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Chinese wealth manager Lufax reports fall in H1'20 net profit ahead of US IPO

Chinese online wealth manager Lufax Holding Ltd., which has filed to go public in the U.S. market, reported a lower net profit for the first half of this year.

Net profit was 7.27 billion yuan in the six month ended June 30, compared with 7.48 billion yuan in the same period of last year, according to an Oct. 7 preliminary listing document filed to the U.S. Securities and Exchange Commission by Lufax, the holding company that includes several subsidiaries, including Shanghai Lujiazui International Financial Asset Exchange Co. Ltd.

Retail credit facilitation service fees rose to 20.75 billion yuan –comprising 80.8% of its total income– from 19.02 billion yuan a year earlier. Wealth management transaction and service fees fell to 699 million yuan from 1.49 billion yuan, Lufax said.

The company, backed by Ping An Insurance (Group) Company of China Ltd. primarily addresses the demand for personal loans among small business owners and salaried workers in China. It offers tailored wealth management solutions to China's middle class and affluent population by leveraging the insurer's ecosystem and its own online marketing team and member referral programs to source customers.

At the end of June, Lufax had 13.4 million cumulative borrowers under its retail credit facilitation program with the volume of new loans it helped arrange amounting to 284.5 billion yuan. Its wealth management division recorded 44.7 million registered users and 12.8 million active investors over the same period.

According to industry research firm Oliver Wyman, the company's average loan size was 146,513 yuan for general unsecured loans and 422,398 yuan for secured loans as of June 30, compared with an estimated average ticket size of approximately 5,000 yuan for the other top five lenders among non-traditional financial service providers.

From 2017 to 2019, the wealth manager's total balance of loans facilitated grew at a compound annual growth rate of 26.6%, while its total wealth management client assets grew at 39.4% annually.

China's wealth management market is expected to grow to 118 trillion yuan by the end of 2024, it said.

US-China tensions

Lufax did not disclose the size of its proposed offering but noted that it intends to list its American depository shares on the New York Stock Exchange under the symbol LU. The company previously considered a Hong Kong listing in 2018.

The New York listing comes amid fraying relations between the world's two largest economies, with President Donald Trump seeking to apply U.S. auditing norms on America-listed Chinese firms. In August, the Presidential Working Group on Financial Markets recommended that all Chinese companies seeking to list in the U.S. be mandated to let U.S. regulators review their audit records as a condition of listing. Chinese firms, in turn, are seeking secondary listings on local exchanges.

"There have also been concerns about the relationship between China and other countries, including the surrounding Asian countries, which may potentially have economic effects," the company said.

Goldman Sachs (Asia) L.L.C., BofA Securities Inc., UBS Investment Bank, HSBC Holdings PLC, Morgan Stanley, China PA Securities (Hong Kong) Co., Ltd., CLSA Ltd. and Jefferies LLC are underwriters for the proposed share sale. The company plans to use the proceeds primarily for its general corporate purposes, including product development and to invest in new technologies or solutions that complement its business, according to the IPO registration document.

As of Oct. 7, US$1 was equivalent to 6.79 Chinese yuan.