Lufax Holding Ltd (NYSE:LU) narrowed its second-quarter net loss by 86.2% to RMB82 million from RMB594 million a year earlier. The headline improvement, however, came primarily from taxes. Pretax profit declined to RMB30 million from RMB266 million, while income-tax expense fell to RMB112 million from RMB861 million. Total income decreased 15.5% to RMB6.23 billion, and total expenses declined 12.7%.
The central question for Lufax Holding Ltd (NYSE:LU) is whether consumer-finance growth and operating efficiencies can eventually strengthen pretax earnings, or whether the reported net-loss improvement mainly reflects a favorable tax comparison.
Cost reductions still made an important contribution. Expenses excluding credit impairments, finance costs and other gains or losses fell 27.5%. Yet Lufax Holding Ltd (NYSE:LU) remained loss-making, and its first-half net loss widened 33.7% to RMB694 million.
BULL CASE: Lufax Holding Ltd (NYSE:LU) Is Building Consumer-Finance Momentum
Total new loans enabled increased 4.6% to RMB51.1 billion, led by a 27.6% rise in consumer-finance originations to RMB36.9 billion. The outstanding consumer-finance balance grew 19.9% to RMB65.4 billion, making that business the clearest
Several disclosed asset-quality indicators also improved sequentially. Excluding the consumer-finance subsidiary, the C-M3 flow rate declined to 1.0% from 1.2%, while the DPD 30+ delinquency rate fell to 5.8% from 6.1%. Separately, the consumer-finance nonperforming-loan ratio decreased to 1.3% from 1.4%.
For Lufax Holding Ltd (NYSE:LU), continued consumer-finance growth combined with stable credit performance could eventually support a revenue-led recovery. The operating expense reduction also gives future income growth a leaner cost base from which to generate earnings.
BEAR CASE: Lufax Holding Ltd (NYSE:LU) Has Not Yet Improved Pretax Profitability
Total income and pretax profit both declined, while the outstanding loan balance fell 13.5% to RMB167.3 billion. Management said credit costs remained elevated. Second-quarter impairment losses decreased 3.2%, while the June-end loan balance was 13.5% lower than a year earlier.
Lufax Holding Ltd’s (NYSE:LU) risk-bearing share of the outstanding portfolio increased to 93.2% from 83.7%. Because the overall loan book contracted, the approximate absolute risk-bearing balance declined from RMB161.9 billion to RMB155.9 billion. The company is therefore assuming a greater proportion of risk on a smaller portfolio.
