Lufax Holding (LU) Q1 2022 earnings call transcript

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 Guanghong, who will start the call with some general updates of our key achievements, then address some focal 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 Chung, 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 Choi, 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-affirmed 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 filings of the SEC.

With that, I am now pleased to turn over the call to Mr. Ji Guanghong, Chairman of Lufax.

If you have some problems in the house, please let me know. The first thing is the main work of the work. The key achievements. In the last year, the key achievements of the global economy and global economy have achieved the growth of the economic indicators. Despite COVID-19 resurgence and micro-economic slowdown, we achieved steady growth during the first quarter. Thank you. During the first quarter, our total income grew by 13.5% year-over-year to RMB $17.3 billion, and net profit increased by 6.5% year-over-year to RMB $5.3 billion. Our basic earnings per ADS for the quarter reached RMB 2.31.

In April, we paid a dividend of U. S. $0.34 per ADS for the first time since we went public. We plan to return value to our shareholders in a variety of ways going forward.

Second, key investor concerns. I will now turn the call over to management for the market. The investor event during the first quarter. Based on our data, roughly 60% of investor questions were about macro environment and business operations. 30% were about regulatory trends, and the remainder were related to capital market development. In general, investors are concerned about Chinese ADRs. Many think that the panic selling has caused ADRs' valuations 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, investors' key concern rests on our growth prospects in the current micro-economic environment. Thank you. In general, the current pandemic has been far from 2020.

The current pandemic has been much lower than 2020. The管理層 has been taking a series of different approaches, including increasing the current tax rate, increasing the cost of tax, and preparing the operational planning and planning. Later, Lufax will be able to introduce our approaches. In March, China escalated its countermeasures to contain the coronavirus. Shanghai, for example, has experienced lockdowns under the nationwide COVID-0 policy. Impacted by pandemic included economic slowdown. The financial services industry as a whole unavoidably suffered 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.

In addition, the case of 429-19-19-19-19-19-19-19-19, the 429-19-19-19-19-19-19-19-19-19-19-1914-1919-19-1919-1919-1919-1919-1919-192014. On April 29th, the Democratic Party meeting has also been strongly emphasized that we need to help the health of the market and improve the market and improve the market. We are determined that this 429-3-0-reported work will be expected to enter the market market. Many investors have expressed concerns about the April 29th ratification progress and the ADIT listing risk. Having completed the vast majority of our ratification-related initiatives, we have also devised detailed action plans for the remaining issues that require prolonged effort.

At the Financial Stability and Development Committee meeting on March 16, the Vice Premier of the State Council, Mr. Liu He, made a call to press the head 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 in a meeting that efforts should be made to advance the ratification of platform companies and promote the regulated and sound 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. Thank you. Regarding the delisting risk, the U. S. Securities and Exchange Commission provisionally identified Lufax as a commission-identified issuer under the Holding Foreign Company Accountable Act on May 9th. Thank you. The third thing is the Lufax mid- to long-term development. Despite the short-term challenges caused by COVID-19, what I would like to To reiterate here are the four key competitive advantages that we present, namely alignment with policy direction, tremendous market potential, unique business model, and abandoned capital reserves. These advantages have given us confidence that we should be able to navigate through the current economic cycle.

Alignment with policy directions. I will now turn the call over to management for a small sector of a large sector. Because small and micro businesses are part of the core engine powering China's economy, They gather thorough and comprehensive policy support and thus enjoy enormous growth potential. At the same time, they often encounter three hurdles when trying to get funding. They characteristic those hurdles as three excesses, three deficiencies, and three difficulties.

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

As a result, it is difficult and costly for smart macro businesses to borrow from traditional banks. As the leading financial services provider for smart macro businesses will continue to align with regulatory directions, remain true to our mission of offering inclusive financing services, and deliver solutions to solve smart macro businesses' financing difficulties. The market is huge. The market is huge. The market is huge. The market is a small market market. According to the company's company, The Lufax Holding Lt is a very important part of the Lufax Holding Lt I will now turn the call over to management for a few The balance of inclusive loans to small micro businesses grew at 29% Pega from 2019 to 2021, and it constitutes roughly 10% of total loans.

Although the industry is growing rapidly, it still has a long way to go to catch up with its peers in developed countries, where 30% of total loans are lent to small micro businesses. Such a gap presents an enticing opportunity for the industry to develop under a variety of supportive policies. 3. 業務模式獨特 Unique business model 公司通過線上線下相結合的模式聚焦服務於小微企業組的貸款需求, We will now turn the call over to management for a long-term care and financial management team. I will now turn the call over to management for the next year.

In this case, we have broken down barriers and achieved important breakthroughs. We believe that our unique business model will support and continue to serve as a solar foundation for our steady growth and steer us through market fluctuations.

Abundant capital reserves. The Lufax Holding Ltd earnings conference call. As of March 31, 2022, we had ample capital reserves of roughly R&B $100 billion in net assets and over R&B $40 billion in cash, thus ensuring our smooth navigation through economic cycles and consistent returns to our shareholders. Despite the challenges brought by COVID-19 this year, we will maintain our per ADS dividend amount at the same or above level than that in 2021.

In the last few years, the world is a challenge. The company is in the market, market, and finance, and the four sides of the company. The company will continue to improve the economy and continue to improve the economy. The company will continue to improve the economy and support the economy of small companies.

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

Next, I will turn the call over to Greg, who will share our business updates in detail.

Greg Winkler Thank you, Chairman G. In the first quarter, we built on the solid foundations of 2021 to deliver stable operational results in an increasingly challenging I will now turn the call over to management for the next week and we will be here at the end of the month's conference. 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 $17.3 billion of total income and $5.3 billion of net profit, Both figures exceeding our prior guidance. The take rate in our retail credit compensation business remained steady at 9.7% this quarter versus 10% a year ago.

By the end of the first quarter, the wealth management business saw stable client assets of $433 billion despite volatile markets, and the revenue take rate in this business reached 53.9 basis points in March. Operational costs were The Lufax Holding Ltd held steady while we continued with technology investment to empower our direct sales productivity in the loan facilitation and to optimize online customer management and wealth. In the first quarter, about 40% of our new direct sales hires for lending facilitation met 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 multi-city lockdowns that started in March will likely have a deeper impact on the economy and our operations than seen prior in 2020. Our 18 years of credit 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 in the landscape through most of the remainder of 2022. We entered this landscape facing a weaker macro economy than in 2020. The two-month-plus long lockdown of Shanghai, its inter-regional, inter-provincial 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 C to entry flow rates will triple during the lockdown period, gradually returning to pre-lockdown levels six months after the lockdown ends. However, as zero COVID policies and restrictions are constantly evolving, it's difficult to predict their 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 lockdown. 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 or 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. And for geographies with below C to M3 flow rates, we only target new businesses and loan top-ups 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 a credit risk for us 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, remote working platforms, technology tools, and deep experience they gained in 2020 to their 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 I will now turn the call over to management for the Lufax Holding Ltd. Our leverage ratio for our guarantee company stood at less than two 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 reprice 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 notable strength will enable stable funding availability through this challenging time and further distinguish Lufax versus other platforms who may now charge higher prices, encounter higher risks, and have left 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 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. As a result, high-quality talent accounted for 40% of new hires in the first quarter, and we believe this proportion will continue to grow. More broadly, we sense the regulatory environment is placing increased focus on funding availability for small business sector, indicating likely greater stability in regulatory requirements this year versus the past year. Taking all these points together does lead us to revise guidance through for the first half of 2022. 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 We will be conservative early rather than sorry later. Hence, we are revising our new load 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 we'll 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 on multiple cities, the volatility we see in foreign exchange rates, and our increase in credit losses where we bear risk will be higher than previous guidance.

Thus, our net profit for the first half is likely to decrease between 11% and 13% year on year. If non-cash forward exchange losses were excluded from calculation of net profit, then the company's expectation for the first half profit will be a decrease of 3% to 4%. As Chairman Gee just said, we are confident that we will sexually navigate through the current cycle and are committed to maintaining our 2022 per ADS dividend amount 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 eight years, and we really want to thank him for his great contribution to the company.

The company has started the search for a new CFO, and during the interim period, Mr. David Choi will assume the finance function of the company. With that, I will turn the call over to James Jung, our CFO, to go over the financial details. James?

Thank you, Greg. I will now provide a closer look into our first quarter results. Please note that all numbers are in R&B 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 $17.3 billion, up 13.5% year-over-year, and our net profit increased by 6.5% to $5.3 billion year-over-year. Let's have a closer look at our operating numbers. First we maintain a stable unit economics for retail credit facilitation business while further reducing our APR Our loan balance APR was 21 in the first quarter of 2022 a 3 percentage point decline from 24 in the first quarter of 2021 In comparison, our loan balance rate 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, engage 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 our sales and operating efficiency despite APR declines.

Second, we continue to penetrate our core and targeted customer savings. On the retail credit side, we continue to focus on serving small business owners. During the first quarter, excluding our customer finance subsidiary, 83.5% of new loans facilitated were dispersed 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 $432.6 billion as of March 31, 2022.

Second, client asset contribution from mass effort customers investing more than $300,000 increased to 81.3% as of March 31, 2022, up from 76.3% as of March 31, 2021. Third, we continue to drive forth 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% We will see that increase in the current price of the 2020 and 2020, the Lufax Holding Ltd earnings conference will be 75% in the first quarter last year. All of the affirmation operating metrics exclude those of our consumer finance subsidiary.

Due to the slowdown of macroeconomic growth and the COVID-19 pandemic, we saw some deteriorations of overall asset quality. However, thanks to our risk management system, the negative impact on our risk indicators are limited. Excluding consumer finance subsidiary, our DPD30 plus and the DPD90 plus delinquency rates were 2.6% and 1.4% for the total loans we facilitated as of March 31st, 2022, compared to 2.2% and 1.2% as of December 31st, 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 $2.1 billion or 30.5% year-over-year growth. While total expense increased by $1.6 billion or 19.1% year-over-year growth, the net income grew by 6.5% year-over-year to reach $5.3 billion. If no 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 related to loans.

Next, let's go through the financial numbers line by line. As the total income mix of our retail credit facilitation business continues to change, Thanks to the evolution of our business and the risk sharing model, total income increased by $2.1 billion or 13.5% year over year. During the quarter, while platform service fees decreased by 9.7% to $9.3 billion, our net interest income grew 71.2% to $5 billion, and our guarantee income grew by 245% to $1.9 billion. Other income decreased to $704 million in the first quarter from $1 billion in the same period of last year. As a result, our retail credit for citation platform service fees as a percentage of total income decreased to 50.2% from 63.4%.

Because consolidated trust plans provide lower funding costs, we continue to utilize them in our funding operations, enabling our net interest income as a percentage of total income. The last year, the last year, we had a total income to increase to 28.8% from 19.1% a year ago. Moreover, as we continue to bear more credit risk, we generated more guaranteed income, reaching 11% of total income compared to 3.6% a year ago. Our investment income decreased by 11.2% to $435 million in the first quarter from $490 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 $592 million in the first quarter from $625 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 $1.6 billion or 19.1% to $10.2 billion from $8.5 billion in the same period of 2021, primarily driven by the increase of credit impairment cost. Total expenses excluding credit and asset impairment losses, finance costs, and other losses increased by 2.7% to $7.2 billion in the first quarter of 2022 from $7.1 billion in the 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 $4.5 billion in the first quarter. Our general and administrative expenses decreased by 15% to $726 million in The first quarter from $854 million in the same period of 2021. This decrease was mainly due to our expense control measures. Our operation and the service expenses increased by 4.5% to $1.6 billion in the first quarter from $1.5 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 $448 million in the first quarter of 2022, from $447 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 $2.8 billion in the first quarter, from $1.1 billion to $1.1 billion to $2.8 billion. A year ago, this was mainly driven by two 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 31st, 2021. Two, change in credit performance due to the impact of COVID-19 outbreak.

Our finance cost decreased by 25.7% to $211 million in the first quarter from $284 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 first quarter of 2022, remained the same as the same period of 2021. Other gains were $118 million in the first quarter of 2022 compared to other losses of $138 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 rate between renminbi and the U. S. dollars has increased, and such volatility could have both positive and a negative impact on our quarterly netting profit in the future.

As a consequence of aforementioned factors, our net income increased by 6.5% to $5.3 billion during the first quarter from $5 billion in the same quarter of 2021. Meanwhile, our basic and diluted earnings per ADS during the first quarter were RIMB2.31 and RIMB2.14, respectively.

As of March 31st to 2022, we had a cash balance of $40.6 billion in cash at a bank, as compared to $34.7 billion as of December 31st, 2021. In addition, liquid assets maturing in 90 days or less amount to $52.1 billion as of March 31, 2022.

During the first quarter of 2022, the overall economics in China was impacted by the regional lockdown. As 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 lending inferences 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 four-year guidance when we get more clarity. For the first half of 2022, as we become more prudent in underwriting, we expect new laws facilitated to decrease between 7% to 10% year-over-year To the range of 294 billion to 301 billion.

Client assets to grow by 1 to 3% year over year to the range of 425 billion to 434 billion.

Total income to grow by 8 to 10% year over year to the range of 32.5 billion to 33.1 billion.

Credit related provision will increase given the deterioration of asset quality Driven by the COVID impact and higher risk exposure. Other losses will increase due to foreign exchange volatility. Operation related costs will decrease as we continue to improve our efficiency. As a result, we expect the net profit to decrease between 11 to 13% year-over-year to the range of 8.5 billion to 8.6 billion. If non-cash foreign exchange losses were excluded from the calculation of the profit, then 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 and the credit costs are normalized on 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.

I will do the translation. I will now turn the call over to management for a new company Good morning, and welcome to the Lufax Holding Lt. Thank you. This question will ask the Board of the Board of the Board to answer.

Our credit indicators also fully recovered back to pre-pandemic level only in three months' time in 2020. And the overall economy was in a better shape back then, like no supply chain issue, no import-export issue, not a big issue in real estate sector, for example. So I think we all believe, we all agree that even after this pandemic control comes to an end, the market environment will not be as good as pre-pandemic period at this time. So with the concern on economic downturn, which was shown from many indicators from second half last year, we started taking preemptive actions from fourth quarter last year. And that, as a whole, cut off more than 20% of our target segment and made the biggest impact on our last channel, NeuronSafe.

It dropped almost 40% from the same period last year as a result. But looking back, we believe we made a right decision. And it is not the right time, we think, to pursue rapid growth. We will be more prudent in new customer quality and our asset quality. There are still quite much uncertainties, so how this pandemic control plays out and its following impact. Thus, we provide, that's why we only provide the first-half guidance. Nonetheless, we have more than 15 years in consumer credit risk management. And we have more than, as Greg We have more than 10,000 collectors nationwide who have remote working experience during lockdown situation with the best in market system support. Also, we can have 57,000 offline directors engage in offline collection and support our collection team.

On the demand side, although recently demand on this operation loan is weakening. That's true, but we do not worry about demand size because we know that the market space issues, and then we merely take about 1% market share. And in the long run, we know that this sector will surely go in line with the government support and policy. And then good news is you ask about when will the peak of our credit loss or our financial or net flow, And then when it will recover, and then how long it will take. Still uncertain, but the good news is the peak time is already over. April, we saw the highest net flow ratio in terms of C2M3, and then it makes a clear progress, clear improvement starting from May.

So I believe now we are in the process of recovering already, Thank you.

Hi. Thanks for your question. Sorry. Greg, please, Dr. Okay. On the wealth management side, we really continue to do three things. So one is continuing The last thing that we have 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 NAB-based, you know, mutual funds, private placement funds that have more volatility than fixed income, Providing with more content, more upfront information, more post-investment services, and really combining our relative expertise through online as well as through telecom services where needed for these higher-end customers to really help them navigate this new environment.

So even though the markets have been in the A market, the A share market in China has been down 20 to 30 percent really through May 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 on their portfolios, helping them drive diversification, help improve their overall customer mix so they can generate a steady return in a difficult environment. We do have hope that, you know, now that 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 This will 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 is something we've been working on for more than a year now on the insurance product set as well. Certainly, as China goes through its overall changes, given our average customer age is about 39 years old on the wealth side, pension-related issues where pension reform is advancing insurance and pension services are becoming increasingly important, and that's an interesting area because it is a nice margin business to have. So overall, we continue to drive it online. We continue to drive new customer growth. We continue to focus on the upper end and change the product mix to continue to drive up the overall net margin of the business.

If you look, as we stated, 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, and over the longer term, we hope that it will become a larger contribution to the holdings as a whole.

Let me first share the progress with live channel. Live channel, the first quarter new sales dropped by almost 40% from the century last year, and now it takes about 20% for our new sales contribution. And that it says, the first quarter union says increased by roughly about 10% from the same period last year, and it now takes 57%. So regarding the channel mix, life is contributing 20%, and then direct say it's almost 60% now. And the rest 20% are from telemarketing, especially for our EVDC customers reborrowing.

Before I get into the DS channel reform, if I show someone's question about live channel, you know that we took series of risk mitigation actions from fourth quarter 2020. So 40% face drop in fourth quarter this year is big, but it's not a huge surprise for us. It's intended. Now if you look at the live channel new customer quality in first quarter 2020 after we took all those actions, we measure new customer quality by like DPD 1 plus at MOB3 or DPD 30 plus at MOB3. It is now even slightly better than that of that excess channel. It's very promising. And total number of life agents, now you see that it gets stabilized. It does not decrease further and much.

So we believe live channel contribution to neuron phase which is already reached the button. It cannot be lower than this. And we believe this will rebound slowly going forward. So this is update about live channel action. I will say that we have hope that this will contribute more new sales going forward. And then coming to direct sales reform, this is ongoing reform. It takes time. As of March end, total number of direct sales we have is 57,000. That includes team leaders and other supporting staffs. It was 57,000 exactly the same number in a year ago. So number of direct sales didn't increase at all for a year. Yet DS channel sales volume increased by almost 10%.

That well indicates our DS channel productivity improves, continuously improves. Although we continuously tighten underwriting policy and reduce target market to achieve better asset quality. We will continue to focus on optimizing GST mix with priority. This year we said we do not pursue rapid sales goals or balance goals. But taking this opportunity, we focus more on how we can optimize our sales team mix. We try to get more, we call it Yochai, whose retention rate is two times higher than Fei Yochai at MOB 12, meaning after one year they join us. And whose productivity is normally more than 20% higher than Fei Yochai. So we focus on how we can get more Yochai group versus Fei Yochai, and then change the mix of our dynamic phase.

As Greg mentioned, the recent hiring show said our huge high portion, it takes up to more than 40% out of total new hire. It was just one visit last year, so we are making progress. And also, we are providing a lot more tech enablements through our sales head upgrades to enhance their sales efficiency. And also, we are now trying to gradually remove the T-meter layer, which takes about 10% of total sales headcount. Then naturally we'll further improve our sales productivity. So this year we focus on building stronger direct sales team through this reform. And then this will lay our foundation, solid foundation for our rapid growth from cloud and next year after we get through this particular time.

Thank you, everyone, for joining the conference call. If you have more questions, please do not hesitate to contact the company's team offline. Thanks again. Bye-bye.