Huize Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 30, 2023

There are 6 speakers on the call.

Operator

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

Operator

I'd now like to hand the conference over to your speaker host today, Ms. Harriet Hu, Hu's Air's Investor Relations Director. Please go ahead, Harriet.

Speaker 1

Thank you, operator. Hello, everyone. Welcome to our earnings conference call for the Q1 of 2023. Our financial and operating results were released earlier today and are currently available on both our IR website and the 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.

Speaker 1

Please also note that we will discuss non GAAP measures today, which are more thoroughly explained in our earnings press release and filings with the SEC. Joining us today are our Founder and CEO, Mr. Zhenjun Ma COO, Mr. Li Jiang Co CFO, Mr. Min Han Xiao and Co CFO, Mr.

Speaker 1

Rong Tan. Mr. Ma will start the call by providing an overview of the company's performance and operational 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.

Speaker 1

I will now turn the call over to Mr. Ma. Hello, everyone, and thank you for joining Huizi's Q1 2023 earnings conference call. In the Q1 of 2023, as China's economy gradually recovered and the private consumption revival. We leveraged these positive trends by actively refining our product offerings and business strategies to strengthen our comprehensive online to offline O2O integrated digital insurance service ecosystem.

Speaker 1

As a result, Huizi reported another set of remarkable results in the Q1 of 2023. On a sequential basis, total gross written premiums, or GWP, operating revenue and non GAAP net profit all achieved double digit growth during the period. Total GWP facilitated on our platform reached RMB1.93 billion, marking a 33.4 percent sequential increase. Our total operating revenue and non GAAP net profit also increased by 15.7 percent 30.3 percent quarter over quarter to In terms of product mix, 1st year premiums or FYP facilitated on our platform increased by 58.6 percent sequentially to approximately RMB660 1,000,000. FYP of our long term health insurance product and savings product increased by 32.8 percent 50 0.4% quarter over quarter to RMB180 1,000,000 and RMB340 1,000,000 respectively, highlighting the high quality growth driven by our comprehensive product offering.

Speaker 1

At the same time, we continue to benefit from our strategic focus on distributing long term insurance products and the competitive age we have established. JWP contribution of our long term insurance products was 92 0.7%, marking the 14th consecutive quarter above 90%. Renewal premiums also demonstrated significant growth, rising by 23.2% sequentially to RMB1.27 billion. At the end of the first quarter, our cumulative number of insurance clients reached 8,700,000. We remain focused on targeting high quality customers for our long term insurance product.

Speaker 1

During the quarter, about 66.2% of our long term insurance customers were from higher tier cities with an average age of 33.9 years old. In terms of FYP, the average ticket size of long term insurance product and savings product was approximately RMB 4,120 and RMB 44,000. During the quarter, demonstrating our success in unlocking the lifetime value of our users and indicating a positive trend in user engagement. As of February, our cumulative persistency ratios for long term insurance in the 13th 25th months remained at industry high levels of more than 95%, indicating that our high quality customers show a high level of stickiness and continue to generate stable revenue strength for both Huizi and our insured partners. As of the end of the Q1, we had cooperated with 104 insured partners.

Speaker 1

During the quarter, in response to the increasing demand for insurance coverage for children and the huge mortality protection gap, We launched Xiaotaoqi 1, a customized child critical illness insurance product and Xinhai Zhu 3, a customized term life insurance product, both of which cater to the protection needs of younger generation customers. Additionally, we launched Simaizu 3, an increasing whole life insurance product with the option to convert the policy between single and joint insurance, providing flexibility for customers with pension and inheritance planning needs. We also partnered with Penang Health Insurance to co develop Changjiang An, a cost effective customer's long term medical insurance product that offers guaranteed policy renewals for 20 years. This comes on family subscription and family deductible benefits. This product was well received by both customers and the industry and was named one of the most popular medical insurance products designed by insurance intermediary in 2023.

Speaker 1

In the Q1, GWP of our customized products accounted for 60.1% of total GWP. In the Q1, our gross margin reached 39.8%, up by 2.6 percentage points sequentially. The increase can be attributed to a reduction in our customer acquisition cost due to our successful O2O integration and refined user management strategy. Meanwhile, we continued to maintain effective cost controls and optimize our organizational structure. As a result, our total operating expenses decreased by 20.2% year over year and our selling expense to income ratio declined by 5.9 percentage points on a year over year basis.

Speaker 1

Moving forward, we will maintain our disciplined approach to cost control and continue improving operational efficiency to achieve sustainable business growth. We also rolled out our online purchase offline service strategy to deepen the O2O integration of our insurance service ecosystem during the Q1. Thus far, we have successfully established offline service teams in 16 key regions nationwide. In the QA segment, we capitalized on the market opportunities presented by independent agents and empowered them with product filtering tools and real time insights into customer needs. We also provided insurance agents with efficient professional support, enabling them to effectively acquire and engage with customers and deliver the utmost professional services.

Speaker 1

Moreover, we have expanded our localized operations to more regions and commenced product offerings in these regions. In the Q1, FYP facilitated by the 2A business reached RMB74.8 million, equivalent to 1 third of the FYP from the 2A business in 2022, which demonstrates the increasing importance of our 2A strategy to our overall business growth. In the 2C segment, we continued to refine our operations with a strong emphasis on compliance and a strategic focus on customer acquisition, retention and activation. To better serve our customers, we have deployed sophisticated algorithms that effectively integrate 18 distinct indicators of customer demand across 4 dimensions, allowing us to analyze customer demand across various scenarios and make targeted recommendations of the most suitable products and services. In addition, we leverage our comprehensive CRM system to track customer outreach, analyze customer behavior and feedback and develop tailored follow-up strategies and solutions.

Speaker 1

In the Q1, through targeted promotions, branding and customer engagement activities, We reached more than 70,000 users and achieved more than 10,000 sales conversions. As the insurance industry undergoes gradual reform, digitalization and the independent agent business model will act as new growth drivers, we are confident that insurance intermediary markets will sustain the strong growth in the future. To capitalize on this trend, we will consolidate our core strength as the leading insurance intermediary platform, strengthen our cooperation with our insured partners in areas such as strategy, operations and processes provide customers with the most suitable products and services to meet their needs and drive deeper integration of our O2O ecosystem to enhance customer experience. Our primary goal is to fulfill the long term protection needs of our customers, while achieving sustainable revenue and the net profit growth. This concludes my prepared remarks for today.

Speaker 1

I will now turn the call to our CFO, Mr. Ron Tang, and he will provide an overview of our key financial highlights for the Q1.

Speaker 2

Thank you, Mr. Ma and Harriet, and good evening to the audience in the Asia time zone and good morning for those in the U. S. In the Q1, the insurance industry in China experienced a gradual recovery, which is in line with the improving consumer confidence and household income. As operating conditions have improved, sector wide gross written premiums increased 9% year over year to a number around RMB1.6 trillion.

Speaker 2

Leveraging our omnichannel distribution ecosystem, we have achieved business growth that far outpaced and outperformed the overall market trajectory. We delivered a 44% year over year and 33% quarter on quarter growth in total GWP facilitated on our platform, which has reached RMB1.9 billion in the Q1. We've also added 300,000 new customers to our ecosystem in Q1, which brings the total number to 8,700,000 by the end of the Q1. During the period, we have recorded a non GAAP net profit of RMB 18,000,000, which is a 2nd straight quarter of profitability, putting us on track to meet the full year non GAAP net profit guidance of RMB30 1,000,000, which we have given out to the market last quarter. This success can be attributed to the successful execution of our key business strategies.

Speaker 2

Firstly, we continued our strategic focus on long term insurance products with the GWP contribution from long term products remaining at about 90% for the 14th consecutive quarter. Secondly, we continue to target high quality new generation consumers and empower insurance agents throughout our omni channel distribution platform, extensive product offerings and advanced technology. Our 2A2C business line generated a very solid quarter with total FYP of RMB75 1,000,000 alone in the Q1, representing a year over year increase of over 400%. And lastly, we continue to focus on cost efficiency enhancements throughout the organizational structure, which leads to further cost savings and improvement in operating leverage. I will now recap the key highlights and takeaways from this quarter's operating results.

Speaker 2

First, total CWP increased by 33% sequentially, reaching RMB 1,900,000,000. This growth was driven primarily by a quarter on quarter increase in both 1st year premiums and renewal premiums of 58.6% and 23.2%, respectively. 2nd, our persistency ratio for long term life and health insurance we made at an industry high level. As of February, the 13th month persistency ratio stood at 97% and the 25th month persistency ratio stood at 96%. And third, the average ticket size for our long term savings insurance products was RMB44,000 in the Q1.

Speaker 2

This continues to reflect the sound quality and high potential lifetime value potential of our customer base. This overall positive metrics were primarily driven by our continuous efforts to deepen our user engagement and also convert upselling opportunities. In the Q1, we saw a notable recovery in demand for long term health insurance products with FYP for this category increasing by 33% sequentially. We have also maintained our market leadership in long term savings products and solidified a position in that market segment. The GWP contribution of our long term insurance products remained above 90% for the 14th quarter.

Speaker 2

Looking ahead, we anticipate a more balanced product mix between the long term health and long term savings categories, which aligns with our evolving customer needs and with the market dynamics in the China context. The recovery in FYP helped drive a 16% sequential increase in our total operating revenue, which has reached RMB299 1,000,000 in the 1st quarter. We remain very focused on tightening our marketing channel costs and optimizing our group wide structure to improve our profit margin and operational efficiency. As a result, our operating costs in Q1 increased at a slower pace than revenue, rising 11% quarter on quarter to RMB118 1,000,000. This has led to a healthy improvement in our gross margin to 39.8% from 37.2% in Q4 in Q1.

Speaker 2

In Q1, our total operating expenses decreased by 20% year over year. Our GAAP net profit and non GAAP net profit were both approximately RMB18 1,000,000 in the Q1, and this translates to a non GAAP net margin of 6.2%. As of the end of the Q1, we continue to maintain ample liquidity as evidenced by a combined balance of cash and cash equivalents of RMB230 1,000,000. We've continued to repurchase shares from the open market under our existing share repurchase program. And as of the end of the last quarter, we have repurchased in aggregate in this year year to date approximately 484,000 ADSs, which demonstrates our management's continued confidence in our business model and our long term growth prospects.

Speaker 2

Moving forward, we will strengthen the integration of our OTO ecosystem. This should help us gain market share among high quality new generation consumers and solidify our position as a top tier insurance intermediary in China. We will also focus on providing a wide range of products and services across all scenarios and empowering independent agents and our insured partners. As we improve our operational efficiency and allocate our capital more effectively, we will strive to enhance shareholder value and achieve sustainable business resilience. Now turning to our outlook for the year.

Speaker 2

We remain optimistic regarding the sustained recovery in the domestic economy, consumer confidence and consumption activity in China, which should provide a further boost to the insurance industry. With an anticipated macro recovery, our improved operational efficiency, our ability to continue to attract new mass affluent consumers and our efforts in sales conversion and upselling And in light of the better than expected performance in the Q1, we are now revising upwards our outlook guidance and currently expect to achieve a non GAAP net profit of not less than RMB50 1,000,000 in 2023. And with that, we close we will now open up the call to questions. Thanks and over to you, operator.

Operator

Thank you. And the first question comes from the line of Yu Yu Zhang from CICC. Your line is open. Please ask your question.

Speaker 3

I've got 2 questions and the first one is about the current product mix. So could you give us some more details on the product mix based on FYB in the Q1? What's the proportion of saving products? And the second one is about the growth momentum. We know that previously China's insurance regulator has offered insurers to lower estimated returns for newly launched products.

Speaker 3

So what's our savings product sales momentum in recent weeks. And we noticed that you've mentioned in the earlier conference call that the company saw mild recovery on long term health product sales in the Q1. And now we are at the end of May. So is there still a recovery? Thanks.

Speaker 2

Thank you. Yu Yu, it's Ron here. So regarding your first question on the FYP product mix in the Q1, I think that we can break it down for you. So we have a total of R661 1,000,000 of FYP and of that roughly RMB180 1,000,000 is coming from protection, so coming from long term health and term life products. So that $180,000,000 number represents about 32% quarter on quarter growth.

Speaker 2

So that will give you some sense of the recovery in the long term health space. And RMB340 1,000,000 roughly is from the long term savings segments, which includes the increasing whole life category and also the annuity category. So that number has increased by 50% quarter on quarter versus Q4. So roughly around 28% of the FIP in Q1 is from protection, roughly 51% of the FIP is from long term savings. So that will be the product mix question.

Speaker 2

With respect to the second question on the downward revision on the so called guaranteed return from 3.5 to 3.0 trend and how is that impacting sales? I think what we've seen in the second quarter is we are actually seeing increasing momentum of sales in the second quarter with respect to probably the imminent transition to the 3.0 percent product pricing. So I think Q2, we should probably expect to see a larger increase in sales of this product versus Q1. But then going forward into the second half of the year, what we have seen in quarter 2 as well to date is that we are seeing a pickup in annuities, especially in Chinese, it's called Yanan Lianjin. So this category is actually picking up in momentum.

Speaker 2

And in the second quarter, we've seen that the momentum should probably be continued towards the second half of the year when I think the market transitions from the increasing whole life product into annuities. And that's what we are expecting to see as an industry trend in China. But then in terms of the product mix for the second half, we probably will be seeing a more balanced mix between protection and savings as likely the early consumption of savings product would mean that there'll be more seasonality effect from a first half versus second half in 2023 for the savings product category. So that will be the second question. And the third question regarding the long term health, the protection product momentum.

Speaker 2

Q1, we definitely see a relatively robust recovery from Q4 of last year. Q4 was definitely very challenging from macroeconomic standpoint in China. So Q1, we see that with consumer covenants recovery with increasing overconsumption. Insurance probably has been the beneficiary of the overall confidence that household income recovery. So Q1, we see a relatively robust recovery momentum.

Speaker 2

In Q2, we see that continuing, but probably the pace of the growth would be somewhat more lukewarm than Q1. But then I think that the long term health category as an absolute amount for quarter 2 will probably be more or less be around the same level as Q1. But then I think longer term, we see that with continued recovery in the macroeconomic picture and we've continued improving in consumer confidence, we do expect long term health or protection products to increase in terms of the proportion of the product mix in the second half of the year. I think that will be the answer to your third question.

Operator

Thank you. Now we will take our next question. Please standby. And the next question comes from the line of Amy Chan from Citi. Your line is open.

Operator

Please ask your question.

Speaker 4

Hi. This is Sydney from Citi. And first, I want to congratulate the management on such a robust sequential growth in the Q1. So my first question is regarding to the increasing whole life product. I just wondering what percentage it accounted for in terms of FIP and GWP facilitated in the Q1 as well as year to date?

Speaker 4

And going into the Q3 and the Q4, what kind of products mix are we looking at? And the second question is on brokerage income. If we look at it on a year over year basis, it's actually relatively flat. But actually, we logged a very robust FYP growth in the Q1. I'm wondering whether this has something to do with your 2A channel, dependent agent channel?

Speaker 4

Thank you.

Speaker 2

Okay. Thank you. So the two questions. I think the first question we probably have touched upon in the response to the question just now from CICC. So the increasing whole life product in the Q1, I think in terms of our public disclosure, we have lumped together the long term savings product categories, which includes the increase in whole life and the annuities as a whole.

Speaker 2

So this category has accounted for 51%, 51 percent of our FYP for the Q1. And if you were asking about the outlook for the rest of the year, I think in Q2, we probably see a higher proportion of IFRS coming from the increasing whole lifeannuities categories, probably more than 51% in the Q2. But then that will come down in the second half as we transition to the new product pricing landscape, as we all know from 3.5 to 3.0. So in Q3, we will see probably relatively weak sales of long term savings in the increasing whole life segment, but then we do see that a complementary makeup from the annuities product as we see that the growth momentum in the annuities category continues to be quite strong in Q2 year to date. So second question on the brokerage income.

Speaker 2

Yes, we do acknowledge that the year on year growth on the brokerage income side is relatively flat. I think that has to do with mainly the lower commission rate, particularly with the savings product category from this quarter versus the same quarter last year. So I think that the silver take rate decrease has been the main contribution factor to the relatively flat performance in brokerage income from last year to this year.

Speaker 4

Thank you.

Operator

Thank you. Now we're going to take our next question. And the next question comes from the line of Jiamo Lee from Go Taijun Securities. Your line is open. Please ask your question.

Speaker 5

My first question is, you mentioned that you have deployed an online purchase, offline service strategy. So could you elaborate more on this strategy? And what do you aim to achieve with this strategy? My second question is your major peers have moved towards creating health and insurance or medicine and insurance to facilitate customer acquisition. So what are your key customer acquisition strategies and how do you plan to optimize your customer acquisition costs?

Speaker 5

Thank you.

Speaker 2

Okay. Thank you for your questions. So with respect to the first question on the onlineoffline strategy, I think we have been telling the market for quite some time by now that we have always wanted to pursue an integrated model with online customer acquisition and offline customer service comprehensive strategy. And this year, we'll be able to accelerate the development of this finally after the post COVID era where we can really push things on the ground and to deploy human resources over the country. So by now, we have already deployed significant human resources on the ground in over 17 provincial areas in China.

Speaker 2

So with respect to the specific locations, in addition to your traditional Tier 1 and other Tier 2 cities, which we all know and which will be a necessary coverage for us already. We have further expanded our geographical coverage to places like Hubei, Jilin, Jiangsu, Zhejiang, Henan. So these areas are also representing the top 20 GDP per capita regions of China and these are the important areas where we want to expand our offline coverage from a services standpoint. So to further expand on our strategy, I think we have already accumulated 8,700,000 customers, paying customers on our platform and we have reached to a point where we want to further improve our ability to service these customers and to further try to upsell these customers for higher value products, which includes insurance products, which also includes other products, for example, healthcare service, elder care services. And with the offline locations, we are not able to have a face to face interaction with these high value customers that we can try to upsell.

Speaker 2

And therefore, we would be able to further maximize the long term value of the LTV potential of these high quality customers, which we all have been witnessing in the last 2 years. We have started from a relatively lower ticket size protection product, RMB4000 kind of critical illness product. Now we're already selling RMB40,000 type of savings products like the long term whole life insurance product. So we are seeing that trend continue as our customers further mature and further accumulate wealth. And we're able to if we were able to service them in an offline context, we were able to connect them with a higher premium customer service representatives or agents who will, we were able to further increase the lifetime value potential for our customer base.

Speaker 2

So that's one very important element of the strategy. The second element of strategy is the new 2A2C business line that we have deployed starting on last year, which have already surpassed RMB200 1,000,000 for the year alone last year and now we are already seeing almost RMB100 1,000,000 in the Q1. So that new business side has picked up momentum and with the new offline coverage, this will further accelerate the connectivity that we have the local regions where the local agents can also have the local presence with our platform that will be able to service the local region customers more effectively. So that will be the 2nd point on the offline online to offline strategy. So I think overall we've always been trying to leverage on our online presence from a product supply standpoint, from a services standpoint and from an overall branding perspective to empower all the agents, the in house agents that we have on our 2C segment.

Speaker 2

To our 2B, 2C segment, which includes the 3rd party channel partners, the KOLs and the wealth management channels. And now the 2A2C channels, which are the independent agents over the country, are now realizing the synergies that they can extract from working with Fraser as a platform provider. And we have seen that translating into the growth momentum and into our top line results as we haven't shown in the last 5 quarters since the start of 2022. So that will be my answer to your first question. On your second question on the ecosystem approach, whether we wanted to improve not just from an insurance standpoint, but also providing other services like healthcare and elder care.

Speaker 2

Have actually already been investing in this regard. We have been quietly investing in our own healthcare services platform. We've actually have been trial testing this health care platform internally. And we will be rolling this out probably when it's premature in the second half of the year to provide health care services, which are higher frequency in nature and also will be allowing us to further extract wallet share from our existing customer base and also improve our knowledge and insights into our customers as they consume these healthcare products. Another point on the healthcare services segment is that we are also now expanding into Hong Kong and also potentially in next 3 years we're also looking at Southeast Asia expansion.

Speaker 2

So with the Healthcare elements, I think we are also able to derive synergies from a mainland Chinese customer base perspective with our Hong Kong product providers and to provide a linkage to facilitate the MCV business in the near future. So I think that will be another exciting growth prospect for HUAZA as a whole, and we will look to provide further information on this business line as it becomes more scalable. Thank you.

Operator

Thank you. Dear speakers, there are no further questions at this time. And I would like to hand the conference over to our management team for any closing remarks.

Speaker 1

Thank you, operator. So on behalf of Huiz's management team, we would like to thank you for your participation in today's call. And if you require any further information, please feel free to reach out to the IR team. And thank you for joining us today. This concludes the call.

Speaker 2

Thank you, everyone.

Operator

This does conclude our conference for today. Thank you for your participation. You may now all disconnect.

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Key Takeaways

  • Huizay delivered double-digit sequential growth in Q1 2023 with total GWP up 33.4% to RMB 1.93 billion, operating revenue rising 15.7% to RMB 299 million, and non-GAAP net profit jumping 30.3% to RMB 18 million.
  • First-year premiums (FYP) surged 58.6% sequentially to RMB 661 million, driven by a 32.8% increase in long-term health products and a 50.4% gain in savings products, while long-term insurance accounted for 92.7% of GWP for the 14th consecutive quarter.
  • Gross margin expanded by 2.6 pp to 39.8% thanks to lower customer acquisition costs from O2O integration, and total operating expenses fell 20.2% year-over-year, driving greater cost efficiency.
  • Renewal premiums climbed 23.2% to RMB 1.27 billion, total clients reached 8.7 million, and persistency ratios for long-term insurance exceeded 95% at both the 13th and 25th months, underscoring high customer stickiness.
  • In light of stronger‐than‐expected results and ongoing operational improvements, management raised the 2023 non-GAAP net profit guidance to at least RMB 50 million.
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Earnings Conference Call
Huize Q1 2023
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