Lufax (LU) Narrowed Its Loss 86%. Was the Improvement Mostly Tax-Driven?

Lufax Holding Ltd's (NYSE:LU) second-quarter net loss narrowed by 86.2% to RMB82 million, driven primarily by a significant tax-related improvement. Pretax profit fell to RMB30 million, while income-tax expense declined to RMB112 million. Total income decreased 15.5% to RMB6.23 billion, and total expenses declined 12.7%. Cost reductions, excluding credit impairments, finance costs and other gains or losses, accounted for a 27.5% reduction.

However, the company remained loss-making, with its first-half net loss widening 33.7% to RMB694 million. Total new loans increased by 4.6% to RMB51.1 billion, with consumer-finance originations growing 27.6% to RMB36.9 billion. Outstanding consumer-finance balance rose 19.9% to RMB65.4 billion, becoming the main growth driver within a shrinking overall portfolio.

Several asset-quality indicators also improved, including a decline in the C-M3 flow rate to 1.0% and the DPD 30+ delinquency rate to 5.8%. Lufax Holding Ltd's consumer-finance nonperforming-loan ratio decreased to 1.3% from 1.4%. While consumer-finance growth, lower operating costs, and improved credit indicators provide potential for future recovery, the turnaround will require stabilization of total income, strengthening of pretax earnings, and reversal of the first-half loss.