Lufax reports Q3 2023 earnings, focuses on diversification and consumer finance growth By

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Lufax Holding Limited (NYSE: LU) reported a mixed third-quarter performance for 2023, with a focus on derisking and diversification for long-term growth. The company revealed a 15.3% increase in new loan sales volume in its consumer finance business, despite a decrease in its total income and outstanding loan balance. Lufax also announced plans to acquire a virtual bank in Hong Kong.

Key takeaways from the earnings call include:

  • Lufax reported a decrease in total income from RMB9.3 billion in Q2 to RMB8.1 billion in Q3, due to a decrease in its outstanding loan balance and new loans enabled to small business owners.
  • The company saw a 15.3% sequential increase and a 48.5% YoY increase in new loan sales in its consumer finance business, reaching RMB20.6 billion in Q3.
  • The total outstanding balance of consumer finance loans reached RMB36.1 billion, up 9.9% from Q2 and 29.4% YoY.
  • Lufax plans to acquire 100% of the equity interest of PAOB, a virtual bank in Hong Kong, subject to regulatory and shareholder approvals.
  • Operational expenses decreased by 6% in Q3 and by 31% YoY, following the completion of the company’s restructuring efforts.
  • Lufax paid out the first-half 2023 dividends in October, amounting to $89 million.

Lufax’s Chairman and CEO, Y.S. Cho, discussed the macroeconomic trends and the challenges faced by small businesses, emphasizing that while the macroeconomy is recovering gradually, small businesses need more time. The company has been focusing on quality over quantity in light of the macro environment and is dedicated to growing its consumer finance business while the small business owner segment remains under pressure.

The company is also focused on retaining its high-quality sales team and improving customization, aiming to optimize funding costs and operational costs. They see their acquisition of a digital virtual bank license in Hong Kong as a medium-term growth option.

Regarding asset quality, they noted that while the C-M3 ratio remains elevated, they expect gradual improvement as the old book decreases and new business performance meets expectations. The company has explored various means to deliver value to shareholders, including share buybacks and dividends, and will continue to do so while preserving cash and supporting sustainable growth.

The company is also working to understand and meet the short-term and long-term needs of its customers, including developing products for individual consumers and partnerships with online platforms to reach new customer segments. They expect consumer finance to continue growing and make up a larger share of its portfolio over the next 12 to 18 months.

The call concluded with the management inviting further questions and thanking participants for attending. For any further inquiries, the company has urged stakeholders to contact the company’s IR team.

InvestingPro Insights

In light of the recent Q3 2023 earnings report from Lufax, the InvestingPro data and tips offer some valuable insights. With a market capitalization of 2340M USD and a low P/E ratio of 8.24, as of Q2 2023, Lufax is trading at a low earnings multiple. This aligns with one of our InvestingPro Tips, indicating the company’s potential for high return on invested capital.

Another InvestingPro Tip suggests that Lufax is a prominent player in the Consumer Finance industry. This is evident in their recent focus on diversifying and expanding their consumer finance business.

Despite a decrease in total income, Lufax’s revenue as of Q2 2023 stands at 7675.54M USD. The company’s gross profit margin is at 75.64%, demonstrating its ability to generate substantial profit from sales.

InvestingPro also notes that Lufax’s liquid assets exceed short term obligations, indicating a strong financial position. However, the company’s stock has taken a significant hit over the last six months, with a 6-month price total return of -30.99%.

For more detailed insights and over 13 additional InvestingPro Tips, consider exploring the InvestingPro product. These insights can provide valuable context to the recent earnings report and guide future investment decisions.

Full transcript – LU Q3 2023:

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lufax Holding Limited Third Quarter 2023 Earnings Call. [Operator Instructions] Please note this event is being recorded. Now I would 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, ma’am.

Liu Xinyan: Thank you, operator. Hello, everyone, and welcome to our third quarter earnings conference call. Our quarterly 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. Y.S. Cho, who will provide an update of our latest business strategies, the macroeconomic trend and the recent development of our business. Our Co-CEO, Mr. Greg Gibb, will then go through our third quarter results and provide more details on our business priorities. Afterwards, our CFO, Mr. David Choy, will offer a closer look into our financials before we open up the call for questions. 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. With that, I’m now pleased to turn over the call to Mr. Y.S. Cho, Chairman and CEO of Lufax. Y.S., please.

Y. S. Cho: Thank you for joining today’s call. While the macro economies recovered gradually in the fourth quarter. The small business segments, still face a complex landscape and needs more time to recover. We continue to purchase virtual derisking and diversification, maintaining our asset quality with the goal of improving our asset quality overall for long-term, healthy and sustainable growth. During the third quarter, while high quality loan demand from SBO remains weak. Our customer finance business recorded a healthy growth, with the new loan sales volume increased of 15.3% sequentially and 48.5% from the same period last year. We are also taking steps to further diversify our operations, by acquiring a virtual bank in Hong Kong. Let me now provide some updates for the third quarter. On the regulatory front, the state council released guidance on promoting high quality development of inclusive finance. The guidance recognizes the value of non-bank institutions, such as guarantee, consumer finance, and small lending companies and encourages market participants to take steps to solve the financial needs or SBOs, as well as enhanced consumer protection. We believe the guidance and recent well equipped development, we promote healthy development of the industry. And better fit leading players that operate businesses in a compliant manner and with proper licenses. As for the macroeconomic conditions, the recent data has shown that China’s economy is gradually recovering. GDP in the third quarter increased by 4.9% from the same period last year, putting the economy on track to meet the annual gross target of 5%. During the third quarter, large enterprises demonstrated the strongest signs of recovery, while SMEs continued to face pressure from the broader macro situation. The SME Business Conditions Index published by the Hong Kong Graduate School of Business declined from 50.2 in June to 49.9 in September. The Small and Medium Enterprises Development Index published by the China Association of Small and Medium Enterprises was also below the critical thresholds of 100 in the third quarter, indicating that the SBO segment will likely recover more slowly than the rest of the economy. Let’s explore the impact of these factors on our business. Under the pressure from complex macroeconomic environments, derisking is crucial for the stability, sustainability of our business. In the third quarter, we continued our strategy of prioritizing asset quality over quantity. We have completed the strategy of just a month, initiated in the beginning of the year, by reducing our footprint in less economically resilient regions with relatively higher risks, and optimizing our direct search force. We believe these difficult but necessary steps will establish the foundation for long-term sustainable growth. As high quality demand for SBO loans remained weak and we continue to prioritize prudence in our strategic execution. New loan sales decreased slightly from RMB53.5 billion in the second quarter, to RMB50.5 billion in this quarter. In terms of asset quality, risk performance of the order book, which are launched enabled for 2023 has stabilized. Meanwhile, all indicators suggest that as the quality of new loans enabled in 2023 is in line with our expectation, although not yet recovered to pre COVID levels. Next, let me show some strategic updates. We have completed our transition to being smoother under which our guarantee subsidiary provides 100% of our credit enhancement, as CGI premiums remains elevated due to the impairment losses suffered by CGI partners. At present, we have secured sufficient credit lines from our funding partners to support our 100% guarantee model for the remainder of 2023 and throughout 2024. We are able to make this shift in large parts due to our strong capital position. At the end of third quarter, the leverage ratio of our guaranty subsidiaries was only 1.6 times, well below the maximum regulatory limit of 10 times. Switching to our 100% guarantee model will play an important role in elevating the impact of elevated a CGI premiums, resulting in a 13% to 14% tax rate from a long term perspective. But exerting pressure on medium term profitability as upfront projects are recorded for new business. Last quarter, we mentioned our strategy to grow our consumer finance business by leveraging the advantages of our consumer finance license and synergies with the Puhui business, and we continued to implement this strategy. During the third quarter, the new loan sales of our consumer finance business was RMB20.6 billion, representing 15.3% quarter-on-quarter, and 48.5% year-over-year growth. The NPL of our consumer finance business decreased to 1.9% in the third quarter from 2.2% in the second quarter. The competitive advantages of our consumer finance business have made it an increasingly important part of our business. Without consumer financial license, we can operate this business in full compliance with regulations and benefit from lower funding cost enabled by interbank money market. With SBO segments likely to face continuing challenges from the macro environment in the near term. The consumer finance business serves as a good supplement to the Puhui business, enabling us to further mitigate risk and diversify product offerings. Together with our transition to the 100% guarantee model, we will be able to provide more comprehensive products to our target customers with a simpler and better customer experience. Now let’s turn to our new initiative we are undertaking to further diversify our business. Subject to approval from the Hong Kong Monetary Authority and OneConnect shareholders, we acquire 100% of the shares of Ping An OneConnect Bank or PAOB from OneConnect, at a cash consideration of 933 million Hong Kong dollars, representing 2.2% of our cash at bank as of the end of September. As one of the eight virtual banks in Hong Kong, PAOB is a fully licensed bank with a service scope similar to traditional banks, but without fiscal operating branches. As of June 30, 2023 PAOBs loan balance was 1.8 billion Hong Kong . And if capital adequacy ratio was 100%, which was substantially higher than relevant regulatory requirements. All of these loans were SME loans in Hong Kong, and a significant portion of outstanding balance is backed by Hong Kong government’s SME financing guarantee scheme. We believe the business and higher customers of PAOB think well with our existing operations, enabling us to leverage our operational experience and technological expertise in its business development. From a long-term perspective, the prospects of Greater Bay Area also bring upside potentials, via banking license. Overall, we took a number of steps in the third quarter to carry forward our efforts on de risking and diversification, including the completion of our transition into 100% guarantee model, further developing our consumer finance business and acquisition of the virtual bank in Hong Kong, aiming to create foundations for long term sustainable growth. In the short term, as most of our strategic efforts on derisking had been concluded by the end of the third quarter, which peg volume in new loan sales to be stabilized and we are on track to meet our new loan sales guidance for the full year 2023 to be in the range of RMB190 billion to RMB210 billion. I will now turn the call over to Greg for more details on our operating results.

Gregory Gibb: Thank you, Y.S. I will now provide more details on our third quarter results and our operational focus for this year. Please note, old book refers to unsecured loans enabled before January 1, 2023 and new book refers to unsecured loans enabled afterwards. All figures are in unless otherwise stated. During the third quarter of 2023, our performance remained under pressure from the complex macro environment and challenges faced by SBOs. Total new loan sales during the third quarter was RMB50.5 billion, amongst which approximately 40% was contributed by the consumer finance business. Now let’s dive into the detail performance of the Puhui business and the consumer finance business. First, let’s take a closer look at our Puhui business. During the third quarter we enabled RMB29.9 billion of new loans under the Puhui brand. Despite the pressure on new loan sales, the productivity of our direct sales team further improved during the third quarter. Average productivity for our direct sales team rose by 25.4% quarter-over-quarter, continuing the positive trend we noted in the second quarter. 68% of new loans enabled during the third quarter came from our direct sales team compared to 61% on the second quarter. The overall pricing by balance of loans enabled under the Puhui business remained stable at 20%. We have not encountered any pressure to decrease price and we have the flexibility to adjust our prices to the extent commercially sensible. As we have completed the transition into the 100% guarantee model, we expect to improve our take rate by alleviating the negative impacts of elevated CGI premiums in the long term. Our profitability however, will suffer in the medium term due to the impact of upfront provisions under the 100% guarantee model. Now let’s look at the risk performance of Puhui business during the third quarter. The risk bearing by balance of Puhui business at the end of the third quarter increased to 25.7% from 22.4% as of the end of second quarter, mainly due to a greater portion of loans enabled under our 100% guarantee model. By the end of this year, we expect our total risk bearing including consumer finance to increase to above 40%. The C-M3 flow rate of the Puhui business increased from 1% as of the end of June to 1.1% as of the end of September, partially due to the 16.1 decrease and outstanding loan balance of the Puhui business. Taking a closer look into the Puhui portfolio. Asset quality of our old book was stabilized as the amount of the old book decreased as a percentage of total portfolio, the absolute amount of old book that would become overdue will continue to decrease. Although the C-M3 ratio remains at an elevated level. On the other hand, though not yet recovered to pre COVID levels, asset quality on the new book is in line with our expectation and we see — we continue to operate with tighter credit standards that focus on higher quality demands from stronger SBOs based in economically resilient regions. In light of the macro environment, we plan to maintain our emphasis on quality over quantity for the foreseeable future. Now let’s move on to our consumer finance business. Our consumer finance continued to record a healthy growth during the third quarter. New loan sales in the third quarter amounted to RMB20.6 billion increased by 15.3% sequentially and 48.5% from the same period last year. The total outstanding balance of consumer finance loans at the end of the third quarter was RMB36.1 billion, up 9.9% from the end of the second quarter, and up 29.4% year-over-year. The NPL ratio of consumer finance business was 1.9% in the third quarter, as compared to 2.2% in the second quarter. Providing smaller ticket size, shorter tenure consumption loans helps to enhance our product line, as well as diversify our business operations. In addition, with the increased amount of consumer finance loans as a percentage of new loan sales, the lower funding costs of the consumer finance business will help bring down our overall funding costs. We plan to continue our efforts to grow the consumer finance business, while the SBO segment remains under pressure. Due to the aforementioned factors, our total income decreased from RMB9.3 billion in the second quarter to RMB8.1 billion in the third quarter, mainly due to a decline in our outstanding loan balance and new loans enabled to SBOs. On the expense front, we maintain our emphasis on optimizing our operational efficiency, and decreased our operating expenses by 6.1% from the previous quarter, and 31% from the same period last year. Credit impairment losses remained at RMB3 billion for the quarter, mainly due to the impairment losses arising from the old book. As a result, we recorded RMB131 million of net profit for the third quarter. As Y.S. mentioned earlier, we plan to acquire 100% of the equity interest of PAOB, to bring additional diversity to our business, subject to regulatory and OneConnects shareholders approvals, we hope to close the deal in the first half of 2024. Finally, we are pleased to announce that we have paid out the first half 2023 dividends in October with an aggregate amount of $89 million. We’d like to thank our shareholders for their continued support, and we’ll continue to use our best efforts to deliver value to our shareholders. I will now turn the call over to David our CFO, for more details on our financial performance.

David Choy: Thanks, Greg. I will now provide outlook into our third quarter results. Please note that all numbers are in renminbi terms and all comparisons on a year-over-year basis, unless otherwise stated. In the third quarter 2023, our total income was RMB8.1 billion, total expenses were at RMB7.7 billion and net profit was RMB131 million. As Y.S. and Greg mentioned before, our performance was impacted by the macroeconomic situation affecting the SBO segment, of course, the negative growth in the loan balance. This resulted in a 39% decrease in our top line this quarter. During the third quarter, our technology platform-based income was RMB3.3 billion, representing a decrease of 51.2%. Our net interest income was RMB3.3 billion, a decrease of 28.4%, and our guarantee income was RMB941 million, a decrease of 49.5%. Furthermore, primarily due to the decline in the loan balance, guarantee income was RMB941 million compared with RMB1.9 billion a year ago. For our other income, which mainly includes account management fees, collections, and other value added services charged to our credit enhancement partners as part of the retail credit enablement process, the amount was RMB291 million in third quarter of 2023, compared to other loss of RMB129 million in the same period of 2022. Turning to our expenses. We are committed to cost optimization for sustainable growth, whilst preserving our core capability. Our total expenses, excluding credit and assets and impairment, losses, finance costs and others, decreased by very 31.1% year-over-year to RMB4.7 billion this quarter, as we continue to enhance our operational efficiency. In the third quarter, our total expenses decreased by 38.1% to RMB7.7 billion to RMB1.1 billion a year ago. This decrease was primarily due to the decreases in sales and marketing expenses and credit impairment losses. Our total sales and marketing expenses, which mainly include expenses for borrowers and investor acquisition costs as well as general sales and marketing expenses decreased by 43.7% to RMB2.3 billion in the third quarter. The decrease was mainly due to decrease for acquisition costs as a result of the decrease in the new loan sales and decrease in investor acquisition and retention expenses, and impairment expenses from platform services attributable to the decreased transaction model. Our general and administrative expenses decreased by 15.6% to RMB500 million in the third quarter, mainly due to our expense control measures and decreases in tax and surcharges. Our operations and subsidy expenses decreased by 7.6%, RMB1.5 billion in the third quarter, mainly due to our efforts in expense control, a decrease of loan balance, partially offset by increase in resources we invested in collection services. Our credit impairment losses decreased by 24.1% to RMB3 billion in the third quarter, primarily due to the decrease in provision of loan receivables, as a result of the increased loan balance. Our finance costs increased by 86.9% to RMB40 million in the third quarter, from RMB306 million in the same period of 2022, mainly due to the increase of interest income from bank deposits, plus the decrease in interest costs resulting from our early repayment of our CP and other U.S. dollar debt. As a result, net profit from the third quarter was RMB131 million, compared to the net profit of RMB1.4 billion in the same quarter of 2022. Meanwhile, our basic and diluted earnings per ADS during the third quarter, were both RMB0.04 or $0.01. Turning now to our balance sheet. Our balance sheet remains strong and solid as our cash at bank balance has increased since the end of our last fiscal year. As of September 31, 2023, we have a cash balance of RMB39.8 billion as compared with RMB43.9 billion as of last year. And as of the end of September 2023, our guarantee subsidiaries leverage ratio was only 1.6 times as compared to a maximum regulatory limit of 10 times. All of these factors have substantial backing for the company to navigate through the change in macroeconomic landscape, maintain our resilience and creating options to deliver value to our shareholders in future. That concludes our prepared remarks for today, operator, we’re now ready to take questions.

Operator: [Operator Instructions] Today’s first question comes from Emma Chu with BofA Securities. Please go ahead.

Emma Chu: Thank you for giving me the opportunity to ask the first questions. Actually, I have two. The first one is about the loan demand and new loan pricing. So previously, you mentioned that you are on track to meet your full year loan goals targets now. But we just want to get more details about the overall loan demand in fourth quarter so far, including the SME loans and the consumer finance loan, and how it will impact your loan pricing for different loan products? And the second one is about the unit economics under the full guarantee model. So we understand that you have been progressing towards this model for a while and we probably get some more data now. So could you please run us through that unit economics under this new model? Thank you.

Y. S. Cho: Thank you for your question. We see the macro economy is surely is gradually recovering, but our major target segments are small business segments, they need more time. So as a result, loan demands, or especially time expense segments remain quite weak. Their confidence level we think hasn’t restored back to the previous level, so we see a weak current demand. But the reality is, as we said in the previous announcement, we believe we’ll deliver this years new loan sales guidance as planned. Now regarding over APR. Our overall APR level on portfolio remained stable at around 20%. And then we do not see any further pressure to reduce our loan price via APR. So our continuous communication with regulators, we see that they’re also gradually getting aware of that, question that we simply arose again and again, otherwise, we cannot ensure the financial service coverage for the whole SBO segments. So we believe we have more flexibility in the future than before to adjust our room price as necessary. And to your question about our UE on the full guarantee model. Now we fully switch it to 100% sales guarantee model. So it’s a model – mix of our guarantee plus bank funding, we don’t have CGI partners anymore. So as normal CGI premium paid, our take rate will be a lot higher than before to around 14%, 14, 14% level. And going forward this year, we’ll continue to optimize while reducing our funding costs. But upfront primarily on the sales 100% guarantee model will affect our bottom line in short of one-year term. Thank you.

Operator: Thank you. And our next question today comes from Victor Chu with Morgan Stanley (NYSE:). Please go ahead.

Unidentified Analyst: Thank you. I’m Richard from Morgan Stanley, a question on the cost side. Given obviously, the loan size has been shrinking and company had been optimized in the loan size and client base in the risk environment? Are there any room to optimize the sales force, because you know, at the moment, I guess, cost control is also a very important aspect that we can probably analyze and see the profitability of the business. Any thoughts on that? Thank you.

Y. S. Cho: Okay, thanks for your question. By now, we have completed the adjustment of our sales team, we reduced our sales team, especially in the regions, the local economy is not resilient, and then we don’t see much development potential. So as a result, we have a lot less number of teams. But our plan has been all completed, and now our focus is, we don’t have any further optimized plan for sales team. Our focus is more about how to retain our remaining the best quality or lot better than before quality sales team. And then department has been — we see the department has been continuously improving customization. Although, we all know that we tighten underwriting policy very much from this year, but see the remaining Directors team, department has been improving. And then we understand the productivity enhancement is the best way to optimize our cost ratio. But also, we’ll continue our efforts to further optimize our funding costs and other operational costs.

Gregory Gibb: So just Richard, Greg here. T add to YS’s comment. If you look at the third quarter, quarter on quarter operational expenses down 6% and year-on-year, operational expenses down 31%. So actually starting in the fourth quarter last year, and then progressively up until about July, August this year, we went through quite substantial restructuring, and that restructuring included frontline mid and back office, so pretty far reaching. And as YS said, I think, given that we have made those adjustments, and that we’re starting to see improved productivity in the front line, the key now is really to capture the benefits from the ongoing change in the mix of our business. Right. So if you look at, for example, YS mentioned, funding cost. Our funding costs, through the Puhui guarantee model, when we partner with banks and other trust companies, it’s still raising around 5.5%, on average, but when you look at the consumer finance business, that funding cost is about 3.5%, 3.6%. And then if you look at the new business mix in the third quarter, where our consumer finance made up above 40%, of all new business, you can see as that change in the mix of the business occurs, it creates an overall lower funding costs as well. So there’s still more room we believe, in the current interest rate environment, here in China, to optimize funding costs on the guarantee model. And we’ll be working through that with our bank partners. But the key now really, is to take advantage of the fact that the old book, which has really been the source of our challenges, the book written before 2023, that old book is a percentage of our total business. So if you take, let’s say, unsecured loans written prior to 2023, versus the total, which includes also unsecured business generated post January 1 this year, secured business, consumer finance business, that old book is roughly about half of our outstanding today. And by the next 12 months out that that percentage will drop to low double digit. So we have a situation where that the old runs off the new is performing in line with expectation, productivity for the direct sales has been lifting consistently in both Q2 and Q3. So we think that the right sizing things that we have done in terms of the front line are now largely completed. And it’s really just now to sort of work through the remaining part of the old book, continue to improve our mix and needs to be prudent in our new loan growth. And we think that with those steps, I wouldn’t say that we are at the end of all challenges at this point, but we’ve certainly worked through a large part of it. And we think we’ve right sized for our future steps.

Operator: Thank you. Next question comes from Alex Ye with UBS. Please go ahead.

Alex Ye: Good morning. Thanks for taking my questions. I have two questions. First one is on asset quality. So, where are we in terms of the legacy as equity risk, did the company see any early indicators that the asset quality on this part could actually improve? And what driver will be needed for that improvement? And second, regarding your PAOB, can you also share some color on that including any initial thoughts on the future strategy on that bank? For example, what kind of growth prospects should we be expecting? How is it profitability now and when to expect it to breakeven and also any color on the asset quality of SME loan book? Thank you.

Gregory Gibb: Sure. On asset quality for the domestic Puhui branded SBO business. As we’ve highlighted, the C-M3 ratio, which is that lead indicator still remains at an elevated level. So for Q3, it was at 1.1% versus about 1% in Q2. So it has remained at an elevated level. But if you factor in that are this is a numerator denominator issue when you met through the ratio. Actually, the denominator, for example, has shrunk about 16%. If you look at just a quarter on quarter change. So if you were to factor that in, you would actually start to see gradual improvement. And we look through the overall book because that old business, written prior to 2023, as I said, is now approaching to be about half of the total portfolio and that will continue to decline over the next 6 to 12 months. So the absolute loss that comes from the old book will continue to decline. And then what will drive these signals going forward is the portion of the overall portfolio which is coming from new business. And the performance of that part is in line with our expectation. I think YS has outlined that if you look at the quality of new business written since January 1 of this year, it is actually better than new business written in 2022 and 2021. It’s not back to 2019 levels, because we would expect an improved quality because we are focusing on a higher quality customer base, we’ve narrowed our focus on to the best credit quality groups. But we do see that it is generating a profitable outcome, we believe that the new business that we are doing today through its lifetime will be a positive contributor to the company in 2023 and beyond on a per account basis. So we think the asset quality well, it is still challenging, the environment is still challenging, we are seeing a gradual improvement. One other indicator that we’ve seen recently is that the amount that were able to recover post indemnity, post 90 days, where it’s been charged off, that recovery is actually gradually improving as well, this year and in the third quarter, so that we believe will bring some room going forward. So I don’t think it’s time to celebrate that everything has returned to normal. But I think it is time that we know that we probably have seen the worst and we will see gradual improvement in overall quality going forward. In terms of POB, the digital virtual bank license in Hong Kong, we’ve actually, Lu Holdings has been looking at this market for some time, when the initial licenses were issued at eight of them back in 2019, we did consider at that point, looking into it, but then didn’t pursue it for other reasons. Given the opportunity to fully acquire this license today at roughly about 1.2 1.3 times book value, we think is actually quite a good medium term growth options, a very affordable, medium term growth option for us. If you look at POB, in the context of the eight virtual banks in Hong Kong, by loan assets and total assets, it’s roughly ranked third. And if you look at its relative profitability, it actually has the least losses of any player in the market and the focus of POB, while it’s still relatively small, of about 1.8 billion Hong Kong outstanding loans, a majority of those backed by the Hong Kong SME government guarantee program, it’s quite low risk, if you look at the losses that it incurred last year is about 160 million Hong Kong. And we would expect losses this year to be in that range. We would expect to grow the business in the context of Hong Kong, on the loan side diversifying its products a little bit more, diversify its acquisition channels a bit more, taking our experience in technology risk and salesforce deployment in bringing those into the mix. And we will also look at opportunities. If you look out over the next one to two year, in addition to lending opportunities which may extend into the Greater Bay, we have to continue to watch the policy on that closely. But we do think that is the general direction that people want to go. We’ll also look at non-lending businesses, where the bank has the ability obviously beyond deposits to also do a number of other products and so those are areas that we will look to develop. So, over the next two to three years with investment in development, we believe this will become a profitable venture for us and I think, if you take the broader perspective of Lu Holdings, and I think if you look at the words that YS used today mentioned several times, diversification, so the focus really for the last two plus years in the current environment has been to derisk to reduce our exposure to the SBO segment, while focusing on the high quality customers and start to diversify our business in domestically with consumer finance, and also, I think through Hong Kong, with this full banking license that gives us long term opportunities in Hong Kong, Greater Bay, but also can be a launch point for other markets over time. So we look at it as an important and affordable option for us to continue to pursue diversification strategies.

Operator: Thank you. And our next question today comes from Yada Li with CICC. Please go ahead.

Yada Li: Hello, management. Thanks for taking my question. This is Yada from CICC. And I only have two questions for today. The first one is about our consumer finance segment. I was wondering how we shifted the strategic focus towards the consumer finance. And looking forward how much it will contribute to the whole loan book? And compare with the consumer finance peers, what are the unique advantages that we have to develop such business? And the second one is that I notice you have almost a RMB40 billion cash in bank as of this quarters end and we paid a normal dividend payout, where management consider a share repurchase or a special dividend to deliver more value to the shareholders. And that’s all. Thank you.

Gregory Gibb: Sure. I’ll take your first question on consumer finance. So I think we have to first define what is consumer finance for us? How does it add to what we already have been doing for many years? So if you look at our traditional focus on the small business owner segment, overtime, we’ve enabled lending to more than 6 million small business owners. And as you know, those loans have always been granted in the form of to the individual, mostly for use in their businesses. So actually, we have quite a large installed base of customers that we have interacted with and continue to interact with. Now, most of the lending that we have done traditionally has been larger ticket RMB200,000 to RMB300,000 and has typically been for a duration of two to three years. With our consumer finance license, we have an opportunity to provide a higher frequency service to customers that we have served for many years. So we have the ability to understand those customers to understand beyond some of their longer term needs, particularly as they repaid over time, they may have shorter term requirements as individuals as well. And those requirements could be in form of consumption of their own personal needs. So we have been developing a product set that serves these individuals. We’ve also been developing a product set, which allows us to partner with a number of other online platforms, so that we’re also reaching out into new customer segments. Today, the business is developing around half with the ability to serve, small business owners and their individual needs. And the other half through partnerships that extends our reach to the customer base. We continue to invest in this business to generate more and more scenarios, which are closely linked to customer’s consumption behavior. I think what’s very important if you look at consumer finance in the context of Lu Holdings, is that it increases our frequency of interaction for those customers we serve. It also gives us a broader dataset to understand some of their needs and behaviors, which allows us to better judge their overall credit risk in their various needs. So it’s an opportunity to leverage what we have to also broaden who we serve, to do it with a broader set of products with shorter durations, which gives us more flexibility and adds to data that we can use to assess customers more broadly. Today, as we said in the third quarter of total new loan sales enabled through the company, about 40% were for consumer finance, it makes up about 11% of the total outstanding to-date. If you roll forward over the next 12 to 18 months, we would expect that it will still be a very large share of new sales and will increasingly make up a larger part of the portfolio. So we’re now low double digits in percentage of portfolio and we believe that will continue to increase over the next 12 to 18 months. So it is an important diversification initiative but it also helps reinforce our overall position in terms of customers and risk and service. David, you want to address the second question?

David Choy: Thanks, George. For your second question. Yes, we have been exploring all the ways to deliver value to our shareholders, very since our listing. As you may aware, we did some buybacks in previous years, and we continue to pay out dividends in recent years. We’ll continue to do so of course. And as you may aware, we just paid out the first half 2023 the dividends in October with an amount of about $89 million. It’s just a relatively small amount in terms of a relative to our cash position. And I think after all, we won’t exclude any means the ways that we can deliver value to our shareholders as a whole, full perspective of total shareholders returned. And we also find ways to preserve cash or deploy capital in a way to support the sustainable growth for business model in the future, or to create options for future business model and growth. Thank you, Yada.

Operator: Thank you. That concludes our question and answer session for today. I will now turn the call back over to our management for closing remarks.

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

Operator: Thank you. That concludes the call today. Thank you everyone for attending. And you may now disconnect.

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