Lufax listed: the former P2P leader has been transformed to the shore, and 80% of its income depends on lending

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By Wei Jie
Source: shenrancaijing
The listing of lufax in the United States has finally come to an end.
On October 8, lufax, the investment and wealth management platform of Ping An Group, publicly submitted a prospectus to the US Securities and Exchange Commission (SEC) to seek listing on the New York Stock Exchange. Goldman Sachs (Asia), Bank of America Securities, UBS, HSBC and Ping An Securities (Hong Kong) acted as underwriters, with Ping An Group accounting for 42.3% of the shares.
Although the prospectus did not disclose the specific amount of financing, there were rumors that lufax could raise $2 billion to $3 billion, which is expected to become the largest financial technology IPO in the US stock market so far.
According to the prospectus, in 2019, lufax realized an income of 47.8 billion yuan and a net profit of 13.3 billion yuan; in the first half of 2020, its revenue was 25.7 billion yuan, a year-on-year increase of 9.5%, and a net profit of 7.3 billion yuan, a year-on-year decrease of 2.75%.
It is worth mentioning that ant financial services and Jingdong Digital Technology Co., Ltd. have submitted their prospectuses recently. So far, the three financial technology giants have gathered in the capital market.
Loans and financial management make more than 10 billion yuan a year
The two main businesses of lufax are retail credit and wealth management. To put it bluntly, they are lending and selling financial products, which rank second and third respectively in the market of non-traditional financial institutions in China.
Retail credit business is provided by Ping An Pratt Whitney. As of June 30, 2020, the number of users of lufax’s loan business has reached 13.4 million, of which, 69% are small and micro enterprises (enterprises with less than 30 employees and annual income less than 5 million). The wealth management business is provided by lufax platform, and the asset scale of per capita users is 29300 yuan. As of September 30, 2020, the total balance of retail credit reached 535.8 billion yuan, and the scale of wealth management reached 378.3 billion yuan.
From the perspective of revenue performance, from 2017 to 2019, the compound annual growth rate of total loan business of lufax was 26.6%, and that of total assets of wealth management customers (excluding P2P products) was 39.4%. The annual total revenue was 27.8 billion yuan, 40.5 billion yuan and 47.8 billion yuan respectively, and the net profit was 6 billion yuan, 13.6 billion yuan and 13.3 billion yuan respectively.
In the first half of 2020, the total revenue was 25.7 billion yuan, an increase of 9.5% compared with that of 23.4 billion yuan in the same period of 2019, and the net profit was 7.3 billion yuan, which was 2.8% lower than that of 7.5 billion yuan in the same period of 2019. The main reasons for the slowdown in revenue growth are the loss of traditional products in wealth management business and pricing changes in retail credit business, the prospectus explained. The changes in pricing are mainly due to the borrower’s prepayment of the loan and the change of capital structure affecting the scope of services.
The decrease in net profit was due to a 21.3% increase in sales and marketing expenses, mainly due to the amortization of the acquisition cost of capitalized borrowers as a result of the growth of new loans in previous years, as well as a 134% credit impairment loss due to the outbreak of the new crown.
At present, lufax adopts the asset light mode of operation. As of June 30, 2020, 60.6% of all loans provided by the platform were directly funded by 49 banks, and another 38.7% was provided by investors of trust schemes. The loan funds provided by lufax platform itself did not exceed 10%.
From 2017 to 2020, the proportion changes of lufax’s businesses
With the change of operation mode, its income structure has also changed. Among them, the contribution of service fee of retail credit business in the total income has increased continuously, from 55% in 2017 to 73% in 2018, and then to 82% in 2019; while the proportion of net interest income continues to decline, from 26% in 2017 to 8% in 2019; and the proportion of guarantee income also continuously decreases, from 5% in 2017 to 2% in 2018, and then to 1% in 2019. In the first half of 2020, the above three indicators accounted for 80.8%, 11.7% and 0.7% respectively.
Go to P2P and go public
The tide of Internet finance has receded, and lufax is one of the few who have landed.
On September 14, at the press conference of the CIRC, Feng Yan, deputy director of the Inclusive Finance Department of the CIRC, said that by the end of August this year, there were 15 online lending institutions in operation nationwide, down 99% from the beginning of 2019.
Lufax now defines itself as a “technology driven personal financial service platform”, and its more widely known identity in the past was a P2P industry leader backed by Ping An group.
In July last year, domestic P2P companies began to clean up P2P business in order to meet the requirements of “three reductions” in supervision. The so-called “three reductions” refers to the requirement of relevant departments for P2P platforms to reduce the scale of existing business, the number of lenders and the number of borrowers.
In the prospectus, lufax also mentioned the process of “decoupling” from P2P business. In the second half of 2017, B2C products will no longer be provided in wealth management business. In August 2019, P2P products will no longer be provided in retail credit business, and P2P investors’ funds will be stopped as the source of funds for retail credit business. As of June 30, 2020, the proportion of customer assets of P2P products has dropped to 12.8%. In 2020, there will be no P2P investors’ funds in the source of loan funds.
According to the prospectus, old products (mainly online loan assets) decreased from 336.4 billion yuan at the end of 2017 to 103.3 billion yuan at the end of 2019, and the balance was 47.8 billion yuan by June 30, 2020. The proportion of old products in total assets of customers decreased from 72.9% at the end of 2017 to 12.8% at June 30, 2020. As the longest term of P2P products is 3 years, lufex’s last stock of P2P products will expire in 2022.

As of June 2019, although the proportion of P2P business in lufax’s business has been small, lufax’s P2P platform is still the largest in the industry. According to the data of online lending home, lujinfu (lufax’s P2P platform) ranks first in the industry in terms of comprehensive rating. According to the data of zero one finance and economics, as of the end of June, the outstanding balance of Lu Jinfu was 98.43 billion yuan, far higher than 48.01 billion yuan of Jiufu Pratt & Whitney.
In 2016, lufax was transformed into a layout of “three institutes and one benefit”, which refers to lufax, Chongqing financial assets exchange and Shenzhen Qianhai financial assets exchange; “Yihui” refers to the general name of the companies which carry out financing guarantee, commercial factoring, small loan and other businesses controlled by lufax, and gradually divest the online loan business by implementing the “three reductions” in the online loan industry. In 2017, LUCC established lufax international in Singapore to carry out overseas online wealth management business, forming a strategic layout of “four institutes and one benefit”.
However, with the halo of P2P leader, the listing of LUCC is not smooth. In May 2014, it was rumored that lufax would be spun off and listed, with a valuation of up to 100 billion yuan. In December 2015, Ji Kuisheng, chairman of lufax, responded for the first time that lufax would be listed in Hong Kong in the second half of 2016 as soon as possible. In February 2016, lufax announced the completion of US $1.216 billion round B financing, with a valuation of US $18.5 billion. Since then the listing rumors, lufax has no positive response. Until March 2019, Ping An Group, a major shareholder of lufax, said that lufax was currently well funded and there was no urgent IPO pressure.
The investors’ expectation for the listing of lufax is obvious. After a round of financing in March 2015, lufax’s valuation was US $10 billion, and after round C financing in March 2019, it was valued at US $39.4 billion. From the market point of view, investment institutions also have the listing expectations and exit needs of lufex.
In fact, on the eve of listing, lufax’s valuation was down.
On August 27, Ping An of China released its first half financial report, which disclosed that the total value of five technology companies reached 70 billion US dollars. According to public data, the market value of Ping An Hao doctor, financial one account and auto home on June 30 were 16.236 billion US dollars, 6.743 billion US dollars and 8.99 billion US dollars respectively, totaling 31.969 billion US dollars. This means that the total valuation of Ping An medical insurance technology, which is controlled by lufax, is about 38 billion US dollars. This figure is lower than the valuation after the completion of the C round financing of lufax holdings.
In addition, Lujin Institute on the road of transformation is also controversial.
In November 2019, due to a civil ruling issued by the court, Ping An Pratt & Whitney has aroused the media’s attention on the suspected economic crimes of Ping An Pratt & Whitney. According to the ruling, Ping’an guarantee and Ping’an small loan, two holding subsidiaries of Rongyi Co., Ltd., sued Li Zhaochun, the borrower, to recover all the money that Li should pay to Ping’an small loan company in accordance with the loan contract. Xuzhou intermediate people’s Court of Jiangsu Province held that Ping’an guarantee and Ping’an small loan “made a large amount of loans through the establishment of affiliated companies, so as to obtain For the purpose of illegal interests, its behavior is suspected of economic crime “, the plaintiff’s lawsuit of Ping An guarantee is rejected, and the case materials are transferred to the public security organ for handling. Rongyi Co., Ltd. is a wholly-owned subsidiary of Ping An Group established in Hong Kong through lufax.
On the 21CN complaint gathering platform, Ping An Pratt & Whitney Enterprise Management Co., Ltd. has made 24963 complaints, mainly focusing on “cutting off interest” (deducting loan interest in advance from the principal) and compulsory tying insurance.
Zhongtai securities research paper pointed out that due to the delay in the implementation of P2P license, the listing process of lufax was affected. Applying for consumer finance license is a feasible scheme for the transformation of online lending platform. In April 2020, Ping An Group and lufax holding subsidiary jointly invested in the establishment of Ping An consumer finance. On June 30, Ping An Consumer Finance Co., Ltd. released its first technology-based personal revolving consumption credit loan product “Ping’an small orange blossom” in Shanghai.
Shen Meng, director of Xiangsong capital, believes that the reason why P2P exists and develops rapidly in China is that there is a great demand for survival. At present, the retail credit and wealth management of lufax are not different from P2P in essence, but are in a more compliant form. Wealth management is also a kind of intermediary role between the financier and the financier of vest, and has no real significance of wealth inheritance or asset allocation. Although consumer finance is not a simple information intermediary, it is still the intermediary role of the fund side and the financing side, and the scene is still consumption, so the so-called transformation is only the change of marketing packaging, and the core has no essential difference.
What is the future after going public?
With the tide of Internet Finance receding, is there a bright future for lufax?
Lufax claimed that its main business was wealth management and personal borrowing. However, in the first half of 2020, the income contribution of wealth management business accounted for only 2.7%, a sharp decrease of 53.15% to 699 million yuan. Retail credit business contributed more than 80% of the revenue source, to 20.754 billion yuan, an increase of 9.1% year-on-year.
Even with the support of science and technology terms such as artificial intelligence, big data and blockchain, lufax is essentially a lending company.
The “middle class” and “rich class” mentioned frequently by Lu Jin actually have a “sinking” trend. In 2019, among the 346.9 billion yuan of customer assets of lufax, more than half of the assets come from customers with assets of more than 500000 yuan. In the first half of 2020, the assets scale of lufax increased by 8% to 374.7 billion yuan compared with the beginning of the year, but 75% of the assets came from customers with assets larger than 300000 yuan.
In the second half of 2020, domestic financial technology unicorns have been IPO. According to the Hurun global Unicorn list released in August this year, ant group ranked first with a market value of 1 trillion yuan (No. 1 in the financial technology sub list), Lujin ranked No. 4 (No. 2 in the financial technology sub list) with a market value of 1 trillion yuan, and Jingdong Digital Technology Co., Ltd. ranked No. 12 with 130 billion yuan (No. 5 in the financial technology sub list).

According to its prospectus, lufax is based in a market where traditional financial institutions and Internet companies support technology-based financial platforms (such as ant financial, Weizhong bank, Tencent wealth management, etc.) that are not well served. Traditional financial institutions do not have the ability, data and technology to meet the needs of customers, while online technology financial platform lacks financial data and financial service ability, so it is unable to properly evaluate the credit risk of borrowers and provide investors with suitable products.
But in fact, ant financial services’ investment in R & D is much higher than that of lufax. In the first half of 2020, the R & D expenses of ant financial services will reach 5.72 billion yuan, accounting for 7.9% of the revenue, while the technology and analysis expenditure of lufax in the same period is only 849 million yuan, accounting for only 3.3% of the revenue. Lu Jin’s sales and marketing expenses accounted for more than 30% of the revenue.
Source / pexels
Shen Meng thinks that the difference between Lujin Institute, ant financial services and Jingdong science and technology is that they have different big trees on their backs and can allocate different resources. However, they are actually a way to realize the resources of big trees. They do not have many core technologies or core resources.
According to the analysis of Zhongtai securities, the advantage of P2P mode is that it is light of capital. As an information intermediary, the platform does not bear credit risk and can quickly enlarge the scale of assets. After the transformation of consumer finance, this advantage disappears. In the fierce competition of consumer finance market, it is necessary to establish a new competitive advantage, find a hierarchical market in line with its own resource endowment, and develop the corresponding business model and risk control model.
Wang Shuo, a special researcher at the Academy of Social Sciences, believes that lufax is transforming from a self-supporting loan business to an open empowerment model with light assets. However, compared with the stability and rich profits of the self financing loan income, the stability and sustainability of the enabling model need to be further observed. In addition, although the current financial technology regulatory policies have not been fully promulgated, it is only a matter of time before strong supervision is included in the future, and the regulatory dividend is gradually decreasing. The implementation of new asset management regulations will also bring policy pressure on business development.
Among the comparable companies, the development of the consumer financial platforms, such as Renyi Jinke and Lexin, which were listed earlier than lufax, are not optimistic.
The IPO price of Yiren Jinke, which was listed in the United States in 2015, was US $10. At the end of October 2017, the share price of Yiren Jinke reached US $53. However, as of the end of October 8, the share price of Yiren Jinke was only US $3.1, with a total market value of US $290 million, which was 95% evaporated compared with the peak. The issuing price of Lexin listed in the United States in 2017 was $9. In March 2018, the share price of Lexin rose to $20 per share. As of October 8, the share price of Lexin was $6.78, with a total market value of $1.218 billion, which was 66% lower than the peak.
Economist song Qinghui told shenran that the poor performance of Yiren Jinke and Lexin is mainly due to the bottleneck of the industry. The fact that the two financial technology companies have fallen below the issue price and the market value has shrunk dramatically has undoubtedly discounted lufax’s imagination.
*The title is from pexels.
(statement: This article only represents the author’s point of view, not Sina’s position.)