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What happened

Shares of Lufax (NYSE: LU) fell as much as 10% early Tuesday, according to data provided by S&P Global Market Intelligence, then settled to trade down around 6% as of 2:30 p.m. ET after the China-based financial-services enabler announced mixed second-quarter 2023 results.

So what

On the top line, total income fell 39.4% year over year to RMB9.270 billion (or $1.278 billion), translating to a net profit of RMB1,004 million ($138 million), or RMB0.42 (US$0.06) per American Depositary Share (ADS). Analysts, on average, were expecting lower earnings of RMB0.39 per ADS but on significantly higher revenue of RMB10.13 billion.

“As the macroeconomic landscape moves toward recovery, our core SBO [small business owner] customers still faced some difficulties during the second quarter,” stated Lufax Chairman and CEO Yong Suk Cho, “affecting our operational landscape and impeding the trajectory of our U-shaped recovery.”

To be sure, Lufax’s outstanding balance of loans enabled declined 35.5% year over year as of June 30, 2023, to RMB426.4 billion, while the cumulative number of borrowers rose just 8.3% from the same year-ago period to 19.7 million.

Still, Cho credited the company’s “focus on asset quality over quantity,” specifically as it pertained to improving the quality of recent loans written under more stringent credit criteria for helping the company exceed expecations for bottom-line earnings.

Now what

Lufax also initiated 2023 guidance for new loans enabled in the range of RMB190 billion to RMB210 billion. Though the quality of those loans will likely be higher than in the past, and Lufax’s bottom-line strength is admirable, the market obviously isn’t pleased that macroheadwinds continue to hold back its top-line growth. Shares of Chinese fintech stock are responding in kind today.

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