Financials Author: Skye Lan Editor: Luke Sheehan Oct 31, 2020 04:51 AM (GMT+8)

The IPO didn't impress investors, which brought the price down to USD 12.85 apiece on the first day of trading.

Image credit: Eric Prouzet/Unsplash

Lufax has posted robust financial results for the last three years. 
► The light-capital business model protects the company's stable revenue growth.
► It targets affluent clients in order to ensure a profitable future. 
► Its dependence on Ping An Group raises questions in regard to the future development. 

Lufax (LU:NYSE), a self-incubated wealth management platform, launched its New York Stock Exchange IPO on October 30, raising USD 2.36 billion. The 175 million American Depositary Shares (ADS) were priced at USD 13.5 apiece, but opened 13% lower at USD 11.75. The stock closed its first day at USD 12.85.

Even oppressed by the Trump administration, the listing stream of Chinese companies never ends. Lufax's IPO becomes the first public fintech company in China even before Ant Group, and the fifth-biggest one this year in the US.

Backed by Ping An Group, the largest insurer in China by market value, Lufax was once the largest peer-to-peer (P2P) platform in the country. Now, it is transforming itself into a fintech company, providing lending and investment products to the upper-middle class. Even after Lufax stopped developing its P2P business, in 2019, the company found a way of maintaining high profitability. From 2017 to 2020, the financial figures describe a robust progress. 

As investors, what to expect in the future beyond the numbers?

The lighter the assets, the lower the risk

From late 2017, Lufax no longer provided B2C products and also closed its P2P business in 2019. With these moves, the company is rebuilding itself into an asset-independent company, with most of the funds in the lending businesses coming from third-party partners. In 2017, such capital took up 48% of the total lending amount but decreased to 0.7% at the end of 2020. Similar to Ant Group, in which 98% of the fund is provided by financial institution (FIs) partners in the credit business. Fintech firms with less dependence on their own assets seem to take a lower risk and are expected to have more sustainable developments. 

Serving as a matchmaker between lenders and borrowers with small amounts of their own money to invest, the technology service fee is taking up more and more in total revenue along with the interest income going down. 

The credit risk for outstanding loan facilitated ran down from 24.6% in 2017 to 2.8% in the first half of 2020. 

A higher value of investors, higher profitability

As more Chinese population are joining the middle-class segment, these customers are increasingly seeking diversification of assets and services. 

In the wealth management sector, Lufax targets the relatively affluent ones with 75.4% of the total client assets contributed by higher value investors whose capital above CNY 300,000 (around USD 42,462). The average assets under management in the company reached CNY 29,330 (around USD 4,151), which is three times the average level of other top-five non-traditional financial service providers in China, which is around CNY 8,000 (around USD 1,132). Yu'e Bao (Chinese: 余额宝), the star asset management product for Ant Group, has a per capita level of CNY 6,000. 

Apparently, the wealthier people contribute more profitable income to Lufax and also carries less risk. 

The diversified products provided on Lufax's platform meets the goals of the clients with dynamic adjustment of their portfolios. At the end of June 30 of 2020, the company has over 429 FIs partners and 8,600 investment products offered, significantly surpassed the figures of Ant Group, which are 170 and 6,000 respectively. 

What’s more, the target customers in the credit lending services are also the ones with high financing needs, such as the owners of small businesses. By end of June 30 of 2020, 92% of borrowers held credit cards and 57% owned properties. The average unsecured loan amount reached CNY 146,500 and the mortgage loan scale posted CNY 422,400 – significantly larger than the average level of other top-five non-traditional financial service providers in China, Ant Group included, which is around CNY 5,000.


Investors can never 100% rely on the future success of a company. Risks always abound. 

As the first fintech company incubated by Ping An Group, Lufax still has a certain dependence on the latter, which gives Lufax access to 210 million customers. It is an advantage but also a drawback. 

Without the support of Ping An Group, we are unsure about its capacity to survive. As we can see, the marketing cost accounts for an increasing portion of the total revenue, and the borrower acquisition cost has been running up higher than the borrower numbers which raises worries about its own business expansion ability. 

Also, stricter regulation from the state on China's credit market, especially the cut on the upper limit of judicial protection for private borrowing rates, will impose certain restrictions on the large number of non-banking credit lending providers that are not yet reclassified as financial institutions. If Lufax isn't recognized as a financial institution, its profitability will be significantly influenced.

The bottom line

On the first day of trading, the number of transactions related to the newly listed stock was relatively low. As a result of it, the market capitalization of the company was at USD 31.35 billion, even lower than its valuation after the Series C financing in 2019 – USD 39.40 billion.