Lufax Holding Ltd

NYSE:LU

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Lufax Holding Limited First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, we will have a Q&A session. Please note this event is being recorded.

Now, I would now like to hand the conference over to your speaker host today, Mr. Yu Chen, the company’s Head of Board Office and Capital Markets. Please go ahead, sir.

[Chen Yu, Head of Board Office and Capital Markets]

Thank you, operator. Hello, everyone, and welcome to our first 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, Mr. Ji Guangheng, who will start the call with some general updates of our key achievements, then address some focal [ph] issues for investors. Our Co-CEO, Mr. Greg Gibb, will then provide a review of our progress and details of our development strategies in the quarter. Afterwards, our CFO, Mr. James Zheng, will offer a closer look into our financials before we open up the call for questions. In addition, Mr. Y.S. Cho, our Co-CEO; and Mr. David Choy, CFO of Puhui will also be available during the question-and-answer session.

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 will 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 filings with the SEC.

With that, I’m now pleased to turn over the call to Mr. Ji Guangheng, Chairman of Lufax.

[Guangheng Ji]

[Interpreted] Hello, everyone, and thank you for joining our first quarter 2022 earnings conference call. I will start today’s call with an update of our key achievements for the quarter and then share our views on those focal issues for investors. Due to the COVID-19 situation in Shanghai, my colleagues and I are dialing in separately from home. Please bear with us should we encounter technical difficulties during the call.

Key achievements. Despite COVID-19 resurgence and micro-economic slowdown, we achieved steady growth during the first quarter. During the first quarter our total income grew by 13.5% year-over-year to RMB17.3 billion, and net profit increased by 6.5% year-over-year to RMB5.3 billion. Our basic earnings per ADS for the quarter reached RMB2.31. In April, we paid a dividend of US$0.34 per ADS for the first time since we went public. We plan to return value to our shareholders already weighs going forward.

Second, key investor concerns. We may tend to open dialogues with the market a hosted over 60 investor event during the first quarter, based on our data roughly 60% of investor questions are about macro environment and business operations, 30% are about regulatory trends, and the remainder was related to capital market development. In general, investors are concerned about Chinese ADR, many think that the panic selling has caused ADRs valuation to decouple from their fundamentals, although recent public statements from Chinese regulators have instilled some confidence into the market most investors are still taking a wait and see approach.

Presently investor’s key concern rest on our growth prospects in the current macroeconomic environment. In March, China escalated its countermeasures to contain the coronavirus. Shanghai, for example, has experienced lockdown under the nationwide COVID-zero policy impacted by pandemic included economic slowdown. The financial services industry as a whole and avoidably suffered the deceleration in growth and deterioration in asset quality. Our own business was also impacted. Our analysis indicates that the impact from this year’s pandemic is higher than that of 2020. In preparation for the challenge, our management has preemptively implemented a series of initiatives including tightening our credit policy, enacting prudent cost control measures, shoring up cash flow management and many more. Greg will elaborate further on those details later.

Many investors have expressed concerns about the April 29 ratification progress and the ADR delisting risk. Having completed the vast majority of our ratification related initiatives. We have also devised detailed action plans for the remaining issues that require plan efforts or the financial stability and development committee meeting on March 16, the Vice Premier of the State Council Mr. Liu He made the call to press, had with the ratification of large platform companies, and to finish this task as soon as possible.

On April 29, the political bureau of the Communist Party of China’s Central Committee also stated the meeting that efforts should be made to advance the ratification of platform companies and to promote the regulated and some development of the platform economy. Judging from this information and insights, we believe that the regulatory ratification process is at the point of entering its final phase.

Regarding the delisting risk, the U.S. Securities and Exchange Commission provisionally indemnified the effects as a commission indemnified issuer under the Holding Foreign Company Accountable Act on May 9, 2022. Over 100 Chinese ADR’s have been included on the SECs provisional list. More importantly, we have been delighted by the positive market signals indicating that the PRC and U.S. authorities are moving closer towards an agreement.

During the recent 2022 Boao Forum for Asia Annual Conference, Vice Chairman of the China Securities Regulatory Commission Mr. Fang Xinghai stated that negotiations between Chinese and American regulators over audit issues involving U.S. listed Chinese companies have proceeded smoothly so far, and that a cooperation agreement appears to be possible. We are confident that the delisting risk will likely diminish further.

Third, Lufax’s mid- to long-term development. Despite the short-term challenges caused by COVID-19, what I would like to reiterate here are the 4 key competitive advantages that we present namely alignment with policy direction, tremendous market potential, unique business model and abundant capital reserves. These advantages have given us competence that we should be able to navigate through the current economic cycle.

Alignment with policy directions, because small- and micro-businesses are part of the core engine powering China’s economy. They get a through – they get a thorough and comprehensive policy support and does enjoy enormous growth potential. At the same time, they often encounter through hurdles when trying to get funding, we characteristic those hurdles as 3 accesses, 3 deficiencies and 3 difficulties.

The 3 accesses refer to the excessively high cost, high pricing and high risk that small- and micro-businesses fail when they apply for loans. The 3 deficiencies are the lack of financial statement, credit scores and collateral when these businesses typically face. The 3 difficulties represent the difficulties in unification, standardization and promotion of financial services to small- and micro-businesses.

As a result, it is difficult and costly for small- and micro-businesses to borrow from traditional banks, as the leading financial services provider for small- and micro-businesses will continue to align with regulatory directions remain true to our mission of offering inclusive financing services and deliver solutions to solve small- and micro-businesses financing difficulties.

The enormous market opportunities. Domestic financial services targeting small- and micro-businesses can be characteristic to rise as high growth and low penetration. According to statistics from the People’s Bank of China, the balance of inclusive loans to small- and micro-businesses grew as 29% CAGR from 2019 to 2021. And it comes to trade roughly 10% of total loans, although the industry is growing rapidly and still has a long way to go to catch up with its peers in developed countries, where 30% of total loans are led to small- and micro-businesses. Such a gap presents an enticing opportunity for the industry to develop and a variety of supportive policies.

Unique business model. Over the past 18 years, we have been providing integrated online to offline financing services to satisfy small- and micro-businesses needs. Our technology combined with our online operational experience have equipped us with an effective mechanism to reach borrowers and managed risks. Led by a team of seasoned executives with extensive expertise in technology and finance, we’re actually experiencing operational management and global vision in corporate development. We have broken down barriers and achieved important breakthroughs. We believe that our unique business model will support continue to serve as a solid foundation for our steady growth and steer us through market fluctuations.

Abundant capital reserves. As of March 31, 2022, we had ample capital reserves of roughly RMB100 billion in net assets and over RMB40 billion in cash, that ensuring our smooth navigation through economic cycles and consistent returns to our shareholders. Despite the challenges bought by COVID-19 this year, we will maintain our per ADS dividend amount at the same all above level than that in 2021.

In summary, despite this year’s challenging macro environment, our advantages in regulatory compliance, market potential, business models and capital reserve have positioned us well to navigate through the current economic cycle, while executing our mission of serving small- and micro-business owners. Going forward, we will remain fully in sync with China’s national policy directives of supporting the growth and development of small- and micro-businesses and the real economy at large.

With that, I’ll turn the call over to Greg, who will share our business updates in detail.

[Gregory Dean Gibb, Director and Co-Chief Executive Officer]

Thank you, Chairman Ji. In the first quarter, we build on the solid foundations of 2021 to deliver stable operational results and increasingly challenging environment. Cognizant of the negative impact brought by COVID resurgence, we have recently launched critical actions for the more difficult market conditions ahead. Before turning to our COVID response, let me highlight a few key figures for the first quarter. Please note that all numbers are in RMB terms unless otherwise stated.

In the first quarter, we generated RMB17.3 billion of total income and RMB5.3 billion of net profit in both figures exceeding our prior guidance. The take rate in our retail credit facilitation business remained steady at 9.7% this quarter versus 10% a year ago. By the end of the first quarter, the wealth management saw stable client assets of RMB433 billion, despite volatile markets, and the revenue take rate in this business reached 53.9 basis points in March.

Operational costs were held steady, while we continued with technology investment to empower our direct sales productivity in the loan facilitation and to optimize online customer management in wealth. In the first quarter about 40% of our new direct sales hires for lending facilitation net our upgraded target profile for the ongoing channel transformation, first quarter direct sales productivity for lending increased 4.8% versus a year ago.

Now, turning to the resurgence of COVID, we believe the multicity lockdown started March will likely have a deeper impact on the economy and our operations than seen prior in 2020. Our 18 years of experience has taught us that rapid changes in the environment requires decisive preemptive steps to both minimize downside risks and to be best positioned for growth, when the environment recovers.

Under the current zero-COVID policy, we believe that simultaneous rolling lockdowns across multiple cities will likely remain rooted the landscape who most of the remainder of 2022. We enter this landscape facing a weaker macro economy that in 2020, the 2 months plus long lockdown at Shanghai, its inter-regional, intercontinental highways, its supply chains, is creating much larger ripple effects than those seen in Wuhan during 2020.

Through the lens of our data and experience, we can now roughly profile the impact of Shanghai’s lockdown on our lending facilitation business. We forecast that see the entry flow rates will tripled during the lockdown period, gradually returning to pre-lockdown levels 6 months after the lockdown ends. However, at zero-COVID policies and restrictions are constantly evolving, it’s difficult to take the impact on other cities. Furthermore, we think it’s only prudent to assume that during the second half of the year, more cities could be placed under the varying degrees of lockout.

From our vantage point, we are unable to estimate the exact number of cities that could be affected, and thus the overall impact is extremely difficult to assess at this point. While there remain uncertainties ahead, we are nonetheless confident that the array of measures we have implemented nationwide will mitigate the challenges posed by this operating environment. These measures include targeting higher quality customers, providing more customized products and improving our risk management efficiency.

First, we are continuing to target higher quality customers and tightening our credit policy by utilizing a differentiated approach. On the one hand, we are gradually ceasing serving high risk profile customers. For non-small business owners are industries that are likely to be hardest hit by COVID, for example, travel related, we have tightened our credit policies nationwide. On the other hand, we’ve adopted a differentiated approach based on risk performance for geographies and channels with stronger credit performance entering this landscape, we’ve made smaller adjustments. For geographies with below C-M3 flow rates, we only target new businesses and low progress for the highest quality customer segments.

Second, we are providing a greater number of customized products to mitigate any potential sales losses created by our adoption of higher quality standards. For those customers who represent too high credit risk to provide unsecured loans. We encourage them to pledge collateral and apply for secured loans. For those small business owners who have higher quality risk profiles, we provide them with lower APRs longer tender period products, and more flexible payment schedules to relieve their financial burden and to help them overcome their current difficulties.

Finally, we are improving our risk management efficiency our collections team are equipped with our risk management system through remote working platforms, technology tools, and deep experience they gained in 2020 to the work. By leveraging these tools and abilities they can work remotely to monitor the status of borrowers, proactively identify potential loans at risk and take immediate action on loan collection. Our proprietary data-driven collection source of 10,000 agents is deployed across 10 cities. This team together with more than 57,000 direct sales agents, it’s fully deployed to help manage and mitigate any of all risks. It’s also important to note as Chairman Ji just did now that our strong balance sheet and cash position provides us with resilient ability to overcome challenges.

And then the end of the first quarter our net assets stood at RMB98.3 billion in our leverage ratio for guaranteed company so that less than 2 times, positioning us well to handle risk fluctuations. Our credit insurance partners are also in a strong capital position to handle associated risks, although they will certainly re-priced credit insurance fees, as we move through the cycle. The financial strength of the underlying credit enhancement and risk sharing that we have with our funding partners, provides them with little burden in the ongoing loan servicing small business owners.

We believe this minimal strength will enable stable funding availability through this challenging time and further distinguish new packs versus other platforms, who may now charge higher prices, encounter higher risks and have less capital resources to protect operational resilience. Being in a relatively strong position, with strong partners will enable faster resumption of growth with the macro environment stabilizes. While we are selectively putting on the brakes on new loan growth to be prudent near-term, we also remain focused on executing our longer term strategic priorities.

The channel transformation has continued at pace in the first quarter, with our direct sales making up 50% – 57% of new sales in the first quarter versus 49% a year ago, underpinning the improved productivity. Also within the direct sales team, we recruited more high quality talent and dismissed below average performing one, and as a result, high quality accounted for 40% of new hires in the first quarter. And we believe this proportion will continue to grow. More broadly, we said the regulatory environment is placing increased focus on funding availability for small business sector, indicating likely greater stability and regulatory requirements this year versus the past year.

Taking all these points together does lead us to provide guidance for the first half of 2022 then we will provide full year guidance when we get more clarity. Our renewed guidance in this very dynamic environment is based on the principle that it is better to be conservative early, rather than – sorry later. Hence, we are revising our new loan sales growth for the first half of 2022 to decrease between 7% and 10%.

For our wealth management business forecasts, we remain largely unchanged that will continue to monitor domestic capital performance which impacts investor CA, and overall investment sentiment. We expect our first half revenue growth to be 8% to 10% year-on-year, we believe the impact of the lockdown of multiple cities, the volatility we see in foreign exchange rates in our increase in credit losses where we bear risks will be higher than previous guidance. That’s our net profit for the first half is likely to decrease between 11% and 13% year-on-year. If non-cash foreign exchange losses were excluded from calculation of net profit, then the company’s expectation for the first half profit will be decrease of 3% to 4%.

As Chairman Ji just said, we are confident that we will successfully navigate through the current cycle and are committed to maintaining our 2022 per ADS dividends about – at or above the level in 2021.

Last but not least, our CFO James has decided to take an early retirement. James has been with the company for 8 years, and we really want to thank him for his great contribution to the company. The company has started to search for a new CFO, and during the interim period Mr. David Siu will assume the finance function of the company.

With that, I’ll turn the call over to James Zheng, our CFO to go over the financial details. James?

[James Xigui Zheng, Chief Financial Officer]

Thank you, Greg. I will now provide a closer look into our first quarter results. Please note that all numbers are in RMB terms, and all comparisons are on a year-over-year basis, unless otherwise stated. We achieved solid financial results in the first quarter, as we continue to drive growth in both the top-line and the bottom-line. During the quarter, our total income was RMB17.3 billion, up 13.5% year-over-year, and our net profit increased by 6.5% to RMB5.3 billion year-over-year.

Let’s have a closer look at our operating numbers. First, we maintain a stable unit economics for a retail credit facilitation business, while further reducing our APR. Our loan balance APR was 21.8% in the first quarter of 2022 and 3 percentage point decline from 24.8% in the first quarter of 2021. In comparison, our loan balance take rate was 9.7% in the first quarter of 2022 only a 0.3 percentage point decline from 10% in the first quarter of 2021.

Our continued efforts to diversify funding sources, engaged with more banking partners, reduce credit insurance premiums on our loan portfolio and improve customer charging mechanisms to diminish the impact from the early loan repayments enabled us to maintain stable unit economics to drive further enhancements for ourselves and operating efficiency, despite APR declined.

Second, we continue to penetrate our core and the targeted customer segments. On the retail credit side, we continue to focusing on serving small business owners. During the first quarter, excluding our consumer finance subsidiary, 83.5% of new loans facilitated were disbursed to small business owners, up from 75.7% in the same period of 2021. On the wealth management side, despite the negative impact of P2P and online deposit products runoff, we managed to grow our total client assets by 2.7% to RMB432.6 billion as of March 31, 2022. Client assets contribution for mass affluent customers investing more than RMB300,000 increase to 81.3% as of March 31, 2022, up from 76.3% as of March 31, 2021.

Third, we continue to drive for the evolutions of our risk sharing business, while maintaining vigilant on asset quality changes. In line with prevailing regulatory requirements, we bore credit risks for 20.4% of the new loans we facilitated in the first quarter of 2022, up from 12.5% in the first quarter last year. All of the aforementioned operating metrics exclude those of our consumer finance subsidiary.

Due to the slowdown of macro economic growth and the COVID-19 pandemic, we saw some deterioration of overall asset quality. However, thanks to our risk management system, the negative impacts on our risk indicators are limited. Excluding consumer finance subsidiary, our DPD 30-plus and a DPD 90-plus delinquency rates were 2.6% and 1.4% for the total loans we facilitated as of March 31, 2022, compared to 2.2% and 1.2% as of December 31, 2021. We will remain vigilant and be prudent on our borrower acquisition and risk management strategy.

Now, let’s take a closer look at our first quarter financial numbers. At the highest level, our total income in the first quarter grew by RMB2.1 billion or 30.5% year-over-year growth, while total expense increased by RMB1.6 billion, or 19.1% year-on-year growth and net income grew by 6.5% year-over-year to reach RMB5.3 billion. If non-cash foreign exchange losses were excluded from the calculations of the net profit, then the year-over-year net profit change would be 2.1%. While operating related costs continue to remain flat due to efficiencies, total expense increase is primarily driven by credit impairment costs due to higher risk taking and increased risk and impairment provision rate relating to loan.

Next, let’s go through the financial numbers line by line. As the total income mix of our retail credit facilitation payments continue to change, thanks to the evolution of our business and the risk-sharing model. Total income increased by RMB2.1 billion or 13.5% year-over-year. During the quarter, while platform service fees decreased by 9.7% to RMB9.3 billion, our net interest income grew 71.2% to RMB5 billion and our guarantee income grew by 245% to RMB1.9 billion. Other income decreased to RMB704 million in the first quarter from RMB1 billion in the same period last year.

As a result, our retail credit facilitation platform service fees as a percentage of total income decreased to 50.2% from 63.4%, because consolidated trust plans provided lower funding costs. We continue to utilize them in our funding operations, enabling our net interest income as a percentage of total income to increase to 28.8% from 19.1% a year ago. Moreover, as we continue to get more credit risks, we generate even more guarantee income, reaching 11% of total income compared to 3.6% a year ago.

Our investment income decreased by 11.2% to RMB435 million in the first quarter from RMB490 million in the same period of last year, mainly due to the decrease of investment assets, partially as a result of share buyback. In terms of wealth management, our platform transaction and service fees decreased by 5.3% to RMB592 million in the first quarter from RMB625 million in the same period of 2021. This decrease was mainly driven by the runoff of legacy products, which was partially offset by the increase in fees generated from our current products and services.

Turning to our expenses, in the first quarter, our total expenses grew by RMB1.6 billion or 19.1% to RMB10.2 billion from RMB8.5 billion in the same period of 2021, primarily driven by the increase of credit impairment costs. Total expenses, excluding credit and asset impairment losses, finance costs, and other losses increased by 2.7% to RMB7.2 billion in the first quarter of 2022 from RMB7.1 billion in same period of 2021 remain almost the same as we further improved operating efficiency.

Our total sales and marketing expenses, which include expenses for borrowers and investor acquisition, as well as general sales and marketing expenses, increased by 5.9% to RMB4.5 billion in the first quarter. Our general and administrative expenses decreased by 15% to RMB726 million in the first quarter from RMB854 million in the same period of 2021. This decrease was mainly due to our expense control measures. Our operation and servicing expenses increased by 4.5% to RMB1.6 billion in the first quarter from RMB1.5 billion a year ago, primarily due to the increase of trust plan management expenses, which resulted from the increase in consolidated trust plans.

Our technology and analytics expense increased by 0.2% to RMB448 million in the first quarter of 2022, from RMB447 million in the same period of 2021, mainly due to the company’s ongoing investments in technology research and development. Our credit impairment losses increased by 168.2% to RMB2.8 billion in the first quarter from RMB1.1 billion a year ago, this was mainly driven by 2 factors. One, increase of provision and indemnity loss driven by increased risk exposure. As a reference, including the consumer finance subsidiary, the company bore risk on 19.4% of its outstanding balance, from 8.7% as of March 31, 2021.

Two, change in credit performance due to the impact of the COVID-19 outbreak. Our finance costs decreased by 25.7% to RMB211 million in the first quarter from RMB284 million a year ago, mainly due to the increase in interest income resulting from the increase in deposits. Additionally, our effective tax rate was 26% during the quarter of 2022 remain the same as the same period of 2021. Other gains were RMB118 million in the first quarter of 2022, compared to other losses of RMB138 million in the same period of 2021, mainly due to the foreign exchange gains in the first quarter of 2022.

We have noticed that the volatility of foreign exchange rates between renminbi and the U.S. dollars has increased, and such volatility could have both positive and a negative impact on our quarterly net profit in the future.

As a consequence of the aforementioned factors, our net income increased by 6.5% to RMB5.3 billion during the first quarter from RMB5 billion in the same quarter of 2021. Meanwhile, our basic and diluted earnings per ADS during the first quarter were RMB2.31 and RMB2.14, respectively. As of March 31, 2022, we had a cash balance of RMB40.6 billion in cash at the bank, as compared to RMB34.7 billion as of December 31, 2021. In addition, liquid assets maturing in 90 days or less amount to RMB52.1 billion as of March 31, 2022.

During the first quarter of 2022, the overall economics in China was impacted by the regional lockdowns. Under the current-zero COVID policy, we believe that rolling lockdowns simultaneously across multiple cities will likely remain rooted in the landscape throughout most of 2022, thus exerting severe negative influences towards the entire economy and the credit business. As the overall impact is extremely difficult to assess, we would like to provide our revised first half guidance to account for the near-term macro headwinds, and it will provide full year guidance when we get more clarity.

For the first half of 2022, as we become more prudent in underwriting, we expect new loans facilitated to decrease between 7% to 10% year-over-year to the range of RMB294 billion to RMB301 billion, client assets to grow by 1% to 3% year-over-year, to the range of RMB425 billion to RMB434 billion, total income to grow by 8% to 10% year-over-year to the range of RMB32.5 billion to RMB33.1 billion. Credit-related provisions were increased given the deterioration of asset quality driven by the COVID impact and higher risk exposure.

Other losses were increased due to foreign exchange volatility, operations-related costs will decrease as we continue to improve our efficiency. As a result, we expected net profit to decrease between 11% to 13% year-over-year to the range of RMB8.5 billion to RMB8.6 billion. If none-cash foreign exchange losses were excluded from the calculation of the profit, there the company’s expectation would be for a decrease in the net profit for the first half of 2022 of between 3% to 4%.

The profit growth rate will pick-up once the channel optimization impact starts to come through as a credit costs are normalized on an annual basis. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change.

That concludes our prepared remarks for today. Operator, we are now ready to take questions.

[Operator]

Thank you. [Operator Instructions] Thank you. Our first question comes from Winnie Wu from Bank of America. Please go ahead.

[Winnie Wu, Bank of America Merrill Lynch]

Thank you very much for giving me the opportunity to ask a question. So, my question is regarding the COVID lockdown, I mean, apparently management is being very prudent in terms of adjusting the growth target and lifting the lending standards. But just want to ask, if the impact on long demand temporary or could this lockdown is leading to more prolonged damage to the demand from the SME sector that the growth outlook for even 2023, 2024 might be impaired? And the related to that the second question is in terms of the impact on asset quality and impairment assuming the COVID situation can get under control by, say, end of June, when do you think is the peak in terms of NPR formation, NPR ratio and or impairment due to the translation.

[Guangheng Ji]

[Interpreted] Thanks, people [ph], and then, Winnie. This time COVID impact is quite different from 2020. This time, it takes a lot wider and longer in 2020, but if it was quite limited to certain area, and therefore relatively short period of time. Our credit indicators also fully covered expect to pay a company level only in 3 months time in 2020. And the overall economy was in better shape back then, like, no supply chain issue, no import export issue, not a big issue in real estate, for example. So, I think, we all believe that even after this pandemic control comes to end, the market environment will not be entered as pre-pandemic period at this time.

So with the concern on economy downturn, which was shown from many indicators from second half last year, we started taking pre-emptive actions from first quarter last year. And that – as a whole, cutoff more than 20% of our target segments and made the biggest impact on our last channel new sales. It dropped almost 40% from the same period last year as a result. But looking back, we believe we made a life decision. And it is not the lifetime we think to pursue reputed goals, instead we’ll be more prudent in new customer quality and our asset quality. There are still quite much uncertainties, so how this pandemic will play out, and it’s following impact, so both that’s why we only provide the first half guidance.

Nonetheless, that we have more than 15 years [indiscernible] in consumer credit risk management. And we have more than – as Greg said, we have more than 10,000 credit goes nationwide, who have remote working experience during lockdown situation with a best in market system support. Also we can have 50,000 – 57,000 offline directories engage in offline collection and support our collection team.

On the demand side, although, our recent demand on operation loan is weakening. That’s true. But we do not worry about the demand side, because that the markets had issues and they will nearly take about 1% market share. And in the long run, we know that this sector will surely go in line with the government’s support and policies. And then good news, as you asked about remember the peak of our credit loss or in a consolidation [while net flow] [ph], and then when will recover and then how long it will take us to certain, but the good news is the peak time is already over here April was we saw the highest metro ratio in terms of city entry, and then it makes it clear progress, clear improvement starting from May. I believe, so now we are in the process of recovering already including Shanghai.

[Operator]

Thank you. Our next question comes from Thomas Chong from Jefferies. Please go ahead.

[Thomas Chong, Jefferies LLC]

Hi, good morning. Thanks management for taking my question. Basically I ask a question with regards well about management strategy, as well as how the consumer sentiment impacts the business trends? Thank you.

[Guangheng Ji]

[Interpreted] Okay. On the wealth management side, we really continue to do 3 things. So one is continuing to deepen our focus on the affluent and upper affluent customers, and providing them with more content and service around the new product set, which is now that all products in China have moved away from fixed income into NAV based mutual funds, private placement funds, that have more volatility than fixed income, providing with more content, more information, more post-investment services, it really combining our relative expertise through online as well as through a telecom services were needed for these higher end customers to really help them navigate this new environment.

So even though the markets have been in the Asia market and China has been done 20% to 30% really through very now. We’ve seen quite good stability in the customer base and quite good stability in the CA overall. So we will continue to provide those services, continue to refine them give customers more real time input other portfolios, helping them drive diversification help improve their overall customer mix, so they can generate a steady return in difficult environment. We do have hope that, now the markets have come off quite a bit in the first half that we may have a chance for some recovery for customers in the second half, which would be very helpful as we continue to change this product mix to this target segment.

The other thing that we are doing as well is increasing our focus. This has been something we’ve been working on for more than a year now. The insurance product set as well concertedly as try to go through its overall changes given our average customer age is about 39 years old on the wealth side. Pension related issues were pension reform is a [bad thing] [ph], insurance and pension services are becoming increasingly important. And that’s an interesting area, because it is a nice margin of business to have. So overall, we continue to drive it online, we need to drive new customer growth, we need to focus on the upper end, and change the product mix to continue to drive up the overall debt margin of the business if you look as we stayed at the end of March, we’re at about 53, 54 basis points income over CA, which is up quite a bit from a year ago. So this is an area that we continue to drive with over the longer term. We hoped that it would cover larger contributions with us the holding as a whole.

[Operator]

Thank you. Our next question comes from Hans Fan from CLSA. Please mention your questions in both English and Chinese.

[Hans Fan, CLSA Ltd.]

Sure. Thanks. Thank you for giving me this opportunity to ask question. My question is mainly about the direct sales reform progress. As we know that since – and last year, Lufax has launched the progress to reform the direct sales team. Just wondering what’s the progress now? And how long should we expect this reform to be largely completed? And also just follow-up a question regarding the breakdown of the customer acquisition, can you share the percentage in terms of coming from the access team, coming from the insurance team of Ping An, and also from the telephone sales.

[Guangheng Ji]

[Interpreted] Thanks, Hans. Let me, of course share the products with life channel access. Life channel – the first quarter new sales dropped by almost 40% from the same period last year. And now it takes about 20%, while new sales contribution. And direct sales, the first quarter new sales increased by about 10% from the same period last year, and the e-mail takes 57%. So regarding the channel mix, life is contributing 20%, and then direct sales almost 60% now, and the rest 20% are from telemarketing, especially for our ETDC [ph] customers re-borrowing. So it’s a mix.

Before I get into the DS channel reform, if I show someone question about life channel, we took series of risk mitigation actions from first quarter 2020. So 40% sales were up in first quarter this year is big. But it’s not a huge surprise for us, if intended. And now if you look at the last channel, new customer quality in first quarter 2020, so we took all those actions. We measure new customer quoted by like DPD 1-plus as MOV3 [ph], what DPD 30-plus at MOV3. It is now even slightly better than that excess channel. It’s very promising.

And total number of live agents, now you see that gets stabilized it does not decrease further and much. So, we believe larger contribution to new face which is already reached the pattern; it cannot be lower than this. And we believe this will rebound slowly going forward. So this is update about life channel be action, and then I want to say that we have a hope that this will contribute more new sales going forward.

And then coming to direct sales reform. This is an ongoing reform, it takes time. As of March end, total number of direct sales we have is RMB57,000. That includes team leaders and other supporting staffs. It was RMB57,000 exactly the same number in a year ago, so number of direct sales even increase at or for a year. Yet, DS channel sales volume increased by almost 10% that will indicate our DS channel product improves, continuously improves. Although, we tighten – we continuously tighten on our team policy and reduce target market to achieve a better asset quality.

We will continue to focus on optimizing DS mix [with prior period to show] [ph], we said we do not pursue rapid sales growth, balance growth. But taking this opportunity, we focus more, how we can optimize our sales mix. We will try to get more recorded yield high, whose retention rate is two times higher than sales high at [meaning that to one that they join us] [ph]. And, of course, productivity is normally more than 20% higher than sales yield high. So we focus on how we can get more new sales group versus [sales side] [ph], and then change the mix of organic sales.

As Greg mentioned, the recent hiring shows that are huge high portion it takes up to more than 40% out of the total new hire, it was just one visit last year. So we are making progress. And also we are providing a lot more tech enablement to our sales and upgrades to enhance their sales efficiency. And also we are now trying to gradually moving to middle layer, which takes about 10% of total sales headcount. So then naturally we further improve our sales productivity. So we focus on building stronger direct sales team for DS reform, and then this will lay a foundation so the foundation for our reputed growth from probably next year after we get through to this fiscal time.

[Operator]

Thank you. I’ll now hand over to the management team for closing remarks.

[Chen Yu, Head of Board Office and Capital Markets]

Thank you everyone for joining the conference call. If you have more questions, please do not hesitate to contact the company’s team of IR [ph]. Thanks again. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes today’s call. Thank you all for joining. You may now disconnect the line.