On August 21, 2023, Lufax (LU) released its second quarter financial report. This quarterly financial report is the second report card handed out by Lufax after its dual listing in Hong Kong in the first half of the year. This report card continues the decadent trend of the first quarter. In the second quarter, Lufax's revenue fell 39.4% year on year to 9.27 billion yuan, and its net profit fell 65.8% year on year to 1.004 billion yuan; In the first quarter, Lufax's revenue was 10.078 billion yuan, down 41.8% year on year, and its net profit was 732 million yuan, down 86% year on year.
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From the perspective of marketing, the revenue of Lufax will grow steadily from Q1 to 2022Q1 in 2021. From 2022Q2, the revenue of Lufax will begin to decline. Compared with the peak, the revenue in the second quarter of 2023 has been close to halving, with very sharp fluctuations. This also shows that Lufax's business has suffered a heavy blow in the past year and a half.
The trend of net profit basically coincided with the trend of revenue. Q1 in 2022 was the high point of performance, and then it fell precipitously. In the fourth quarter of 2022, Lufax even had a net loss of 800 million yuan. In the first and second quarters of 2023, Lufax's net profit began to rise, but it still did not return to the normal level of the previous two years.
The bleak performance expectations have long been reflected in the stock price trend of Lufax. Since its listing, Lufax's share price has fallen from a peak of 17.23. Even at the best moment of Q1 performance in 2022, its share price has not improved at all. Lufax's latest share price was $1.16, down 93% from its peak.
At the beginning of listing, the maximum market value of Lufax exceeded 270 billion yuan. Today, its market value is only 19.5 billion yuan, and its market value has evaporated by 250 billion yuan.
II. Crazy reduction and cash out of low shareholders
Spring River Water Warming Duck Prophet, poor performance, anxious shareholders. Lufax's performance changed rapidly after its listing, and its major shareholders were not calm and began to run away.
From June to August 2023, Tun Kung Company Limited, the second largest shareholder of Lufax, has successively reduced its shares three times:
On June 13, Tun Kung Company Limited reduced its holdings of 30 million ADSs by US $47.4 million, with an average reduction price of US $1.58;
On June 20, Tun Kung Company Limited reduced its holdings of 10 million ADSs by US $15.8 million, with an average reduction price of US $1.58;
On August 29, Tun Kung Company Limited reduced its holdings of 6.94 million ADSs, amounting to 8.26 million US dollars, with an average reduction price of 1.19 US dollars.
This means that Tun Kung Company Limited continuously reduced its holdings of nearly 47 million ADSs in three months before and after the disclosure of the second quarter report, The reduction amount was 71.46 million US dollars (about 520 million yuan).
From the perspective of selling price, Tun Kung almost escaped at the worst time of Lufax's performance and stock price. Does Tun Kung think so of Lufax?
The intensive underweight of Tun Kung made investors in the secondary market panic. On the snowball, a retail investor asked in bewilderment: "Why did the major shareholder Tun Kung sell more than 46 million shares since June? Do you want to run away?"
In fact, this small investor is over worried. The reduction of Tun Kung's holdings is really fierce, but it is far from a runaway. According to the disclosure information of Lufax's listing in Hong Kong, as of the end of the first quarter of 2023, Ping An Group holds 41.4% of Lujin, the largest shareholder; The second largest shareholder is Tun Kung Company Limited, holding 320 million ordinary shares, equivalent to 640 million ADSs, accounting for 27.9%.
In 2020, Lufax's prospectus for listing in the United States showed that Tun Kung Company Limited, registered in the British Virgin Islands, held 480 million shares, accounting for 42.7%, and was the largest shareholder; Ping An Group holds 42.3% in total, the second largest shareholder. In other words, from the perspective of equity structure, Tun Kung Company is the actual controller of Lufax.
By the end of 2021, Tun Kung Company's shareholding in NYSE shows that it holds 331 million shares, accounting for 27.5%; Tongjun Investment Company Limited holds 173.5 million shares, accounting for 14.4%; Lanbang Investment Company Limited holds 158 million shares, accounting for 13.1%.
By the end of the first quarter of 2023, Tun Kung Company held 320 million shares of Lufax. This also shows that the shares held by Tun Kung are decreasing.
Tongjun Investment Company Limited and Lanbang Investment Company Limited hold 47.2% and 52.8% of Tun Kung Company respectively. Among them, Tongjun Investment Company Limited is held by Dou Wenwei and Wang Wenjun as nominal shareholders. Shi Jingkui and Yang Xuelian, shareholders of Lanbang Investment Company Limited, hold 50% shares respectively.
These four nominal shareholders are all members of Ping An Department. Among them, Wang Wenjun and Dou Wenwei are the elders of Ping An, who joined Ping An Group in 1996 and 1997 respectively. Wang Wenjun has successively held management positions in Ping An Group Office, Human Resources Center and Ping An Bank. Dou Wenwei joined Ping An Group in 1997 and successively held management positions in the Audit and Supervision Department, Law Office, Administrative Management Center and Internal Control Management Center of Ping An Group. Public news shows that in 2022, Dou Wenwei participated in the event as a senior manager of the Legal Compliance Department of Ping An Group.
Dou Wenwei and Wang Wenjun are not only the nominal holders of major shareholders of Lufax, but also hold a large number of shares of other listed companies under Ping An. For example, in June 2020, Forbes reported that Dou Wenwei and Wang Wenjun, two former directors of Ping An Good Doctor, were among Forbes' billionaires, and the market value of their shares in Ping An Good Doctor reached 8.7 billion yuan.
Shi Jingkui and Yang Xuelian are also senior people of peace. Shi Jingkui has successively served as the assistant to the general manager of Ping An International Financial Leasing Co., Ltd., the general manager of Ping An Life Insurance Shanghai Branch, the general manager of Ping An Life Insurance Shenzhen Branch, the deputy general manager of the human resources department of Ping An Group, and the chief human resources executive of Lufax.
Yang Xuelian has successively served as Deputy General Manager of Ping An Pension Insurance Co., Ltd., Deputy General Manager of Ping An Insurance Chongqing Branch, Assistant Director of Strategic Development Center, Deputy Director of Group Insurance, and also served as Deputy General Manager of Lufax.
In addition, Tongjun Investment Company has a five member management committee responsible for decision-making and supervision, and the members are Jun Yao, Jianrong Xiao, Peng Gao, Wang Wenjun and Dou Wenwei.
The equity structure of Lufax is very interesting. Some media once called it a mysterious equity structure, while others questioned who owns Lufax? In 2015, after Ping An Group stated in its annual report that it had "lost control of Lufax", many people criticized that Lufax developed by relying on the resources of Ping An Group and transferred a huge amount of equity to an enterprise controlled by senior executives when the value was not realized, which was suspected of transferring benefits in disguised form.
Senior executives cashed out in advance and delayed tax payment
The shares held by Tun Kung Company include some equity incentives for employees of Lufax. For example, Lufax granted 20.64 million shares in 2014 and 15 million shares in 2019, with a total of 35.64 million shares for employee incentive.
Beneficiaries behind most of the shares are executives of Ping An Group and its subsidiaries. After the listing of Lufax, Tun Kung Company seems to have cashed in benefits by selling call options, early cash out and other means.
The disclosure information shows that as of the first quarter of 2023, Tun Kung Company is suspected of lending 33.63 million ordinary shares (67.25 million ADSs) to Goldman Sachs, which are placed in the pledge and regulatory accounts of Tun Kung and Goldman Sachs for certain covered call option arrangements. The covered call option is to obtain premium income by selling the call option, which is usually a risk hedging method when investors hold stocks.
From the stock price performance of Lufax, it is obvious that the starting point of Tun Kung pledged shares is to look down on the stock price performance of Lufax after the lifting of the ban, hoping to hedge the risk of stock price decline in advance.
In another transaction between Tun Kung and Morgan Stanley, from April to June 2022, Tun Kung will liquidate 11.5 million ordinary shares (23 million ADSs) in advance in the form of variable prepayment forward contracts. At that time, Lufax's share price was about US $5/ADS, which was equivalent to about 300 million yuan.
Variable prepayment forward contracts are often used by founders or executives of listed companies who hold a large number of shares to cash out in advance, lock in stock profits, and at the same time, delay the payment of capital gains tax.
Whether it is short selling in disguised form, cash out in advance, or tax payment delay, it is enough to prove that Ping An executives who hold a large number of shares in Lufax have become a barrier lake above the company. Lufax's weak performance and the continuous decline of its share price highlighted the loopholes and crisis in its internal governance.
