Financials Author: Qing Lan Editor: Luke Sheehan Jan 13, 2021 10:48 AM (GMT+8)

Here are the things that we might have to concern along with the overall good performance.

Jp Valery

This article is Chapter 8 of EqualOcean's comprehensive analysis of Lufax Holding. Explore all the chapters of the report:

Chapter 1: Industry evolution

Chapter 2: COVID-19: Unexpected stimulus

Chapter 3: The race between China's fintech trio: Lufax, Ant Group, JD Digits

Chapter 4: Huge growth potential in markets

Chapter 5: Operation strategy: Capital-light model and unique client segment

Chapter 6: Lufax and Ping An

Chapter 7: Diverse client acquisition channels

Chapter 8: Risks


Chapter 8: Risks

Competition pressure from other large technology-based financial services agency platforms are still bearing down on Lufax. Companies like Alibaba's Ant Group, Tencent's Licaitong and JD's JD Digits, which are interlinked with their own e-commerce systems, tend to convert mass merchants into their clients. Also, led by relatively stronger technology development capacities, they are likely to compete with Lufax in certain fields that require less financial expertise, such as better risk management and more precise loan pricing, which are more attractive to fund providers. Furthermore, from the long-term perspective, these fintech giants are also able to provide larger ticket sizes based on their decades of accumulation of financial datasets, which is expected to erode Lufax's competitiveness.   

Lufax's imprudence in product selection might still concern the investors. Without taking risks, the company might neglect sufficient and judicious assessments in selecting products, which hurts the reputation of Lufax and break the trust from investors. As the investment products providers failed to pay back the principle several times before, It is a reasonable concern for investors that such things will occur again or not in the future. 

 •As an online lending platform, Lufax's business is subject to stricter  laws, regulations, and supervision by  the state. For example, newly-drafted regulations in November 2020 that targets the microlending providers put strict requirements on the leverages in the co-lending loan issuances, which will directly constrain the businesses of loan facilitators significantly, such as Lufax. Also, some of the fees charged by Lufax are at the edge of the new judicial protection ceiling of private lending interest rate set by the Supreme People's Court. In order to comply with existing and upcoming regulations, more expenses might be generated and the upward potential in profitability will be constrained, or even negatively influenced. 

Uncertainties in the global economy might impede Lufax's overseas exploration. Increasing uncertainties in the global geopolitical environment puts certain difficulties in the global exploration for Lufax. Also, with operations in Singapore, Hong Kong and Indonesia, Lufax is exposed to high foreign exchange risk. These unrest are expected to cause a more fluctuating exchange rates, which will affect Lufax's profitability to some extent. Especially under the intense situation between China and the US, the IPO proceeds that are considered for P2P debt repayments might be affected during the currency exchange. The uncertain recognition of Chinese concept stocks by US investors is expected to affect the stock price as well.


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