Lufax Holding Ltd, a leading technology-empowered personal financial services platform, is set to go for IPO in US. The mission of Lufax Holding Ltd is to make retail borrowing and wealth management easier, safer and more efficient. Lufax Holding Ltd is expected to raise $ 2 to 3 billion from its IPO. Here are some things that all investors should know ahead of the Lufax Holding Ltd IPO.
1. The business model and target market segment
Lufax Holding Ltd consist of two business units which are retail credit facilitation hub and wealth management hub. The target customer for retail credit facilitation hub are small business owners. On the other side, the target customer for wealth management hub are middle-class and affluent investors. Lufax Holding Ltd believes those market segments are underserved by traditional financial institutions and online-only FinTech platforms which backed by major internet companies.
According to Lufax Holding Ltd ‘s prospectus, the outstanding balance of small business loans in China reached RMB43.1 trillion (US$6.1 trillion) in 2019, representing a five-year CAGR (Compound annual growth rate) of 14.3% between 2014 and 2019, and is expected to grow to RMB76.6 trillion in 2024, at a five-year CAGR of 12.2%.
Total assets under management of the wealth management market in China reached RMB49.4 trillion (US$7.0 trillion) in 2019 and are expected to grow to RMB118.0 trillion by the end of 2024, representing a five-year CAGR of 19%.
2. Recent revenue statistics
Lufax Holding Ltd demonstrated a strong growth over the past three years. According to Lufax Holding Ltd ‘s prospectus, from 2017 through 2019, total balance of loans facilitated grew at a CAGR of 26.6%. Total wealth management client assets, excluding legacy products, grew at a CAGR of 39.4%. Total income increased from RMB27.8 billion to RMB47.8 billion (US$6.8 billion), representing a CAGR of 31.1%. Net profit increased from RMB6.0 billion to RMB13.3 billion (US$1.9 billion), representing a CAGR of 48.6%. Income contribution from technology platform services grew from 61.9% to 87.7%. Net margin increased from 21.7% to 27.8%. For the first six months of 2020:
- Total income was RMB25.7 billion (US$3.6 billion)
- Net profit was RMB7.3 billion (US$1.0 billion)
- Income contribution from technology platform services was 83.5%
- Net margin was 28.3%
3. The impact of COVID-19
As retail credit business highly correlate to economy condition, Lufax Holding Ltd also suffer from nationwide lockdowns in China during the first half of 2020. According to Lufax Holding Ltd ‘s prospectus, DPD 30+ delinquency rate for general unsecured loans increased from 1.8% as of December 31, 2019 to 3.3% as of June 30, 2020 and the DPD 30+ delinquency rate for secured loans increased from 0.6% to 1.4% as of the same dates.
As China have resumed it economy activities, those delinquency rate seem to already reach the peak at the first half of 2020.
4. Subject to laws and regulations
As global trade conflict are on the rise, country may use laws and regulations to limit the development of a technology company. As target market for Lufax Holding Ltd are mainly focus on China, this risk is minimized.
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