August 19, 2017 1:57 am JST

Ping An's online lending platform Lufax turns profit ahead of IPO

Management tight-lipped about expected stock market debut

JOYCE HO, Nikkei staff writer

From left, Ping An Insurance Chief Investment Officer Timothy Chan Tak-yin, Chief Operating Officer and Chief Information Officer Jessica Tan Sin-yin, President Alex Ren Huichan, and Chief Financial Officer Jason Yao Bo at the company's interim earnings announcement in Hong Kong on Aug. 18. (Photo by Joyce Ho)

HONG KONG -- Shenzhen-based financial conglomerate Ping An Insurance Group said Friday that its online lending operator Lufax Holdings was no longer loss-making as it prepares for an initial public offering.

"Lufax's development is extremely robust. [It] actually turned around in the first half. We are very confident that it could stay profitable for the full-year," said Jessica Tan Sin-yin, Ping An's chief operating officer and chief information officer during the Chinese insurance group's earnings announcement.

Established in 2011 with the help of Shanghai municipal government, Lufax, or Shanghai Lujiazui International Financial Asset Exchange, is currently the largest peer-to-peer lending platform in mainland China in terms of outstanding loans, totaling 1.5 trillion yuan ($225 billion) as of Friday, according to industry consultant WDZJ.com. The figures far exceed those of its nearest peer, New York-listed Yirendai, which has an outstanding loan balance of 39.7 billion yuan.

Gregory Gibb, chief executive of Lufax, told reporters in Singapore last month that the company has done "a lot of homework for Hong Kong" in arranging its market debut.

As of the last round of financing in January 2016, the company, 43% held by Ping An, was valued at $18.5 billion. But the management of Ping An remained tight-lipped about the IPO plan.

Ping An President Alex Ren Huichuan said that one key function of Lufax was to help local governments in optimizing their balance sheets while supporting the Belt and Road Initiative, a pet project of President Xi Jinping. Last year, it completed an integration with Chongqing Financial Assets Exchange, Shenzhen Qianhai Financial Assets Exchange, and Puhui Financial, a consumer finance services provider.

Of Ping An's nonstandard debts, 56.9% were exposed to infrastructure investments, followed by 27.7% to non-bank financials and 12.3% to real estate.

Compared to last year when Ping An netted 9.5 billion yuan from a restructuring, net profit of its internet finance business fell 94.7% to 420 million yuan in the first half. That represented 0.9% of the wider group's net profit, which totaled 43.43 billion yuan in the first half, up 6.5% from a year ago.

The result was partly attributable to a 3.5% increase in net investment income to 61.83 billion yuan, half of which came from equity, especially in high dividend-paying blue-chips listed in Hong Kong, according to Ping An's Chief Investment Officer Timothy Chan Tak-yin.

The proportion of equity in Ping An's insurance funds therefore continued to rise, now making up 20.4% of the portfolio, up 3.5 percentage points from the end of last year.

Although life insurance and banking businesses remained the bread and butter of Ping An, accounting for 54.3% and 16.8% of its net income, its management is hoping investors will value it as a tech company.

"Ping An has been investing a lot in technology over the past few years," said Jason Yao Bo, Ping An's chief financial officer, noting that the company is looking to drive its business with fintech and healthtech. "That begs the question of whether Ping An should be valued with a different model."

Still being valued as a traditional financial services or insurance company with metrics such as embedded value, Ping An had a price-to-earnings ratio of 13 times with a market capitalization of 1.124 trillion Hong Kong dollars ($144 billion) as of Friday. That struck a sharp contrast to tech companies such as Alibaba Group Holding, Tencent Holdings, Amazon and Apple that are valued at 40-100 multiples of their earnings, noted Yao.

The company announced an interim dividend of 0.5 yuan per share, up from 0.2 yuan compared to a year earlier.

The company's Hong Kong-listed shares recorded a turnover of 101.23 million on Friday, ending 1.43% higher to HK$60.2 and rising 55.15% so far this year. That is compared to the benchmark Hang Seng Index that dropped 1.08% the same day, and returned 22.94% so far this year.

Its Shanghai-listed shares gained 4.05% to 53.17 yuan the same day, and 50.07% in the year to date. Over the same time frames, the Shanghai Stock Exchange Composite Index rose 0.01% and 5.32% respectively.

Asia300

Ping An Insurance (Group) Co. of China Ltd.

China

Market(Ticker): HKG(2318)
Sector:
Industry:
Finance
Multi-Line Insurance
Market cap(USD): 198,063M
Shares: 18,280.2M

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