OneConnect Financial Technology Co., Ltd.

Ladies and gentlemen, thank you for saying bye and welcome to the LUFIX Holding Limited's fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we'll have a Q&A session. Please note this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Ms. Liu Xinyan, the company's head of board office and capital markets. Please go ahead, ma'am.

Thank you very much. Hello, everyone, and welcome to our fourth quarter 2022 earnings conference call. Our quarterly financial and operating results were released by our Newswire services earlier today and are currently available online. Today, you will hear from our chairman and CEO, Mr. Y.S. Cho, who will provide an update of our business performance, the macroeconomic impact, and our business strategies. Our co-CEO, Mr. Fred Gibb, We'll then go through our fourth quarter results and provide more details on our business priorities. Afterwards, our CFO, Mr. David Choi, will offer a closer look into our financials before we open up the call for questions. Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that we may discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the International Financial Reporting Standards in our earnings release and the findings with the SEC. With that, I'm now pleased to turn over the call to Mr. YS Cho, Chairman and CEO of Lufax. Please.

Thank you for joining. I would like to start by providing some perspective on where we are. and on our business performance in Q4. While the fourth quarter was undoubtedly challenging, we are confident in our strategy to achieve a U-shaped recovery. At present, we must be patient, prudent, and prepared. We need to be patient for the macroeconomic tailwinds to flow through the SMB segment be prudent in implementing new risk strategies and embedding lessons learned from the pandemic period, and be prepared to gear up new business when the improved environment arrives. Recently, we have made the hard decisions on right-sizing risk and resources, with many related execution work streams to be completed in the first quarter. In the first half of 2023, Our focus will continue to be on asset quality overgrowth and depth over breadth in terms of upgrading our direct sales capabilities in prioritized geographies and within SBO customer segments. Our focus will also include optimizing credit enhancement approaches to provide further support to our operating margins and business sustainability in the mid-term. We believe These strategies will lead to a U-shaped recovery. And we remain patient in terms of preparing ourselves for this recovery and delivering sound operating and financial results. Now, I would like to share some updates for the fourth quarter. On the macro environment, we saw that the operating environment for SMBs remained challenging during Q4. Although, there have been signs of recovery in the mid-term since the change of zero-COVID policy on December 7, 2022. The composite PMI was 49 in October, decreased to 47.1 in November, and further decreased to 42.6 in December. Nominal GDP in the fourth quarter grew at only 2.9% year over year, Our SEO segment was shipped particularly hard as a result. With the adjustment of geopolitical policy, we believe China's economy will recover over the next several quarters. We have already seen signs of robust tourism activity and witnessed consumption boom during the Spring Festival. Non-manufacturing PMI returned returned to expansion after six consecutive months of contraction in January. And manufacturing sector PMI hit 52.6 in February, the highest since April 2012. The IMAC has also raised its forecast for China's economic growth in 2023. Meanwhile, the government has called for more efforts to implement Paris package for shoring up the economy. The Chinese government has stressed enhancing the role of finance in stabilizing the macroeconomy and improving financial services for the real economy. As SMBs are highly dependent on the macro environment and operating continuity, it is expected that SMBs operations will gradually turn to normal post reopening. While it is too early to say when a notable recovery in performance will arrive. The indicators that we are monitoring closely include our C to M3 net flow ratio and the asset quality of neuron vintages compared with older ones. For new business volumes, due to challenging macroeconomic environment in 2022, we have prioritized asset quality over growth by tightening our customer selection standards and focusing new customer acquisition in more economically resilient regions. As we have seen a better credit performance from customers in these regions, and we have turned away potential customers who do not meet our credit standards. For example, for our general secured loans, we rank the quality of our borrowers using our R1 to R6 risk rating system. which is based on the customer's credit risk score and their available assets. R1 represents customers with the highest quality and R6 with the lowest quality. Currently, we only enable loans for borrowers that are ranked R4 or better. We have also optimized our risk rating system by factoring in the differences in economic resilience and underwriting underlying credit performance by region and industry. Meanwhile, we have been optimizing our direct sales force to be more nimble, productive, and effective in customer targeting as we focus on higher quality borrowers. We reduced the size of our direct sales force from over 58,000 as of the end of Q3 to approximately 46,000 as of the end of Q4. We have managed to retain the most productive members of our sales force to target more economically resilient regions. During Q4, we made many difficult decisions, including adjustments to customer selection strategy and the operational optimization of the sales force. The above factors, coupled with seasonality, caused our neurons enabled in Q4 to drop by 37%, quarter over quarter, to $77.8 billion. We believe that seasonality accounts for approximately 10% of the decrease between Q3 and Q4, based on the data of the past two years. As a result of the aforementioned factors in Q4, our revenue declined by 6.6%, quarter over quarter. However, the new loans that we enabled should generate better results as compared to loan vintages as a whole from a loan lifecycle point of view. At the same time, while our core SDR customers were impacted by the deteriorating macro environment, we observed that our consumer finance sector was less affected, allowing us to continuously develop and grow our consumer finance business. The outstanding balance of consumer finance loans has grown substantially from $3.6 billion as of December 31, 2020, to $29.7 billion as of December 31, 2022, representing 188% compound annual growth over the two years. Similarly, our borrowers with outstanding consumer finance loans increased from 168,000 as of December 31, 2020, to 1.3 million as of December 31, 2022, representing 179% compound annual growth. We are in the process of optimizing our risk-bearing model. CGI premiums charged by our insurance partners remained elevated in fourth quarter, as they typically price the risk based on historical loan vintages that were impacted by the challenging macroeconomic environment. While we continue to work closely with our credit enhancement partners, we cannot ensure that the outcome of the CGI premium pricing negotiations will align with our expectation. In circumstances and to the extent where we no longer find these partnerships to be commercially attractive, we are looking to increase our risk-bearing portion on the loans that we enable through our licensed financing guarantees subsidiary and reduce the size of cooperation with the external credit enhancement partners. We are now in discussions with our funding partners regarding potential adjustments to our model where we reduce usage of external credit enhancement partners. We target to complete these adjustments with the majority of our funding partners over the next few quarters to increase our operating flexibility. As of the end of Q4, we had net assets of RMB 94.8 billion on a consolidated basis. And our financing subsidiary has net assets of RMB 48 billion. The strong capital position provides a solid foundation for us to increase the percentage of risk we bear and support the optimization of our risk-bearing model. On regulation, we have largely completed our rectifications and the industry will enter into a stage of normalized supervision. In January 2023, the regulators confirmed that rectifications on the financial business of the 14 platform companies have largely been completed, with only a few pending issues currently in progress to be resolved. The regulatory authorities will maintain normalized supervision in general going forward. according to the guidance provided by the regulatory authorities. Finally, I am pleased to share that we are pursuing a Hong Kong listing. We submitted the A1 filing for a dual-primal listing by introduction on the main board of the Hong Kong Exchange on February 1, 2023, and we will continue to communicate with the Hong Kong Stock Exchange regarding the listing plan. I will now turn the call over to Greg for more details on our operating resource and business priorities.