Huize Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 17, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Hoiza Holding Limited Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, we will have a question and answer session. Today's conference call is being recorded and a webcast replay will be available. Please visit Hoise's IR website at ir.

Operator

Huize.com under the Events and Webcast section. I'd now like to hand the conference over to your speaker host today, Mr. Kenny Lo, Oizos' Investor Relations Manager. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the Q3 of 2023. Our financial and operating results were released earlier today and are currently available on both our IR website and Newswire. Before we continue, I would like to refer you to the 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 GAAP measures today, which are more properly explained in our earnings release and filings with the SEC.

Speaker 1

Joining us today are our Founder and CEO, Mr. Chenjun Ma COO, Mr. Li Jiang Co CFO, Mr. Minhan Xiao and Co CFO, Mr. Ronald Ham.

Speaker 1

Mr. Ma will start the call by providing an overview of the company's performance and operating highlights for the Q1 of 2023. Mr. Tan will then provide details on the financial results for the period before we open up the call for questions. I will now turn the call over to Mr.

Speaker 1

Ma. Hello, everyone. Thank you for joining Huizhou's Q3 2023 earnings conference call. In the Q3 of 2023, the macro economy gradually recovered with economic activities showing signs of improvement. However, international relationship challenges persisted and capital markets, erratically experienced fluctuations.

Speaker 1

The insurance industry continued to deepen product for core adjustment and transformation. The assets of insurance companies were primarily affected by the continuous impact of the stock market downturn, declining interest rates and ongoing impairment losses, resulting in adverse impacts to the overall industry investment income. In the 1st 3 quarters, the net profit of the life insurance industry generally showed a year on year downward trend. The market cap is experiencing ups and downs, but is on a long term positive path towards recovery. Amid these external uncertainties, we focus on leveraging our competitive edge in product innovation, omni channel distribution, customer acquisition capabilities and high quality customer profile and reported another set of solid results.

Speaker 1

In the Q3, total gross written premiums or GWP facilitated on our platform reached RMB1.25 billion and we recorded total revenues of RMB290 1,000,000. Our GAAP net profit increased 43% sequentially to RMB20.17 million and we achieved our 4th consecutive quarter of non GAAP net profit with RMB18.49 million in the 3rd quarter. In terms of product mix, we continue to leverage our diversified product offering and solid omni channel distribution capabilities. 1st year premiums or FYP facilitated on our platform reached RMB640 1,000,000 in the Q3. Across the 1st 9 months of 2023, our FYP has increased by 54% year over year to RMB2.2 billion.

Speaker 1

The FYP of our long term health products increased by 8% year over year to approximately RMB100 1,000,000 in the Q3. Our savings products maintained strong growth momentum during the quarter. With the FYP of our annuity products tripling year over year to RMB120 1,000,000, we are seeing a strong snowball effect as a result of our strategic focus on long term insurance products and the high stickiness of our users. Our renewed premiums in Q3 reached RMB600 1,000,000, up 7% year over year and 25% sequentially, generating steady cash flow to support our resilient business performance. Moreover, the GWP contribution of long term insurance products was 90.9%, marking the 16th consecutive quarter where this figure has exceeded 90%.

Speaker 1

Meanwhile, the continued recovery of the domestic economy boosted demand for short term health, P and C and accident insurance products in the Q3. As a result, the FYP of our short term insurance products increased by 50% year over year to RMB110 1,000,000. As of the end of the Q3, our cumulative number of insurance clients reached 9,120,000, representing an addition of 223,000 new customers. Among clients who purchased long term insurance in the 3rd quarter, 67.5% were from high tier cities and the average age was 33.9 years old, reflecting our focus on young, loyal and high quality customers. In terms of FYP, the average ticket size of long term insurance products was approximately RMB 4,600, while the average ticket size of savings products was approximately RMB50,000, up by 23% year over year.

Speaker 1

As of the end of August, our cumulative persistency ratios for long term insurance in the 13th 25th month remained at industry high levels of more than 95%. As of the end of the Q3, we had cooperated with 121 Insurer Partners. Meanwhile, we continue to co develop various cost effective and high quality customized insurance products with our insured partners. Since September, we have launched Xiaodaoqi 2, a customized child critical illness insurance product and Guardian Critical Care 6, a customized multiple benefit critical illness insurance product. We also partnered with China Pacific Life Insurance to jointly launch Qingqiangshou Premium, an increasing whole life insurance product.

Speaker 1

With the increasing retirement plan awareness of the millennials, we recently launched 2 annuity products, Da Jia Hui Xuan and Jinma Yizhu, number 5, to help younger customers develop sustainable long term wealth management and retirement plans. We strive to provide comprehensive protection for our clients and their families through a broad range of product offerings, including insurance products for children and the elderly as well as various long term life insurance products and health insurance products. In the 2A segment, we continue to empower insurance agents with innovative technologies. During the period, we upgraded our Relink system with new functions providing automated opportunity identification and alert, helping business consultants assist insurance agents more effectively and efficiently? The upgraded Relink system is currently able to identify 31 business scenarios and 108 types of business opportunities.

Speaker 1

In the Q3, FYP facilitated by the 2A business reached RMB 89,650,000 up by 38% year over year. In the 1st 9 months of 2023, the FYP facilitated by the 2A business amounted to RMB320 1,000,000, surpassing the total FIP facilitated by this segment in the whole year of 2022. In the 2C segment, we remained committed to our customer centric approach and continue to provide high quality and effective services that meet our customers' diversified needs across various insurance segments. In the Q3, we continue to hold various brand promotions and customer engagement activities aimed at attracting new users, activating existing users and engaging high lifetime value users. We successfully reached more than 50,000 users through these efforts and achieved more than 30,000 sales conversions.

Speaker 1

In the Q3, we continue to strengthen our user engagement efforts and enhance our upselling capabilities to maximize the lifetime value of our customers. In the Q3, 38.4% of our long term insurance product customers will repeat purchases from existing customers, up 4.7% page points year over year, reflecting the stickiness of our client base. This high level of customer loyalty has helped stabilize our revenue stream and lower our customer acquisition costs. In the Q1, our gross profit margin increased by 6 percentage points year over year to 35.3%. Meanwhile, the company's organizational efficiency continued to be optimized, driving a 27% year on year decrease in total operating expenses.

Speaker 1

In particular, we reduced our general and administrative expenses by 50% year over year, resulting a 5 percentage point decline in the G and A expenses to total revenue ratio, demonstrating overall improvement in our operational efficiency. Going forward, we will leverage our in-depth customer insights to develop a broad range of innovative customized products that satisfy the full spectrum of our customers' needs from healthcare, accident and retirement protection to financial and estate planning. We are committed to fostering a win win dynamic between insurance companies and insurance customers through our digital products and service platform. At the same time, we will seize the opportunities presented by the industry's digital transformation, deepen the application of digital technology in finance and further promote the OTO integration of our insurance service ecosystem. This aims to empower agents and teams with technology, facilitating high quality development within the industry.

Speaker 1

This concludes my prepared remarks for today. I'll now turn the call to our CFO, Mr. Ronald Tan, who will provide an overview of our key financial highlights for the Q1.

Speaker 2

Thank you, Kenny and Mr. Ma, and good evening, everyone. In the Q3, China's insurance market has entered a transitional phase with respect to the product structure following the suspension of 3.5% products from 1st August. Despite this significant industry wide challenge, the total GWP facilitated on our platform has remained fairly stable year over year at about RMB1.2 billion in the 3rd quarter, Thanks to the resilience of our omnichannel distribution platform integrating online and offline channels, a large established and high quality customer base and a strong insurance product innovation capabilities that we have. We are consistently acquiring new customers more efficiently with 223,000 net new customers added to the ecosystem in Q3, bringing the total number to more than $9,100,000 at the end of the quarter.

Speaker 2

During the quarter, we continued to record a non GAAP net profit of about RMB18 million, marking our 4th consecutive quarter of profitability. This strong bottom line performance is being driven by the successful execution of our key business strategies. First, we maintained a steadfast focus in long term insurance products with GWP contribution from these products remaining at about 90%. 2nd, we continue to empower insurance agents through our omnichannel distribution platform, rich product offerings and advanced technologies. Our 2A2C business line continued to deliver robust growth, generating total FIP of RMB 90,000,000 representing a year over year increase of 38%.

Speaker 2

3rd, in our direct to see segment, we continue to target high quality mass affluent young consumers and drive upselling opportunities across our customer base. In terms of FIP, the repurchase ratio of our long term insurance products increased by about 5 percentage points year over year to 38.4% in Q3. Lastly, we continue to focus on boosting operational efficiencies throughout our business and that's reflected improvements in our growth and operating margins. Key highlights and takeaways from our operating results include the following. Number 1, total GWP increased by 32% year over year during the 1st 3 quarters of 2023, of which first year premiums and renewal premiums increased by 54% 16% year over year respectively.

Speaker 2

2, our persistency ratio for long term life and health insurance remained at an industry high level. As of August, the 13th 25th month persistency ratios stood at about 95%. And 3rd, the average ticket size for our long term savings insurance products increased by 23% year over year to about RMB 50000. These positive metrics continue to reflect a high quality customer profile and our relentless efforts and success in tapping into the long term lifetime value potential of our customers. In the Q3, we sustained our market leading position in long term insurance products.

Speaker 2

The FYP of our long term health products increased by 8 percent year over year to RMB104 1,000,000 while the FYP of our annuity products more than tripled year over year to RMB116 1,000,000. We will continue to pursue a balanced product mix between the long term health and savings categories to satisfy our evolving customer needs. We remain focused on tightening marketing channel costs and optimizing our organizational structure to improve our profit margin and efficiency. As a result, our operating costs in Q3 decreased by 24% year over year to RMB189 1,000,000 leading to a strong improvement in our gross margin to 35% as compared to 29% over the same period of last year, primarily driven by increased customer efficiencies and repurchases by existing customers on our platform. In Q3, our total operating expenses continued to decrease, falling by 27% year over year and our operating expense ratio improved to 29% in Q3 from 33% in the same period of last year.

Speaker 2

And our GAAP and non GAAP net profit figures were approximately RMB20 1,000,000 to RMB18 1,000,000 in Q3. As of the end of the quarter, we continue to maintain strong liquidity as our combined balance of cash and cash equivalents increased to RMB258 1,000,000 and we have continued to repurchase shares from the open market under our existing share repurchase program. And as of the end of the September quarter, we have repurchased an aggregate of approximately 1,400,000 ADSs to date, which continue to demonstrate our management's confidence in the business model and long term growth prospects. Moving forward, we will continue to deepen the financial applications of generative AI, striving to enhance our product innovation and upselling capabilities. We'll further strengthen the integration of our online to offline ecosystem and empower our agents to acquire high quality customers and engage with clients more efficiently and effectively.

Speaker 2

We will also continue to drive improvements in operating efficiency and optimize resource allocations across the business. We remain committed to expanding our market share and solidifying our position as a top tier digital insurance product and service platform in the home market in China as we strive to enhance shareholder value and achieve sustainable business growth. We are also investing in growth opportunities in the international market with our Hong Kong operations now up and running and gaining good momentum, having launched our first ever customized whole life insurance product earlier in August with China Pacific Life Insurance Hong Kong with an innovative products feature that facilitates underwriting in Hong Kong and retirement in the Mainland. We are now working to expand into other attractive markets in the ASEAN region and we are currently targeting to generate double digit percentage of our group's revenues from our international markets within the next 12 months. And with that, we'll now open up the call to questions.

Speaker 2

Thanks and over to you, operator.

Operator

Thank And our first question will come from Coco Gaugu of Morgan Stanley. Please go ahead.

Speaker 3

Thank you so much for taking my question. Congratulations on a very good performance for the Q3 of 2023 in a very challenging environment. I have two questions today, if I may. So the first one would be about some of the regulation changes in China, especially on the broker channel as well as some recent regulations on short term health insurance. So how does the management perceive this change impact on our overall business?

Speaker 3

Without just a little bit of insight on the maybe sort of the product mix change or product innovation or anything related would be much appreciated. And the second question would be about the critical illness demand, because we've talked about launching like the new critical illness product, but how are you seeing the sort of marginal changes in terms of the Critical Unit demand, given the savings demand is very significant, but are we seeing any positive changes for the critical units or protection type of product in mine recently? Thank you very much.

Speaker 2

Thanks, Coco. It's Ron here. So two questions from you. The first one relating regulatory changes and how is that impacting the overall business. I think that's a very fair question and it's very topical right now.

Speaker 2

I think the multiple funds of the business is being impacted by the recent regulatory changes. I think the most evident one would be the cessation of 3.5% products and that has led to a somewhat a downturn in the overall market. I think across the board, we have seen FIP numbers coming down quite a bit among the top tier companies as well as I think from market channel checks. But I think slowly we have seen that the demand recovery has commenced starting after the October 1 holidays, after the National Day holidays. I think we are seeing some momentum being regained into November.

Speaker 2

But I think that we are still a bit short of where we were for a normal month notwithstanding any special changes in the product structure that is driven by the regulatory changes. So in terms of product mix, I think we are seeing some channels or market demand for participating products. I think we're seeing some trends there. We do believe that participating products could be very interesting in the new environment where it provides a relatively lower fixed guarantee return with on top of that a more of a variable return kind of a profile to consumers. I think consumers still in strong demand for good savings product that could deliver good returns over the long term and with more of a protected kind of structure.

Speaker 2

So I think participating products could gain momentum, particularly in the New Year. That's point number 1. I think we're also seeing good demand from consumers on retirement annuities products. And with that, we have already launched at least 2 annuity products in the recent quarter. As we have mentioned in the opening remarks with 2 insurance companies targeting different segments of the population.

Speaker 2

So I think we are continuing to drive product innovation to capitalize on the changing customer preferences subject to the regulatory changes that is already in place. The increase in some assured products still are interesting. I think that provides a guaranteed close to 3% kind of IRR, which should continue to be well received by the overall market when the declining risk environment is expected to continue in the near to medium term. With respect to critical illness products, I think on that, we have also publicly disclosed that we have around 8% year over year growth on the long term health segment, which is primarily from critical illness products. So it's a slow recovery.

Speaker 2

But then we also are driving product innovation in this respect. We have launched different types of critical illness for different segments of the consumer base, for example, the child critical illness products that we have launched. So I think we'll continue to tackle a resumption of or recovery of consumer demand through delivery of high value customized products. So that will be the answer to your first question. With respect to your second question, I think also addressed it just now on the critical illness demand.

Speaker 2

So hopefully those are good answers to your questions, Coco.

Speaker 3

Yes. Thank you very much.

Operator

The next question comes from Youyou Zhang of CICC. Please go ahead.

Speaker 4

My question is related to our new product strategy. We've launched many new insurance products so far this year. So under your observation, what are the most popular products? And by the way, how to sell those MCV products? Could you share some more details?

Speaker 4

Thank you.

Speaker 2

Thank you. Thank you, Yu Yu. So first question on each of the more popular products these days. I think we're seeing real time data in our systems. I think that the top 2 or top 3 categories are probably I think number 1 would be more towards retirement annuities and these are the customized products that we have launched together with our partners.

Speaker 2

I think that is gaining the best momentum in the Q3. We also as I mentioned to Koku's question just now, I think we are seeing good demand as well in participating products. So this is something a bit new, I think, some of our new trend. So this will be the 2nd category. And I think with respect to MCB products, we have launched the new product in August.

Speaker 2

So I think it still takes time for us to really jump up our channels and push sales. But I think we're getting decent market feedback on this innovative product, which enables Hong Kong residents or insurance customers in Hong Kong to enjoy privileges as to retirement in the mainland. I think this is a very innovative product structure. And I think that given time for the product to run, I think that we will be achieving pretty good sales on this. With respect to MCV, I think we are also getting momentum there because of our brand equity in the mainland China.

Speaker 2

And I think we're also getting good attention from incoming travelers. And so with respect to product mix there, I think mostly I think as we have seen in other companies or other operators in the Hong Kong market, the strongest demand is probably still for savings products that is underwritten by Hong Kong or international insurance companies with brand name. So I think that's my answer to your second question.

Operator

Our next question comes from Amy Chen of Citi. Please go ahead.

Speaker 5

Hi. Congratulations on another profitable quarter. And I have two questions here. The first one would be on guidance for next year. You touched a bit on the trend of product mix in the Q3.

Speaker 5

And I wonder if you could share more color about your product strategy in 2024. And also what's your outlook in terms of brokerage income as well as on the earnings side? The second question is that we see that the company has made enormous assets on containing operating costs through all fronts and we see that effectively the operating cost to income ratio has come down. I'm wondering if the management has a target for this ratio. Thank you.

Speaker 2

Okay. Thank you, Amy. So with respect to your first question on guidance, right now we have not refreshed our guidance for the next year. I think we'll be giving guidance when we are coming up with the Q4 results for next year. I think we are still looking to strategize on the overall strategy for next year.

Speaker 2

So it's a bit early to tell now. In product mix, I think we can share a little bit more insights. I think in the New Year, we're more likely to cooperate with larger size insurance companies with respect to savings related products in particular. And we can also explore cooperation with Sinopore and joint venture companies that are involved in the savings category. And in particular with respect to participating products, I think that we would very likely will be wording out a customized product in that segment.

Speaker 2

2nd, I think we still have a very strong focus on retirement annuities products with additional service tied to the insurance policies. So I think that's something that is in strong demand and we can we are also able to drive differentiating product innovations in this to set ourselves apart from the competition. So I think those 2 will be our strong focus for next year in terms of product strategy. And on the cost side, I think it's always going to be top of our mind in terms of driving additional efficiencies across the business, across the organizational structure. So I think that we'll continue to drive costs down.

Speaker 2

And I think there's always further room to improve in that regard. Maybe we have already done quite substantial cost cutting already year to date, but then I think there's something that we will continue to be very focused on. Maybe we can profitability for the business. Thank you, Amy. Thank you,

Operator

Seeing no further questions at this time, I'll now turn the call back to Kenny Lo for any closing remarks.

Speaker 1

Thank you, operator. In closing, on behalf of Huizhou's management team, we would like to thank you for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us today. This concludes the call.

Operator

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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Key Takeaways

  • In Q3, Huize facilitated RMB1.25 billion in gross written premiums, generated RMB290.1 million in revenue, and delivered a 43% sequential increase in GAAP net profit to RMB20.17 million, marking its fourth consecutive quarter of non-GAAP profitability.
  • First-year premiums on the platform reached RMB640 million in Q3, boosting nine-month FYP by 54% year over year to RMB2.2 billion, with long-term health FYP up 8% and annuity FYP up 3× year over year.
  • Renewal premiums rose 7% year over year and 25% sequentially to RMB600 million in Q3, while long-term insurance products accounted for 90.9% of GWP and persistency ratios in months 13–25 remained above 95%.
  • The company added 223,000 new clients in Q3, reaching 9.12 million total users, with 67.5% from high-tier cities, an average customer age of 33.9 years, and average ticket sizes of RMB4,600 for long-term insurance and RMB50,000 for savings products (up 23% yoy).
  • Huize improved operational efficiency with a gross profit margin up 6 percentage points to 35.3%, a 27% reduction in total operating expenses, a 50% cut in G&A costs, and cash and equivalents rising to RMB258 million, alongside ongoing share repurchases.
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Earnings Conference Call
Huize Q3 2023
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