higher proportion of our total loan book.

Wise: Thank you wise.

Speaker Change: I will now provide closer look into our Q2 results.

Xinyan Liu: With that, I'm now pleased to turn over the call to Mr. Y. S. Cho, chairman and the CEO of Lufax.

Yada Lee: Do we see any room to further improve this ratio?

Wise: Please note that all numbers are RMB terms.

Wise: And all comparisons.

Wise: Year on year basis, unless otherwise stated.

Y. S. Cho: Please.

Yada Lee: That's all.

Wise: In Q2, 'twenty 'twenty four.

Wise: Our total income decreased by 35, 5% to $6 billion from $9 3 billion in Q2 2023.

Yada Lee: Thank you so much.

Wise: Mainly due to a decrease.

Wise: Outstanding loan balance by $44 eight.

From full $76 4 billion as of June 32023 to $35 2 billion as of June 32024.

Y. S. Cho: Okay, let me answer your question 1, 2, 3.

Y.S. Chou: Let me now provide something that is updates on our newly acquired PAO-PAO bank. By leveraging strategic synergies with Lufix following the acquisition, PAO bank delivered solid growth in the first half of 2024, its total loan balance stood at 2.4 billion by the end of second quarter, representing a 45% year-over-year increase. Going forward, PAO bank is planning to roll out new initiatives, including insurance, waste management products, to better serve SME and retail customers.

Wise: Partially offset by our interest increase the take rate.

Wise: Loans enabled under 100% guarantee model contribute a higher proportion of our total loan book.

Peiqing Zhu: Meanwhile, our total expenses decreased by 20.3 from 8 billion to 6.3 billion, among which the total operating expenses declined by 29.7% from 5 billion to 3.5 billion, and credit in paramilances decreased by 14.6% from 3 billion to 2.6 billion. The gap between the decrease of dividends and operating expenses was mainly caused by the decreased economy of scale, which resulted in increased fixed expenses to income ratio. The decrease of credit in paramilances was mainly due to the decrease of actual losses of loans and the result of improvement of credit performance. Partially offset by the up-round provision from loans and 100% guarantee model.

Wise: Meanwhile, our total expenses decreased by 23% from $8 billion to $6 3 billion.

Speaker Change: <unk>, which the total operating expenses declined by 29, 7% from 5 billion to $3 5 billion.

Y. S. Cho: Thank you for joining us today for our second quarter 2024 earnings call. In the second quarter, the macroeconomic environment remained complex for small business owners. Despite this, we saw continued improvements in asset quality across both our portfolio and consumer finance businesses as we continued to implement our prudent business strategies.

Speaker Change: And the credit impairment losses decreased by 14, 6% from 3 billion to $2 6 billion.

Y.S. Chou: To reinforce the strong license variety we have discussed in the past, we recently acquired a nationwide small lending license. We believe this new license will help further reduce our funding cost, diversify our products, and improve our capital management efficiency.

Speaker Change: The gap between the decrease in revenues and operating expenses was mainly caused by the decrease economy of scale, which resulted in increased fixed expenses to income ratio.

Speaker Change: The decrease of credit impairment losses was mainly due to the decrease of in actual losses on loans.

Speaker Change: It's out of improvement of credit performance.

Speaker Change: Partially offset by upfront provision from loans and 100% guarantee model.

Peiqing Zhu: As a result, we recorded that net loss of 3.30 billion for the second quarter. Turning to our unit economy for the pool revenues, our APR by balance decreased from 20.3% in the Q2 2023 to 19.6% in the Q2 of 2024. Primarily due to the change of customer mix as we continue to prioritize high quality customers, despite the decrease in APR. Our take-or-rate by balance increased to 9.3% from 7% in Q2 2023 due to our successful transition to the 100% guarantee model. We expect that take-or-rate will further increase as the percentage of loans enabled and the 100% guarantee model continues to increase.

Speaker Change: As a result, we recorded a net loss of 330 $730 million for the second quarter.

Speaker Change: Turning to our unique economy.

Y. S. Cho: Thank you, Yada.

Speaker Change: For the <unk> business, our APR by balance decreased from 23% in the Q2 2020, 329 19, 6%.

Y.S. Chou: Meanwhile, we seek to enhance synergies with Pingang Group, primarily in the following three key areas. First is branding, Pingang Group is a Fortune 500 company, and a leading global financial institution. It's strong global reputation and financial standing will serve as a powerful endorsement for Lufax, deepening trust among our customers and funding partners. This enhanced brand association will improve our domestic and international standing, and it can potentially help lower funding costs.

Speaker Change: In Q2 of 2024.

Speaker Change: Primarily due to the change of customer mix as we continue to prioritize high quality customers.

Speaker Change: Despite the decrease in API.

Speaker Change: I'll take a right to buy balance increased to nine 3% from 7% in Q2 2023 due to our successful transition to the 100% guarantee model.

Speaker Change: We expect the take rate will further increase.

Y.S. Chou: Second is technology. We will leverage Pingang Group's extensive technological resources, including its advanced AI systems to further strengthen our risk management and forward prevention measures. Our goal is to provide small means of owners and consumers with efficient, secure, and cost-effective financial services. So these channel resources, while adhering strictly to applicable laws and regulations, we aim to expand our reach by tapping into Pingang Group's extensive nationwide network of online and offline channels. This expansion will complement our efforts to strengthen our direct sales force. In summary, our expanded relationship with Pingang Group will help us better serve our XB of customers, using their difficulty and expense of financing.

Speaker Change: As the percentage of loans enabled under 100% guarantee model continues to increase.

Peiqing Zhu: In addition, our funding cost also decreased slightly, thanks to the available monetary policy and the support of our funding partners. On the other hand, while sales and marketing expenses remain stable, credit cost and other operating expenses frapped on our net margin. This was primarily due to the construction of our loan balance. Furthermore, while the actual loss is decreased as a result of improvement in asset quality. We will record in more upfront provision for loans, enables under 100% guarantee model. As discussed before, while we anticipate this part of the loans will be lifetime profitable, it's important to note that these loans may incur accounting losses in their first calendar year due to higher upfront provisions.

Speaker Change: In addition, our funding cost also decreased slightly.

Speaker Change: Two the favorable monetary policy and to support our funding partners.

Speaker Change: On the other hand, while sales and marketing expenses to remain stable.

Speaker Change: <unk> costs and other operating expenses flat on a net margin.

Speaker Change: This was primarily due to the construction of our loan balance.

Speaker Change: The more wild actual losses decreased as a result of improvement in asset quality, we recorded more upfront provision for loans enabled under 100% guarantee model.

Speaker Change: As discussed before while we enter this part of the loans will be lifetime profitable.

Imports are important to note that these loans may incur accounting losses in their first calendar year due to high higher upfront provisions.

Y.S. Chou: With our strength and capabilities, we strive to be a benchmark company with a unique law in supporting the growth of China's vital, small, and micro-enterprise economy. While the macro-environment remains complex, we are encouraged by the improvements in asset quality and the progress of our strategic initiatives. We remain committed to our deliberate strategic approach as we continue to navigate the economy landscape and have set our sights on achieving sustainable quality growth.

Peiqing Zhu: This accounting treatment affects our short-term probability, but is expected to lead to improve long-term financial performance as a long-professional portfolio materials.

This accounting treatment effects, our short term profitability, but this is expected to lead to improved long term financial performance as the loan provision puppy portfolio matures.

Y.S. Chou: In the second quarter, the macroeconomic environment remained complex for small business owners.

Y.S. Chou: Despite this, we saw continued improvements in asset quality across both our food and consumer finance businesses, as you continue to implement our prudent business strategies.

Peiqing Zhu: Now, let me highlight a fee of T-P&L items during this quarter. Our technology platform-based income was $2 billion. Representing a decrease of 51%, mainly due to the decrease in retail credit-based services fees, as a result of 44.8% decreasing our spending loan balance. In addition, it was also negatively affected by the close of the Lu Jingtong business in April 2024. Our net interest income was $2.7 billion, a decrease of 90.3% from the same period last year. The relatively lower decrease in net interest income was the result of an increase in consumer finance revenue. Meanwhile, our guarantee income was $8.50 million, a decrease of 26%.

Speaker Change: Now let.

Speaker Change: Let me highlight a few of tea.

Speaker Change: P&L items.

Speaker Change: During this quarter.

Speaker Change: Our technology platform based income was $2 billion representing.

Speaker Change: Representing a decrease of 51% mainly due to the decrease in retail credit card services fees as a result of 44, 8% decrease in outstanding loan balance.

Peiqing Zhu: I will now turn the quote over to Beijing. We provide more details on our financial performance and business operations. Thank you, Vice.

Y.S. Chou: We believe this will provide a solid foundation for our future growth.

Peiqing Zhu: I will now provide close look into our future results. Please note that all numbers are R&B terms. And all comparisons are on your year basis unless advised data, and the Q2220-24. Our total income is decreased by 35.5% to 6 billion from 9.3 billion in the Q22-23. Mainly due to a decrease of outstanding loan violence by 44.8 from 4.6.4 billion as of June 30, 2023 to 2.35.2 billion as of June 30, 2024.

Speaker Change: In addition, it was also negatively affected by the close of the <unk> business in April 2024.

Y.S. Chou: Let me provide some updates on macroeconomic situation before we discuss the business details.

Speaker Change: Our net interest income was $2 7 billion a decrease of 93% from the same period last year.

Y.S. Chou: The SM Development Index, 20-down by 0.3 points, quarter-over-quarter to 8-9 in June. Meanwhile, the business conditions index published by the Chungkong Graduate School of Business declined from 50.1 in March to a 49.3 in June, falling below the 50 threshold and reaching its lowest level for the first half of 2024. These indicators underscore the persistent challenges faced by the small business sector.

Y.S. Chou: Now let me provide some updates on our operating results.

Speaker Change: The relatively lower decrease in net interest income was the result of an increase in consumer finance revenue.

Y.S. Chou: First, let's take a look at our loan volume. Our total loan sales in the second quarter of 2024 were 45.2 billion, representing 15.5% year-over-year decline. The decline was mainly caused by a 35% year-over-year decrease of poor loans, which complied 51% of total loan sales in the second quarter.

Speaker Change: Meanwhile, our guarantee income was $850 million.

Speaker Change: Decreased 26%.

Peiqing Zhu: In terms of revenue mix, technology platform-based income accounted for 33.4% of total revenue, down from 44% in the same period last year. That interest income and a guarantee income of 45.4% and 14.2%, respectively, of total revenue in Q2. As compared to 36.3% and a 12.4% in the same period last year. In terms of expenses, our credit-emparamiluses decreased by 14.6 to 2.6 billion. Our total marketing expenses, which includes expenses of borrow acquisition cost as well as general sales and marketing expenses, decreased by 46% year-on-year basis to 1.4 billion in the Q2. That decrease was mainly due to reduced loan-related expenses resulting from decreased in a new loan sales and outstanding loan balances, as well as the elimination of the expenses associated with our losing-tone business.

Speaker Change: In terms of revenue mix technology platform based income accounted for 33, 4% above total revenue down from 44% in the same period of last year.

Peiqing Zhu: Partially offset by our interest increase the take rate as loans enabled and 100% guarantee model constitute a higher proportion of our total loan book. Meanwhile, our total expenses decreased by 20.3 from 8 billion to 6.3 billion among which the total operating expenses declined by 29.7% from 5 billion to 3.5 billion and credit in paramilances decreased by 14.6% from 3 billion to 2.6 billion. The gap between the decrease of dividends and operating expenses was mainly caused by the decreased economy of scale which resulted in increased fixed expenses to income ratio. The decrease of credit in paramilances was mainly due to the decrease of actual losses of loans and the result of improvement of credit performance. Partially offset by the up-round provision from loans and 100% guarantee model.

Speaker Change: Net interest income and guarantee income accounted for 45, 4% and 14, 2% respectively of total revenue in Q2.

Speaker Change: As compared to 36, 3% and the 12, 4% in the same period of last year.

Speaker Change: In terms of expenses.

Speaker Change: Our credit impairment losses decreased by $14 six to $2 6 billion.

Speaker Change: Our total marketing expenses, which includes expenses borrower acquisition costs as well as general sales and marketing expenses decreased by 46%.

Speaker Change: Year on year basis to $1 4 billion in Q2.

Speaker Change: The decrease was mainly due to reduced loan related expenses, resulting from decrease in a new loan sales and outstanding loan balances as well as the elimination of expenses associated with our lodging convenience.

Peiqing Zhu: Operation and service expenses decreased by 15.8% year-on-year to 1.3 billion in Q2. As a result of decreased loan balance and our continued effort to control expenses. Partially offset by increased commissions associated with the collection performance. Off-finance cost a decrease by 90.2% to 13 million in the Q2 from 136 million in the same period of the 2023. Mailing due to the decrease of interest expenses after the repayment of the sea round convertible, promissory notes, and other deaths. Partially offset by the decrease of interest income from bank deposits. In terms of capital as the end of June 2024, our main operating entities remain well-capitalized.

Speaker Change: Our operation and service expenses decreased by 15, 8% year on year to $1 3 billion in Q2.

Peiqing Zhu: As a result, we recorded that net loss of 3.30 billion for the second quarter. Turning to our unit economy for the pool revenues, our APR by balance decreased from 20.3% in the Q2 2023 to 19.6% in the Q2 of 2024. Primarily due to the change of customer mix as we continue to prioritize high quality customers despite the decrease in APR. Our take-or-rate by balance increased to 9.3% from 7% in Q2 2023 due to our successful transition to the 100% guarantee model.

Speaker Change: As a result of decreased loan balance and our continued efforts to control expenses.

Speaker Change: Partially offset by increased commissions associated ways, though with improved collection performance.

Speaker Change: Our finance costs decreased by 92% to $13 million in Q2 from $136 million in the same period of 2023, mainly.

Y.S. Chou: Reflecting our continued emphasis on quality over quantity and sluggish demand for pre-loans among high quality SUVers.

Speaker Change: Mainly due to decrease interest expenses after the repayment of a C round convertible promissory notes and other debt, partially offset by the decrease of interest income from bank deposits.

Speaker Change: In terms of capital.

Speaker Change: At the end of June 2024, our main operating entities to remain a well capitalized.

Peiqing Zhu: We expect that take-or-rate will further increase as the percentage of loans enabled and the 100% guarantee model continues to increase. In addition, our funding cost also decreased slightly thanks to the available monetary policy and the support of our funding partners. On the other hand, while sales and marketing expenses remain stable, credit cost and other operating expenses frapped on our net margin. This was primarily due to the construction of our loan balance.

Peiqing Zhu: Our guarantees of salaries leverage ratios due to the 2.4, and our consumer finance subsidiaries' capital adequacy ratio stood at 40.7%. Well above the 10.5% minimum regulatory requirement. As we deal with the complexity of the broader economic environment and our strategic shift to the 100% guarantee model, we are seeing encouraging signs in terms of the ethicality and the engross of our consumer finance business.

Speaker Change: Our guaranty subsidiaries leverage ratio stood at $2 four apps and our consumer finance subsidiaries capital adequacy ratio stood at 14, 7%.

Speaker Change: Well above the 10, 5% minimum regulatory requirement.

As we deal with the complexity of the broader economy environment, and our strategy strategic shipped to the 100% guarantee model.

Speaker Change: We are seeing encouraging signs in terms of the asset quality and growth of our consumer finance business.

Peiqing Zhu: Furthermore, while the actual loss is decreased as a result of improvement in asset quality. We will record in more upfront provision for loans, enables under 100% guarantee model. As discussed before, while we anticipate this part of the loans will be lifetime profitable, it's important to note that these loans may incur accounting losses in their first calendar year due to high higher upfront provisions. This accounting treatment affects our short-term probability, but is expected to lead to improve long-term financial performance as a long-professional portfolio materials.

Y. S. Cho: We believe this will provide a solid foundation for our future growth.

Peiqing Zhu: We will remain committed to our prudent strategy as we seek to build a solid foundation for long-term sustainable future success. I will uphold our commitment to bringing value to our investors.

Speaker Change: We will remain committed to our prudent strategy as we seek to build a solid foundation for long term sustainable future success I will uphold our commitment.

Speaker Change: I meant to bring value to our investors.

Peiqing Zhu: That concludes our prepared remarks for today.

Speaker Change: That concludes our prepared remarks for today, operator, we are ready to take questions.

Y. S. Cho: Let me provide some updates on macro situation before we discuss the business details.

Operator: Operator, we are ready to take questions. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. In addition, I would like to remind you to please mute yourself after stating your question. Thank you.

Y. S. Cho: The SME development index trended down by 0.3 points quarter over quarter to 89 in June.

Speaker Change: We will now begin the question and answer session.

Y. S. Cho: Meanwhile, the business conditions index published by the Chungkang Graduate School of Business, declined from 50.1 in March to 49.3 in June, falling below the 50 threshold and reaching its lowest level for the first half of 2024.

Y. S. Cho: These indicators underscore the persistent challenges faced by the small business sector.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Y. S. Cho: Now let me provide some updates on our operating results.

Y. S. Cho: First, let's take a look at our loan volume.

Speaker Change: If you were using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: In addition, I'd like to remind you to please mute yourself after stating your question. Thank you.

Emma Zhu: The first question comes from Emma Zhu with Bank of America Securities. Please go ahead. Thank you for the opportunity for the first question.

Speaker Change: The first question comes from Emma Xu with Banc of America Securities. Please go ahead.

Emma Xu: Thank you for the opportunity for that first question actually I have two questions. So the first question is about the long demand so oh.

Emma Zhu: Actually, I have two questions. So the first question is about the long demand. How is the overall long demand currently? So we see that in second quarter you granted a R&B 45.2 billion new loans and accumulated amount of the new loans issued in the first half registered R&B 93.3 billion, according for around 42 to 49 percent of your four-year guidance at the beginning of the year.

Speaker Change: All loan demand currently shall we see that in second quarter, you granted RMB 45 point youll be Dan you're wrong and accumulated of miles off the new loans issued in the first half, which is RMB 93 points.

Peiqing Zhu: The relatively lower decrease in net interest income was the result of an increase in consumer finance revenue. Meanwhile, our guarantee income was $8.50 million, a decrease of 26%. In terms of revenue mix, technology platform-based income accounted for 33.4% above total revenue, down from 44% in the same period last year. That interest income and a guarantee income of 45.4% and 14.2% respectively of total revenue in Q2. As compared to 36.3% and a 12.4% in the same period last year.

Speaker Change: Oh called me for around 42 to 14 at the San Raphael for your guidance at the beginning of the year. So do you think you are still on track to meet you all for your target and will weigh all we see that turning point after a long girl's recovery and the second question is that yeah. Congratulations on that.

Emma Zhu: So do you think you are still on track to meet your four-year target, and when will we see the turning point of the long growth recovery?

Emma Zhu: And the second question is that you can. Congratulations on the continued improving as a quality. So your M3 flow rate has declined two quarters in a row and down to 0.9 percent in the second quarter. So do you think you can continue to see the improvement in the flow rate, and how will management try to sustain this good trends? Thank you.

Speaker Change: Improving asset quality, so youre absolutely for all rate has declined two quarters in a row and are about to be up all night for sandy in the second quarter. So do you think you can continue to.

Speaker Change: You'll see the improvement in that flow rate and how we'll manage and then tried to stretch pants difficult trends. Thank you.

Speaker Change: Okay.

Y.S. Chou: Thank you, Emma, for your question. The first question, loan demand. Yes, loan demand in over is still weak.

Speaker Change: Thank you very much for your question.

The first question our loan demand, yes loan demand, although it is too weak.

Peiqing Zhu: In terms of expenses, our credit-emparamiluses decreased by 14.6 to 2.6 billion. Our total marketing expenses, which includes expenses of borrow acquisition cost as well as general sales and marketing expenses, decreased by 46% year-on-year basis to 1.4 billion in the Q2. That decrease was mainly due to reduced loan-related expenses resulting from decreased in a new loan sales and outstanding loan balances, as well as the elimination of the expenses associated with our losing-tone business.

Y.S. Chou: For loan growth recovery, it largely depends on macro-environment improvement. So why do we keep our food and storage on SVL lending? We see that from our CF business, the consumption loan demand is actually more unstable. So we focus more on consumer finance and relatively large case size consumption loan to cope with declining SVL loan demand in the near term, especially in the regions where our loan volume construction is more significant.

For loan growth recovery largely depends on macro environment implement so why do we keep our prudent advantage on SBA lending.

Speaker Change: We see that from our CF business the consumption of on demand is actually more stable. So we focus more on.

Speaker Change: Principal finance and let's really large case size consumption alone.

Speaker Change: To cope with declining SBA loan demand in near term, especially in the regions, where our loan volume contraction is more significant.

Y.S. Chou: And for your second question, we all know that it is not easy to improve CFL loan rate while loan balance keeps declining. But with continuous portfolio mixing improvement, what I mean is now we see more and more accounts from 2023 and 2024 vintage take a bigger part over the whole portfolio, which is better quality accounts. So we believe our asset quality measured by C2MC flow rate will continue its improvements. And also, we put tremendous efforts in our risk model, on-drive model, and also collection model, upgrade, and then a sales quality management process. So all in all, we are confident that the about sustainability of our asset quality going forward.

Speaker Change: And for your second question as we all know that it is not easy to improve seed to MCT flow rates light loan balance keeps declining but with continuous portfolio mixing per month, what I mean is.

Peiqing Zhu: Operation and service expenses decreased by 15.8% year-on-year to 1.3 billion in Q2. As a result of decreased loan balance and our continued effort to control expenses. Partially offset by increased commissions associated with the collection performance. Off-finance cost a decrease by 90.2% to 13 million in the Q2 from 136 million in the same period of the 2023. Mailing due to the decrease of interest expenses after the repayment of the sea round convertible, promissory notes and other deaths. Partially offset by the decrease of interest income from bank deposits.

Speaker Change: Now, we see them more and more accounts from 'twenty to 'twenty, three and 'twenty to 'twenty four vintage takes.

Speaker Change: Part of the core portfolio.

Speaker Change: Is that sequential count so we believe.

Speaker Change: Our asset quality measured by <unk>.

Speaker Change: Continuous improvements and also we.

Speaker Change: Put tremendous air force in our risk.

Speaker Change: Modern underwriting model in order to create a modern upgrade and then a safe quality management process. So all in all we are confident of that.

Speaker Change: Yeah about sustainability of our asset quality going forward.

Y.S. Chou: Thank you.

Peiqing Zhu: In terms of capital as the end of June 2024, our main operating entities remain well-capitalized. Our guarantees of salaries leverage ratios due to the 2.4 and our consumer finance subsidiaries capital adequacy ratio stood at 40.7%. Well above the 10.5% minimum regulatory requirement. As we deal with the complexity of broader economic environment and our strategic shift to the 100% guarantee model, we are seeing encouraging signs in terms of the ethicality and the engross of our consumer finance business.

Speaker Change: Thank you.

Yada Lee: The next question comes from Yada Lee with CICC. Please go ahead. Hello, Management. Thank you for taking my questions. How far have questions today?

Speaker Change: The next question comes from Yada Lee with CIC.

Please go ahead.

Yada Lee: Hello management, Thank you for taking my questions.

Yada Lee: Four questions.

Yada Lee: First, I was wondering in what areas do we see more collaboration potential in the future with the Pingan Group. And secondly, I'd like to ask that do we have any plans to further increase the shareholder returns? Looking at the cash at hand and the future loan size, what could be the potential amount available to distribute to the investors?

Yada Lee: Firstly I was wondering what areas do we see more collaboration potentials in the future with Ping an group.

Yada Lee: Secondly, our electronics with do we have any plans to further increase in shareholder returns looking out of the cash on hand, and future loan size will be good returns who amount available to distribute to the investors.

Yada Lee: Third, I notice that the funding cost that decreased slightly in the second quarter, and I was wondering what's the outlook for the future funding cost. And at last, I want to ask why the opax to income ratio hike in the second quarter do we see a room to further improve this ratio? That's all. Thank you so much.

Speaker Change: Third I don't know if its not funding costs to decrease slightly in the second quarter and I was wondering whats the outlook for the future funding cost.

Speaker Change: And I will now ask I wanted to ask why the impact to income ratio hike in the second quarter.

Peiqing Zhu: That concludes our prepared remarks for today.

Speaker Change: Is there any room to further improve this region. That's all thank you so much.

Operator: Operator, we are ready to take questions. We will now begin the question and answer session. To ask a question you may press star than one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two. In addition, I would like to remind you to please mute yourself after stating your question. Thank you.

Y. S. Cho: After special dividends, Ping An Group's, ownership increased much, much close to 57%, so 56.8%. We've been working closely with Ping An Group from the very beginning in a few key areas, like customer sourcing, using their online and, offline channels, and technology development, and then brand sharing.

Y.S. Chou: Okay, let me answer your question one, two, three. Thank you, Yada.

Speaker Change: Okay, Let me answer your.

Speaker Change: Question on 123.

Cotter: Thanks Cotter.

Y.S. Chou: The after, let me see my notes. So after special dividends, Pingan Group's ownership increased much, much closer to 57%, so 56.8%. And that we've been working closely with Pingan Group from the very beginning in our future areas, like customer sourcing, using their online offline channels and technology development and the brand sharing. But with increased Pingan Group ownership now, we expect you to fall help us to reduce funding cost, the lighting on their good reputation, financial standing.

Speaker Change: The epitope.

Speaker Change: Let me see my notes.

Speaker Change: So after special dividend PRA group's ownership increased much much close to <unk>.

Speaker Change: 57%, so 56, 8%.

Speaker Change: Now that we've been working closely with Ping an group from the very beginning.

Speaker Change: In future areas like.

Speaker Change: Customer sourcing.

Emma Zhu: The first question comes from Emma Zhu with Bank of America Securities. Please go ahead. Thank you for the opportunity for the first question.

Speaker Change: Using their own loyal friend, Tenors, and technology development and the brand sharing.

Speaker Change: But with increased penumbra almost now.

Y. S. Cho: But with increased Ping An Group ownership now, we expect it will further help us to reduce funding costs, relying on their, good reputation and financial standing.

Speaker Change: We expect either help us to reduce.

Speaker Change: <unk> cost.

Y.S. Chou: And the second question is that you can, congratulations on the continued improving as a quality. So your M3 flow rate has declined two quarters in a row and down to 0.9 percent in the second quarter. So do you think you can continue to see the improvement in the flow rate and how will management try to sustain this good trends? Thank you. Thank you, Emma, for your question. The first question, loan demand.

Speaker Change: Do you like do you want your reputation a fine extending so.

Y. S. Cho: Actually, your third question is about funding costs. We believe funding costs are decreasing or optimizing. We believe this trend will continue. Also, with the acquisition of the nationwide small loan lending license, that comes with, better or lower funding costs going forward. So we are confident about the funding costs for the improvement.

Y.S. Chou: So actually, your third question is about funding cost. We is technically decreasing or optimizing. We believe this trend will continue. And also with the acquisition of that nationwide, small, long-lending license, Pingan Group, that lengthen license, that comes with better or lower funding cost going forward. So we are confident about the funding cost for the improvement.

Speaker Change: Third question is about funding cost we believe funding cost.

Speaker Change: Yes.

Ali: Ali <unk>.

Speaker Change: Decreasing.

Speaker Change: Optimizing we believe this trend will continue and also with.

Speaker Change: <unk>.

Speaker Change: Nationwide, our small loan lending licenses of <unk>.

Speaker Change: Yes.

Speaker Change: <unk> that comes with.

That's a very low funding costs going forward. So we are confident about the funding cost for the two months.

Y. S. Cho: Although the Board of Directors has determined that no semi-annual dividend will be paid, at this time because we made a net loss recorded for the first half of 2024, but management is dedicated to returning value to shareholders.

Y.S. Chou: and then the, about the second question, the order, the order of directors has determined that no semi-annual dividend will be paid at this time, because we made a net loss recorded for the first half of 2024, but management is dedicated to returning value to shareholders. We will always seek out potential ways to increase shareholder returns, as demonstrated in this special dividend this time. Our annual dividend policy, which is 20-40% of net profit, and we pay semi-annually, that policy does not change, remain unchanged.

Speaker Change: And then the.

Speaker Change: About your second question.

Y.S. Chou: For pre-loans, the state-to-M3 flow rate improved to 0.9% from a 1.0% in the previous quarter, mainly driven by the improvements of state-to-M3 ratio of unsecured loans.

Speaker Change: Although the board of directors has determined that no semiannual dividend will be paid at this time.

Speaker Change: Because we made a net loss recorded for the first half will play painful, but medical need dedicated to returning value to shareholders.

Speaker Change: We are always seek out potential ways to increase shareholder returns.

Y. S. Cho: We will always seek out potential ways to increase shareholder returns as demonstrated in this special dividend this time.

Speaker Change: As demonstrated in this.

Speaker Change: Special dividend.

Speaker Change: At this time.

Y.S. Chou: Yes, loan demand in over is still weak. For loan growth recovery, it largely depends on macro-environment improvement. So why we keep our food and storage on SVL lending? We see that from our CF business, the consumption loan demand is actually more unstable. So we focus more on consumer finance and relatively large case size consumption loan to cope with declining SVL loan demand in near term, especially in the regions where our loan volume construction is more significant.

Speaker Change: And our annual dividend policy, which is 20% to 40% of net profit and that we pay semi annually that policy does not change remain unchanged.

Y. S. Cho: And our annual dividend policy, which is 20 to 40 percent of net profit, and we pay semi-annually, that policy does not change, remain unchanged.

Y. S. Cho: Okay, about the funding cost, I would like to share some of my view.

Speaker Change: Okay.

Y.S. Chou: Okay, about the funding cost, I will like to share some of my views. You know, for our public loan, we expect that just because the LPR policy, the central banks release the variable monetary policy to the market and just support that, that will definitely support our partners and, of course, the way they were passed to our companies. So together with the synergy of the Pinggang Group, which will enable us to enjoy a low funding cost. For consumer finance loans, I believe that we will continue to fetch a lower interest rate in the inter-bank market. Actually, you can see the trend also in the inter-bank market, right, that the rate will land by the central bank to go it down.

Speaker Change: Okay about the funding cost.

I'd like to share some of my view.

Speaker Change: Our portfolio alone we expect battery.

Y. S. Cho: You know, for our, Puhui loan, we expect that just because of the LPR policy, the central bank released the variable monetary policy to the market, and that will definitely support our fund partners.

Just because of the LPR.

Speaker Change: Policy at <unk>.

Speaker Change: Okay.

Speaker Change: The leaf the favorable monetary policy to the market.

Speaker Change: Just to put out that will definitely support of our.

Y. S. Cho: And of course, they will pass it to our companies.

Y.S. Chou: And for your second question, we all know that it is not easy to improve CFL loan rate while loan balance keeps declining. But with continuous portfolio mixing improvement, what I mean is now we see more and more accounts from 2023 and 2024 vintage takes a bigger part over the whole portfolio, which is better quality accounts. So we believe our asset quality measured by C2MC flow rate will continue its improvements. And also, we put tremendous efforts in our risk model, on-drive model, and also collection model, upgrade, and then a sales quality management process. So all in all, we are confident that the about sustainability of our asset quality going forward. Thank you.

Speaker Change: Partners and of course, they were passed to our customers, but together with the synergy of the.

Y. S. Cho: So together with the synergy of the Ping An Group, which will enable us to enjoy a low funding cost.

Speaker Change: Ping, an group will enable which will enable us to enjoy a low.

Y.S. Chou: Our consumer finance loans also saw asset quality improvements with NPL ratio decreasing to 1.4% from 1.6% in the first quarter.

Speaker Change: <unk> cost for consumer finance loans.

Y. S. Cho: For consumer finance loans, I believe that we will continue to fetch a lower interest rate in the interbank market. Actually, you can see the trend also in the interbank market, right?

Speaker Change: <unk>.

Speaker Change: I believe that we will continue to fetch a lower interest rate in the interbank market.

Speaker Change: Scott.

Speaker Change: Actually you can see the trend also in the tobacco market right that the rate was led by the Central bank to going down and then we expect that funding cost will remain at a relatively low level and generally we will say.

Y.S. Chou: Next, let's take a look at our loan loans under the 1.0% young model, as discussed previously.

Y. S. Cho: The rate was led by the central bank to go down.

Y.S. Chou: And then we expect that funding cost will remain at a relatively low level. And generally, we will say that your optimistic to our overall funding cost will continue to decrease.

Y. S. Cho: And we expect that funding cost will remain at a relatively low level.

Y. S. Cho: And generally, we will say that we are optimistic to our overall funding cost that will continue to decrease.

Y.S. Chou: Since the fourth quarter of 2023, all new pre-loans have been enabled under the 1.0% young model, as our pre-loan balance increasingly represents loans enabled under this model, our balance take rate has 20 upwards, which is 9.3% during the second quarter.

Speaker Change: Optimistic to our overall funding costs that will continue to decrease.

Y.S. Chou: And about the question, about our income ratio increase in the second quarter, although we remain committed to the cost of optimization, our impact to income ratio trend upwards during this quarter. This was mailing due to our loan-scale construction, that we would like to decline in economy scale. In addition, some of the fixed expenses continue to contribute to the increase. Looking forward, we will continue to improve our operational efficiency by leveraging the technology and the synergy and the digitalization, and the work together with the Pinggang Group and our internal efforts.

Speaker Change: The other question about <unk>.

Speaker Change: Okay.

Speaker Change: Up to our income ratio increased in the second quarter.

Y. S. Cho: And about the question about up to our income ratio increase in the second quarter, although we remain committed to the cost of optimization, our impact to income ratio trended upwards during this quarter. This was mainly due to our loan scale contraction that led to a decline in the economy scale. In addition, some of the fixed expenses contributed to the increase.

Y.S. Chou: As an announcement from our high CGI premiums has been eliminated, thanks to this improved asset quality, our credit costs have remained stable despite increased risk exposure.

Speaker Change: Although we remain committed to the cost of optimization opex to income ratio trended upward during.

Y.S. Chou: However, it is worth noting that due to decreasing loan balances, our unit upgrade expenses have increased, which has become a cheat drag on our unit profitability.

Speaker Change: In this quarter. This was mainly due to our loan scale construction contraction.

Yada Lee: The next question comes from Yada Lee with CICC. Please go ahead. Hello, management. Thank you for taking my questions. How far have questions today?

Speaker Change: That led to a decline in economies of scale. In addition to some of the fixed expenses continued to contribute to the truth.

Speaker Change: Two the increase.

Speaker Change: Looking forward, we will continue to improve our operational efficiency by leveraging the technology and the synergy on the digitalization and the walk together with Ping an group and our internal efforts. Thank you.

Y. S. Cho: Looking forward, we will continue to improve our operational efficiency by leveraging the technology and the synergy and the digitalization and the work together with the Ping An Group and our internal efforts.

Y. S. Cho: Thank you.

Y.S. Chou: First, I was wondering in what areas do we see more collaboration potential in the future with the Pingan Group. And secondly, I'd like to ask that do we have any plans to further increase the shareholder returns? Looking at the cash at hand and the future loan size, what could be the potential amount available to distribute to the investors? Third, I notice that the funding cost that decreased slightly in the second quarter, and I was wondering what's the outlook for the future funding cost.

Operator: Thank you.

Y.S. Chou: Thank you.

Speaker Change: Thank you that concludes our question and answer session for today.

Operator: That concludes our question and answer session for today.

Xinyan Liu: I will now turn the call back over. I will now turn the call back over to our management for closing remarks. Thank you.

Speaker Change: I'll now turn the call back over.

Operator: I will now turn, the call back over.

Operator: I will now turn the call back over to our management for closing remarks.

Speaker Change: I will now turn the call back over to our management for closing remarks.

Y.S. Chou: And at last, I want to ask why the opax to income ratio hike in the second quarter do we see an a room to further improve this ratio? That's all. Thank you so much. Okay, let me answer your question one, two, three. Thank you Yada. The after, let me see my notes. So after special dividends, Pingan Group's ownership increased much, much close to 57%, so 56.8%. And that we've been working closely with Pingan Group from the very beginning in in our future areas, like customer sourcing, using their online offline channels and technology development and the brand sharing.

Speaker Change: Thank you. This concludes today's call. Thank you all for joining the conference call. If you have more questions. Please do not hesitate to contact <unk> IR team.

Y. S. Cho: Our total neuron sales in the second quarter of 2024 were $45.2 billion, representing a 15.5% year-over-year decline. The decline was mainly caused by a 35% year-over-year decrease of PUBI loans, which comprised 51% of total neuron sales in the second quarter.

Operator: Thank you.

Xinyan Liu: This concludes today's call. Thank you all for joining the conference call. If you have more questions, please do not hesitate to contact the Lufax IR team. Thanks again. Thank you.

Y. S. Cho: Reflecting our continued emphasis on quality over quantity and sluggish demand for pre-launch, among high-quality SBOs, meanwhile, our consumer finance business continues to grow and delivered a solid performance during the quarter. Consumer finance loans saw a 23.6% year-over-year increase in neuron sales, representing 49% of our neuron sales, as a result of our continued efforts to roll out smaller tickets and revolving product structures.

Operator: This concludes today's call.

Y. S. Cho: Furthermore, we are pleased to observe a notable improvement in asset quality as we adopt more stringent credit standards with focus on higher-quality customer segments and resilient geographies, bolstered by our enhanced risk assessment system.

Y. S. Cho: For pre-launch, the C2M3 flow rate improved to 0.9% from 1.0% in the previous quarter, mainly driven by the improvement of C2M3 ratio of unsecured loans. Our customer finance loans also saw asset quality improvements, with NPL ratio decreasing to 1.4% from 1.6% in the first quarter.

Y. S. Cho: Next, let's take a look at our loan loans under the 100% Guarantee Model. As discussed, previously, since the fourth quarter of 2023, all new pre-launch have been enabled under the 100% Guarantee Model. As our pre-loan balance increasingly represents loans enabled under this model, our balance-take rate has trended upwards, reaching 9.3% during the second quarter.

Operator: Thank you all for joining the conference call.

Y. S. Cho: As a negative impact from our high CGI premiums has been eliminated.

Operator: If, you have more questions, please do not hesitate to contact LUFAQ's IR team.

Y. S. Cho: Thanks to this improved asset quality, our credit costs have remained stable despite, increased risk exposure.

Operator: Thanks again.

Y. S. Cho: However, it is worth noting that due to decreasing loan balances, our unit operating expenses have increased, which has become a key drag on our unit profitability.

Y. S. Cho: Let me now provide some business updates on our newly acquired PAO Bank. By leveraging strategic synergies with LUPEX following the acquisition, PAO Bank delivered, solid growth in the first half of 2024. Its total loan balance stood at $2.4 billion by the end of the second quarter, representing a 45% year-over-year increase.

Y. S. Cho: Going forward, PAO Bank is planning to roll out new initiatives, including insurance, wealth management products, to better serve SME and retail customers.

Y. S. Cho: To reinforce the strong license strategy we We believe this new license will help further reduce our funding cost, diversify our products, and improve our capital management efficiency.

Y. S. Cho: Now turning to the progress of our special dividends, I am pleased to announce that we completed the distribution of special dividends at the end of July as scheduled. After receiving the script dividend, Ping An Group's ownership increased to 56.8%, and Ping An Group now consolidates our financial results.

Speaker Change: Ken.

Y. S. Cho: Lufax will remain an independent entity listed on the New York Stock Exchange and Hong Kong.

Speaker Change: Okay.

Y. S. Cho: Meanwhile, we seek to enhance synergies with Ping An Group primarily in the following three key areas.

Operator: Thank you.

Speaker Change: Thank you. This conference is now concluded you may now disconnect.

Y. S. Cho: First is branding.

Operator: This conference is now concluded.

Emma Zhu: The first question comes from Emma Zhu with Bank of America Securities.

Operator: This conference is now concluded.

Y. S. Cho: Ping An Group is a Fortune 500 company and a leading global financial institution. Its strong global reputation and financial standing will serve as a powerful endorsement for Lufax, deepening trust among our customers and funding partners. This enhanced brand association will improve our domestic and international standing, and can potentially help lower funding costs.

Emma Zhu: Please go ahead.

Operator: You may now disconnect.

Y. S. Cho: Second is technology. We will leverage Ping An Group's extensive technological resources, including its advanced AI systems, to further strengthen our risk management and fraud prevention measures.

Operator: You may now disconnect. Thank you.

Emma Zhu: Thank you for the opportunity for the first question.

Y. S. Cho: Our goal is to provide small business owners and consumers with efficient, secure, and cost-effective financial services.

Emma Zhu: Actually, I have two questions.

Y. S. Cho: Thank you, Emma, for your question.

Operator: 詞曲李宗盛

Y. S. Cho: Third is channel resources.

Emma Zhu: The first question is about the loan demand.

Y. S. Cho: The first question, loan demand.

Y. S. Cho: While adhering strictly to applicable laws and regulations, we aim to expand our reach by tapping into Ping An Group's extensive nationwide network of online and offline channels.

Emma Zhu: How is the overall loan demand currently? We see that in the second quarter, you granted RMB 45.2 billion new loans and the accumulated amount of the new loans issued in the first half reached RMB 93.3 billion.

Y. S. Cho: Yes, loan demand in, overall is still weak.

Y. S. Cho: This expansion will complement our efforts to strengthen our direct sales force.

Emma Zhu: According to around 42 to 49 percent of your four-year guidance at the beginning of the year.

Y. S. Cho: For loan gross recovery, it largely depends on macro environment improvement.

Y. S. Cho: In summary, our expanded relationship with Ping An Group will help us better serve our XBO customers, easing their difficulty and expense of financing.

Emma Zhu: Do you think you are still on track to meet your four-year target?

Y. S. Cho: So why we keep our prudence strategy on SBO lending?

Y. S. Cho: With our strengths and capabilities, we strive to be a benchmark company with a unique role, in supporting the growth of China's vital small and micro enterprise economy.

Emma Zhu: When will we see the turning point of the loan growth recovery?

Y. S. Cho: We see that from our CF business, the consumption loan demand is actually more unstable.

Y. S. Cho: While the Macomb environment remains complex, we are encouraged by the improvements in asset quality and the progress of our strategic initiatives.

Speaker Change: Okay.

Emma Zhu: The second question is congratulations on the continued improving asset quality.

Y. S. Cho: We remain committed to our deliberate strategic approach as we continue to navigate the economic landscape, and have set our sights on achieving sustainable, quality growth.

Emma Zhu: Your M3 flow rate has declined two quarters in a row and down to 0.9 percent in the second quarter.

Y. S. Cho: I will now turn the call over to Pei Qing, who will provide more details on our financial performance and business operations.

Emma Zhu: Do you think you can continue to see the improvement in the flow rate and how will management try to sustain this good trend?

Peiqing Zhu: Thank you, Weiss.

Emma Zhu: Thank you.

Peiqing Zhu: I will now provide a close look into our Q2 results.

Speaker Change: Yeah.

Peiqing Zhu: Please note that all numbers are RMB terms, and all comparisons are on a year-on-year basis, unless otherwise stated.

Speaker Change: [music].

Peiqing Zhu: In the Q2 2024, our total income decreased by 35.5% to $6 billion from $9.3 billion in, the Q2 2023, mainly due to a decrease of outstanding loan balance by $44.8 billion from $26.4 billion as of June 30, 2023, to $35.2 billion as of June 30, 2024, partially offset by our increased take rate, as loans enabled under the 100% guarantee model constitute a higher proportion of our total loan book.

Peiqing Zhu: Meanwhile, our total expenses decreased by $20.3 billion from $8 billion to $6.3 billion, among which the total operating expenses declined, by 29.7% from $5 billion to $3.5 billion, and credit impairment losses decreased by 14.6% from $3 billion to $2.6 billion.

Peiqing Zhu: The gap between the decrease of revenues and operating, expenses was mainly caused by the decreased economy of scale, which resulted in increased fixed expenses to income ratio.

Peiqing Zhu: The decrease of credit impairment losses was mainly due to the decrease in actual losses of loans as a result of improvement of credit performance, partially offset by the upfront provision from loans and the 100% guarantee model.

Peiqing Zhu: As a result, we recorded a net loss of $730 million for the second quarter.

Y.S. Chou: Going forward, PAO bank is planning to roll out new initiatives, including insurance, waste management products, to better serve SME and retail customers.

Peiqing Zhu: Turning to our unique economy for the proof-of-index, our APR by balance decreased from 20.3% in, Q2 2023 to 19.6% in Q2 2024, primarily due to the change of customer mix as we continued to prioritize high-quality customers. Despite the decrease in APR, our take rate by balance increased to 9.3% from 7% in Q2 2023 due to our successful transition to the 100% guarantee model.

Peiqing Zhu: We expect the take rate will further increase as the percentage of loans enabled and the 100% guarantee model continues to increase.

Peiqing Zhu: In addition, our funding costs also decreased slightly thanks to the available monetary policy and the support of our funding partners.

Peiqing Zhu: On the other hand, while sales and marketing expenses remained stable, credit costs and other operating expenses dropped on our net margin. This was primarily due to the construction of our loan balance.

Peiqing Zhu: Furthermore, while the actual losses decreased as a result of improvements in asset quality, We recorded more upfront provision for loans enabled under 100% guarantee model. As discussed before, while we anticipate this part of the loans will be lifetime profitable, it's important to note that these loans may incur accounting losses in their first calendar year due to higher upfront provisions. This accounting treatment affects our short-term profitability, but is expected to lead to improved long-term financial performance as the loan portfolio matures.

Peiqing Zhu: Now, let me highlight a few of key P&L items. During this quarter, our technology platform-based income was $2 billion, representing a decrease of 51%, mainly due to the decrease in retail credit services fees, as a result of a 44.8% decrease in outstanding loan balance. In addition, it was also negatively affected by the close of the Lu Jing Tong business in April 2024.

Peiqing Zhu: Our net interest income was $2.7 billion, a decrease of 19.3% from the same period last year. The relatively lower decrease in net interest income was the result of an increase in consumer finance revenue.

Peiqing Zhu: Meanwhile, our guarantee income was $850 million, a decrease of 26%.

Peiqing Zhu: In terms of revenue mix, technology platform-based income accounted for 33.4% of our total revenue, down from 44% in the same period last year.

Peiqing Zhu: Net interest income and guarantee income accounted for 45.4% and 14.2% respectively of total revenue in Q2, as compared to 36.3% and 12.4% in the same period last year.

Peiqing Zhu: In terms of expenses, our credit impairment losses decreased by $14.6 billion to $2.6 billion. Our total marketing expenses, which includes expenses for borrower acquisition costs as well as general sales and marketing expenses, decreased by 46% year-on-year basis to $1.4 billion in Q2. The decrease was mainly due to reduced loan-related expenses resulting from decrease in new loan sales and outstanding loan balances, as well as the elimination of expenses associated with our Lu Jing Tong business. Operation and service expenses decreased by 15.8% year-on-year to $1.3 billion in Q2.

Peiqing Zhu: As a result of decreased loan balance and our continued effort to control expenses. Partially offset by increased commissions associated with improved collection performance.

Peiqing Zhu: All finance costs decreased by 90.2% to $13 million in Q2 from $136 million in the same period of 2023. Mainly due to decrease of interest expenses after the repayment of C-round convertible promissory notes and other debts.

Peiqing Zhu: Partially offset by the decrease of interest income from bank deposits.

Peiqing Zhu: In terms of capital, at the end of June 2024, our main operating entities remained well capitalized. Our guarantee subsidiary's leverage ratio stood at 2.4x and our consumer finance subsidiary's capital adequacy ratio stood at 14.7%, well above the 10.5% minimum regulatory requirement.

Peiqing Zhu: As we deal with the complexity of the broader economy environment and our strategic shift to the 100% guarantee model, we are seeing encouraging signs in terms of asset quality and in growth of our consumer finance business.

Y.S. Chou: But with increased Pingan Group ownership now, we expect you to fall help us to reduce funding cost, the lighting on their good reputation, financial standing. So actually, your third question is about funding cost. We is technically decreasing or optimizing. We believe this trend will continue. And also with the acquisition of that nationwide, small, long-lending license, Pingan Group, that lengthen license, that comes with better or lower funding cost going forward.

Peiqing Zhu: We will remain committed to our prudent strategy as we seek to build a solid foundation for long-term, sustainable future success.

Peiqing Zhu: I will uphold our commitment to bringing value to our investors.

Peiqing Zhu: That concludes our prepared remarks for today.

Operator: Operator, we are ready to take questions.

Operator: We will now begin the question and answer session.

Operator: To ask a question, you may press star then 1 on your telephone keypad.

Operator: If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

Operator: In addition, I'd like to remind you to please mute yourself after stating your question.

Y.S. Chou: So we are confident about the funding cost for the improvement, and then the, about the second question, the order, the order of directors has determined that no semi-annual dividend will be paid at this time, because we made a net loss recorded for the first half of 2024, but management is dedicated to returning value to shareholders. We will always seek out potential ways to increase shoulder returns, as demonstrated in this special dividend this time.

Y.S. Chou: Lufax will remain on independent entity listed on New York's type exchange in Hong Kong.

Y.S. Chou: Our annual dividend policy, which is 20-40% of net profit and we pay semi-annually, that policy does not change, remain unchanged. Okay, about the funding cost, I will like to share some of my view. You know, for our public loan, we expect that just because the LPR policy, the central banks release the variable monetary policy to the market and just support that, that will definitely support our partners and, of course, and the way they were passed to our companies.

Y.S. Chou: Meanwhile, we seek to enhance synergies with Pingang Group, primarily in the following three key areas.

Y.S. Chou: So together with the synergy of the Pinggang Group, which will enable us to enjoy a low funding cost. For consumer finance loans, I believe that we will continue to fetch a lower interest rate in the inter-bank market. Actually, you can see the trend also in the inter-bank market, right, that the rate will land by the central bank to go it down. And then we expect that funding cost will remain at a relatively low level. And generally, we will say that your optimistic to our overall funding cost will continue to decrease.

Y.S. Chou: First is branding, Pingang Group is a Fortune 500 company, and a leading global financial institution.

Y.S. Chou: It's strong global reputation and financial standing will serve as a powerful endorsement for Lufax, deepening trust among our customers and funding partners.

Y.S. Chou: This enhanced brand association will improve our domestic and international standing, and it can potentially help lower funding costs.

Y.S. Chou: Second is technology.

Y.S. Chou: We will leverage Pingang Group's extensive technological resources, including its advanced AI systems to further strengthen our risk management and forward prevention measures.

Y.S. Chou: Our goal is to provide small means of owners and consumers with efficient, secure, and cost-effective financial services.

Y.S. Chou: So these channel resources, while adhering strictly to applicable laws and regulations, we aim to expand our reach by tapping into Pingang Group's extensive nationwide network of online and offline channels.

Y.S. Chou: This expansion will complement our efforts to strengthen our direct sales force.

Y.S. Chou: Thank you. That concludes our question and answer session for today. I will now turn the call back over. I will now turn the call back over to our management for closing remarks. Thank you. This concludes today's call. Thank you all for joining the conference call. If you have more questions, please do not hesitate to contact Lufax IR team. Thanks again. Thank you. This conference is now concluded. You may now disconnect. Xiaoxiong Ye, Yada Li, Siu Choy, Yong Cho[inaudible] Yong Cho, Yong Cho,

Y.S. Chou: In summary, our expanded relationship with Pingang Group will help us better serve our XB of customers, using their difficulty and expense of financing.

Y.S. Chou: With our strength and capabilities, we strive to be a benchmark company with a unique law in supporting the growth of China's vital, small, and micro-enterprise economy.

Y.S. Chou: While the macro-environment remains complex, we are encouraged by the improvements in asset quality and the progress of our strategic initiatives.

Y.S. Chou: We remain committed to our deliberate strategic approach as we continue to navigate the economy landscape and have set our sights on achieving sustainable quality growth.

Peiqing Zhu: I will now turn the quote over to Beijing.

Peiqing Zhu: We provide more details on our financial performance and business operations.

Peiqing Zhu: Thank you, Vice.

Peiqing Zhu: I will now provide close look into our future results.

Peiqing Zhu: Please note that all numbers are R&B terms.

Peiqing Zhu: And all comparisons are on your year basis unless advised data, and the Q2220-24.

Peiqing Zhu: Our total income is decreased by 35.5% to 6 billion from 9.3 billion in the Q22-23.

Peiqing Zhu: Mainly due to a decrease of outstanding loan violence by 44.8 from 4.6.4 billion as of June 30, 2023 to 2.35.2 billion as of June 30, 2024.

Peiqing Zhu: The gap between the decrease of dividends and operating expenses was mainly caused by the decreased economy of scale which resulted in increased fixed expenses to income ratio.

Peiqing Zhu: The decrease of credit in paramilances was mainly due to the decrease of actual losses of loans and the result of improvement of credit performance. Partially offset by the up-round provision from loans and 100% guarantee model.

Peiqing Zhu: As a result, we recorded that net loss of 3.30 billion for the second quarter.

Peiqing Zhu: Turning to our unit economy for the pool revenues, our APR by balance decreased from 20.3% in the Q2 2023 to 19.6% in the Q2 of 2024. Primarily due to the change of customer mix as we continue to prioritize high quality customers despite the decrease in APR.

Peiqing Zhu: Our take-or-rate by balance increased to 9.3% from 7% in Q2 2023 due to our successful transition to the 100% guarantee model. We expect that take-or-rate will further increase as the percentage of loans enabled and the 100% guarantee model continues to increase. In addition, our funding cost also decreased slightly thanks to the available monetary policy and the support of our funding partners.

Peiqing Zhu: On the other hand, while sales and marketing expenses remain stable, credit cost and other operating expenses frapped on our net margin. This was primarily due to the construction of our loan balance.

Peiqing Zhu: Furthermore, while the actual loss is decreased as a result of improvement in asset quality.

Peiqing Zhu: We will record in more upfront provision for loans, enables under 100% guarantee model. As discussed before, while we anticipate this part of the loans will be lifetime profitable, it's important to note that these loans may incur accounting losses in their first calendar year due to high higher upfront provisions.

Peiqing Zhu: This accounting treatment affects our short-term probability, but is expected to lead to improve long-term financial performance as a long-professional portfolio materials.

Peiqing Zhu: Now, let me highlight a fee of T-P&L items during this quarter.

Peiqing Zhu: Our technology platform-based income was $2 billion. Representing a decrease of 51%, mainly due to the decrease in retail credit-based services fees, as a result of 44.8% decreasing our spending loan balance. In addition, it was also negatively affected by the close of the Lu Jingtong business in April 2024.

Peiqing Zhu: Our net interest income was $2.7 billion, a decrease of 90.3% from the same period last year. The relatively lower decrease in net interest income was the result of an increase in consumer finance revenue.

Peiqing Zhu: Meanwhile, our guarantee income was $8.50 million, a decrease of 26%.

Peiqing Zhu: In terms of revenue mix, technology platform-based income accounted for 33.4% above total revenue, down from 44% in the same period last year.

Peiqing Zhu: That interest income and a guarantee income of 45.4% and 14.2% respectively of total revenue in Q2.

Peiqing Zhu: As compared to 36.3% and a 12.4% in the same period last year.

Peiqing Zhu: In terms of expenses, our credit-emparamiluses decreased by 14.6 to 2.6 billion.

Peiqing Zhu: Our total marketing expenses, which includes expenses of borrow acquisition cost as well as general sales and marketing expenses, decreased by 46% year-on-year basis to 1.4 billion in the Q2. That decrease was mainly due to reduced loan-related expenses resulting from decreased in a new loan sales and outstanding loan balances, as well as the elimination of the expenses associated with our losing-tone business.

Peiqing Zhu: Operation and service expenses decreased by 15.8% year-on-year to 1.3 billion in Q2. As a result of decreased loan balance and our continued effort to control expenses.

Peiqing Zhu: Partially offset by increased commissions associated with the collection performance.

Peiqing Zhu: Off-finance cost a decrease by 90.2% to 13 million in the Q2 from 136 million in the same period of the 2023.

Peiqing Zhu: Mailing due to the decrease of interest expenses after the repayment of the sea round convertible, promissory notes and other deaths.

Peiqing Zhu: Partially offset by the decrease of interest income from bank deposits.

Peiqing Zhu: In terms of capital as the end of June 2024, our main operating entities remain well-capitalized.

Peiqing Zhu: Our guarantees of salaries leverage ratios due to the 2.4 and our consumer finance subsidiaries capital adequacy ratio stood at 40.7%. Well above the 10.5% minimum regulatory requirement.

Peiqing Zhu: As we deal with the complexity of broader economic environment and our strategic shift to the 100% guarantee model, we are seeing encouraging signs in terms of the ethicality and the engross of our consumer finance business.

Peiqing Zhu: We will remain committed to our prudent strategy as we seek to build a solid foundation for long-term sustainable future success.

Peiqing Zhu: I will uphold our commitment to bringing value to our investors.

Peiqing Zhu: That concludes our prepared remarks for today.

Operator: Operator, we are ready to take questions.

Operator: We will now begin the question and answer session.

Operator: To ask a question you may press star than one on your telephone keypad.

Operator: If you are using a speaker phone, please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star than two.

Operator: In addition, I would like to remind you to please mute yourself after stating your question.

Operator: Thank you.

Emma Zhu: The first question comes from Emma Zhu with Bank of America Securities.

Emma Zhu: Please go ahead.

Emma Zhu: Thank you for the opportunity for the first question.

Emma Zhu: Actually, I have two questions.

Emma Zhu: So the first question is about the long demand.

Emma Zhu: How is the overall long demand currently?

Emma Zhu: So we see that in second quarter you granted a R&B 45.2 billion new loans and accumulated amount of the new loans issued in the first half registered R&B 93.3 billion, according for around 42 to 49 percent of your four-year guidance at the beginning of the year.

Emma Zhu: So do you think you are still on track to meet your four-year target and when will we see the turning point of the long growth recovery?

Emma Zhu: And the second question is that you can, congratulations on the continued improving as a quality.

Emma Zhu: So your M3 flow rate has declined two quarters in a row and down to 0.9 percent in the second quarter.

Emma Zhu: So do you think you can continue to see the improvement in the flow rate and how will management try to sustain this good trends?

Emma Zhu: Thank you.

Y.S. Chou: Thank you, Emma, for your question.

Y.S. Chou: The first question, loan demand.

Y.S. Chou: Yes, loan demand in over is still weak.

Y.S. Chou: For loan growth recovery, it largely depends on macro-environment improvement.

Y.S. Chou: So why we keep our food and storage on SVL lending?

Y.S. Chou: We see that from our CF business, the consumption loan demand is actually more unstable. So we focus more on consumer finance and relatively large case size consumption loan to cope with declining SVL loan demand in near term, especially in the regions where our loan volume construction is more significant.

Y.S. Chou: And for your second question, we all know that it is not easy to improve CFL loan rate while loan balance keeps declining.

Y.S. Chou: But with continuous portfolio mixing improvement, what I mean is now we see more and more accounts from 2023 and 2024 vintage takes a bigger part over the whole portfolio, which is better quality accounts. So we believe our asset quality measured by C2MC flow rate will continue its improvements.

Y.S. Chou: And also, we put tremendous efforts in our risk model, on-drive model, and also collection model, upgrade, and then a sales quality management process.

Y.S. Chou: So all in all, we are confident that the about sustainability of our asset quality going forward.

Y.S. Chou: Thank you.

Yada Lee: The next question comes from Yada Lee with CICC.

Yada Lee: Please go ahead.

Yada Lee: Hello, management.

Yada Lee: Thank you for taking my questions.

Yada Lee: How far have questions today?

Yada Lee: First, I was wondering in what areas do we see more collaboration potential in the future with the Pingan Group.

Yada Lee: And secondly, I'd like to ask that do we have any plans to further increase the shareholder returns?

Yada Lee: Looking at the cash at hand and the future loan size, what could be the potential amount available to distribute to the investors?

Yada Lee: Third, I notice that the funding cost that decreased slightly in the second quarter, and I was wondering what's the outlook for the future funding cost.

Yada Lee: And at last, I want to ask why the opax to income ratio hike in the second quarter do we see an a room to further improve this ratio?

Yada Lee: That's all.

Yada Lee: Thank you so much.

Y.S. Chou: Okay, let me answer your question one, two, three.

Y.S. Chou: Thank you Yada.

Y.S. Chou: The after, let me see my notes.

Y.S. Chou: So after special dividends, Pingan Group's ownership increased much, much close to 57%, so 56.8%.

Y.S. Chou: And that we've been working closely with Pingan Group from the very beginning in in our future areas, like customer sourcing, using their online offline channels and technology development and the brand sharing.

Y.S. Chou: But with increased Pingan Group ownership now, we expect you to fall help us to reduce funding cost, the lighting on their good reputation, financial standing.

Y.S. Chou: So actually, your third question is about funding cost.

Y.S. Chou: We is technically decreasing or optimizing. We believe this trend will continue. And also with the acquisition of that nationwide, small, long-lending license, Pingan Group, that lengthen license, that comes with better or lower funding cost going forward.

Y.S. Chou: We will always seek out potential ways to increase shoulder returns, as demonstrated in this special dividend this time.

Y.S. Chou: Our annual dividend policy, which is 20-40% of net profit and we pay semi-annually, that policy does not change, remain unchanged.

Y.S. Chou: Okay, about the funding cost, I will like to share some of my view.

Y.S. Chou: You know, for our public loan, we expect that just because the LPR policy, the central banks release the variable monetary policy to the market and just support that, that will definitely support our partners and, of course, and the way they were passed to our companies.

Y.S. Chou: So together with the synergy of the Pinggang Group, which will enable us to enjoy a low funding cost.

Y.S. Chou: For consumer finance loans, I believe that we will continue to fetch a lower interest rate in the inter-bank market.

Y.S. Chou: Actually, you can see the trend also in the inter-bank market, right, that the rate will land by the central bank to go it down.

Y.S. Chou: And then we expect that funding cost will remain at a relatively low level.

Y.S. Chou: And generally, we will say that your optimistic to our overall funding cost will continue to decrease.

Yong Suk Cho: And about the question, about our income ratio increase in the second quarter, although we remain committed to the cost of optimization, our impact to income ratio trend upwards during this quarter.

Y.S. Chou: This was mailing due to our loan-scale construction, that we would like to decline in economy scale.

Y.S. Chou: In addition, some of the fixed expenses continue to contribute to the increase.

Y.S. Chou: Looking forward, we will continue to improve our operational efficiency by leveraging the technology and the synergy and the digitalization, and the work together with the Pinggang Group and our internal efforts.

Y.S. Chou: Thank you.

Operator: That concludes our question and answer session for today.

Y.S. Chou: I will now turn the call back over.

Y.S. Chou: I will now turn the call back over to our management for closing remarks.

Y.S. Chou: Thank you.

Y.S. Chou: This concludes today's call.

Y.S. Chou: Thank you all for joining the conference call.

Operator: If you have more questions, please do not hesitate to contact Lufax IR team.

Operator: Thanks again.

Operator: Thank you.

Operator: This conference is now concluded.

Operator: You may now disconnect.

Xiaoxiong Ye, Yada Li, Siu Choy, Yong Cho[inaudible] Yong Cho, Yong Cho,

Q2 2024 Lufax Holding Ltd Earnings Call

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