A few days ago, MSCI (MSCI) announced the results of its quarterly index review in February.
It is reported that and Weibo (wbUS), Daqo New Energy (DQ.US), Huanju Group (YYUS), Lufax (ADR) was also excluded from the MSCI China Index.
When the bad news came, some investors thought that there was a problem with the company's operation. However, the chief analyst of Haitong Strategy saidThe reason for this quarterly adjustment is more of a technical adjustment based on the market capitalization inclusion criteria.
And judging from the recent stock price performance,The reaction of Lufax's U.S. stocks and H shares was muted, indicating that market funds' views on the company have not changed as a result of the above news.
However, in recent years, Lufax's performance and stock price performance have not been very good, is its future development prospect still worth looking forward to?
The revenue structure has quietly changed, and net interest income has increased year by year
Backed by Ping An Group, Lufax is a leading financial services enabler for small and micro business owners in China, providing tailor-made financing products for small and micro business owners and other high-quality borrowers.
As shown in the figure below, under Lufax's core retail credit empowerment business model, the borrower pays a fee for the loan, including the lender's interest, the guarantor's or insurance company's guarantee or insurance premium, and the enabler's enabler's enabling service fee. (If the lender assumes the full credit risk, no additional guarantee or insurance premium will be charged.) ）
WhileThe income earned by Lufax depends on the form in which the loan is structured。If the lender is a consolidated trust of Lufax, the difference between the total amount of fees paid by the borrower (including interest, guarantee fee and enabling service fee) earned by Lufax and the interest paid to the trust investor shall be regarded as the effective interest rate methodNet interest income. If the lender is not a consolidated trust or the lender is a bank, the lender earns interest and Lufax earns the enabling service feeRetail credit enables service fee incomeand (if provided by Lufax) the guarantee feeGuaranteed Income.
ExceptIn addition to the core retail credit empowerment business model, LufaxReferral services are also provided to banking partners to earnPlatform service referral income,Earned on service fees incurred in relation to the distribution of financial institutions' productsOther technology platform revenuesEarned on loans provided by its consumer finance subsidiariesNet interest income and earn other income such as account management fees, penalties and other service fees.
On the whole, Lufax's income** is divided into technology platform income, net interest income, guarantee income, other income, and investment income. Among them,The revenue of the technology platform also includes retail credit empowerment service fees (loan empowerment service fees, post-loan service fees, platform service referral income) and other technology platform revenues.
Judging from the revenue structure in recent years, although the revenue of the technology platform is still the largest revenue of Lufax, the proportion is decreasing year by yearThe proportion of net interest income has been increasing year by year, and is approaching the proportion of technology platform revenueThe importance of guaranteed income is also becoming more and more prominent.
Both performance and stock price declined
It is worth noting that for a company, a significant change in revenue structure is quite important.
For Lufax, the increase or decrease in net interest income and technology platform income also means that compared with lending and selling wealth management products, the increase or decrease also meansThe company's focus is gradually shifting to the lending business.
Is this change good or bad?
From the perspective of performance, under international accounting standards, Lufax's revenue increased significantly in 2021, and the net profit attributable to the parent company also increased by 36% year-on-year02% to 1680.4 billion yuan, the performance is quite impressive.
However, since 2022, Lufax's performance has continued to decline. In the first three quarters of 2023, its revenue fell by 40% year-on-year17% to 2739.9 billion yuan,The net profit attributable to the parent company plummeted by 81 year-on-year81% to 173.1 billion yuan,It's a big surprise.
What is the reason for the sudden "change of face" in performance?
The first point is caused by the change in revenue structure. For Lufax,The increase in net interest income means that the volume of at-risk loans continues to increase.
Upon enquiry, the percentage of total outstanding loans of all credit exposures of Lufax increased from 6.2 in 20203% to 23 in 20225%, including loans guaranteed by Lufax through financing guarantee subsidiaries and loans provided through consumer finance subsidiaries.
An increase in the amount of at-risk loans not only means potentially high returns, but also potentially high lossesThe key is the level of risk control.
However, it backfired. The data shows that from 2020 to the first half of 2023, the overdue rates of more than 30 days on Lufax are: 9%；The overdue rate of more than 90 days has increased from 12% to 36%。
Loan overdue brings losses. As of the end of 2022, Lufax's credit impairment loss increased by 149% year-on-year10% to 1655 billion yuan, the drag on profitability can not be ignored. In the first half of 2023, Lufax's credit impairment loss was 613 billion yuan, a year-on-year decrease of 33%, but the absolute amount is still high.
Of course, behind the high overdue rate of Lufax is the impact of the new crown epidemic and the slow macroeconomic recovery.
In addition to the deterioration in asset quality, Lufax's high interest rates may also have adversely affected its performance in the current environment.
According to the data, Lufax's loans can be divided into three categories: unsecured loans, secured loans, and consumer finance loans. The data shows that from 2020 to 2022, the average annualized interest rate of its unsecured loans were: 1%；The average annualized interest rate for a secured loan is: 7%；The average annualized interest rate for consumer finance loans is: 6%。
At present, there is no shortage of funds in the market, but there is a relative lack of enterprises and individuals who dare to lend, and the loan interest rate continues to decline, and high-quality customers can easily find single-digit loans.
In this case, Lufax's business will naturally shrink, which will have a negative impact on its performance.
It is worth mentioning that while the performance is declining, Lufax's share price has also been declining, and its H shares have fallen by 7% since its listing in 2023, while the decline in US stocks has been even more severe.
The shrinkage of stock price and market value should be the main reason why Lufax was excluded from the MSCI China Index this time.
How do you see the future of Lufax?
As the saying goes: "The pole of things must be opposed, otherwise the pole will come".
Will Lujin, which has suffered a double kill of performance and stock price, also usher in the moment of stopping the decline and rebounding on the stock price side?
Actually,In a sense, Lufax is also a cyclical stock. When the macroeconomic environment is good, the market is booming, and the scarcity of funds is highlighted, Lufax's life will be easy, and when the economic recovery is slow, Lufax's performance will be easily affected.
For Lufax, while waiting for the economy to continue to recover, it is also necessary to improve the company's risk control level and improve the company's asset quality.
Combined with the performance of the secondary market, although the performance of Lufax has suffered a continuous decline in recent yearsHowever, the company's stock price has also suffered a **, and the risk may have been fully exposed, which may be the reason why the company is still stable under the negative news. Once the performance recovers in the future, Lufax's share price is also expected to strengthen, and its development is worth keeping close track by investors.
Author: Yan XIV.