Huize Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 15, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Ruiz Holding Limited Second 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 broadcast replay could be available. Please visit huisirpc@aiuhis.com under the Events and Webcast section.

Operator

I would like to hand the conference over to your host today, Ms. Harriet Qiu, who is Investor Relations Director. Please go ahead, Harriet.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the Q2 of 2023. Our financial and operating results were released earlier today and are currently available on both our IR website and the news flyer. 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 are making forward looking statements. Please also note that we will discuss non GAAP measures today, which are more serious than in our earnings release and filings with the FDA.

Speaker 1

Joining us today are our Founder and CEO, Mr. Tsuji Ma CEO of Mr. Ron Hakan. Mr. Ma will start the call by providing an overview of the company's performance and operational highlights for the Q2 of 2023.

Speaker 1

And Mr. Han will then provide details on the financial results for the period before we open up the call for questions. Hello, everyone. And thank you for joining Kizhou's Q2 2023 earnings conference call. In the Q2 of 2023, macroeconomy continued to recover and operating conditions in the insurance industry continued to improve.

Speaker 1

The life insurance industry's consumer confidence index reached 68.2% in the Q2 of 2023, which is higher than it was in the same period of 2021 and 2020. Riding on this positive market trend and combined with our competitive edge in long term insurance products, complemented our online to off line integration and industry leading product innovation and customer acquisition capability. We reported another set of encouraging results today. In the Q2, total growth of 3.3 million for GWP facilitated on our reached RMB1.4 billion, up by a considerable 58% year over year. Our total operating revenue increased by 48.3 percent year over year to RMB370 1,000,000.

Speaker 1

We also achieved our 3rd consecutive quarter of non GAAP net profit with RMB 19,000,000 in the 2nd quarter. In terms of product mix, 1st year premiums or FYT facilitated on our platform increased by 85.2 percent year over year to approximately RMB900 1,000,000 in the 2nd quarter. Renewal premiums continue to grow steadily, increasing by 24% year over year to RMB 4 18,000,000. During the quarter, amid the surge in demand for savings products, we leverage our diversified product offering and solid omni channel distribution capabilities to capture the market opportunity. As such, FYP of our long term savings product increased by 136 percent year over year to RMB670 1,000,000 in the 2nd quarter.

Speaker 1

SYP of our long term health products also increased by 10.4 percent year over year to RMB140 1,000,000. GWT contribution of our long term insurance products was 93.6%, marking the 15th consecutive quarter about 90%. While achieving high quality business growth, our customers remain young with high potential and high stickiness, and we continue to capitalize the lifetime value of our existing customers. At the end of the second quarter, our cumulative number of insurance clients reached 8,900,000. During the quarter, about 66 percent of our long term insurance customers were from higher tier cities with an average age of 34.4 years old.

Speaker 1

In terms of FYP, the average ticket size of long term insurance projects was approximately RMB 5,400, up by 56.4 percent year over year, while the average TP size of savings products was approximately RMB63,000 up by 43.2% year over year, As of the end of May, our cumulative persistence ratios for long term insurance in the 13th 26 months remains at industry high levels of more than 95%. As of the end of the second quarter, we have collaborated with 110 insurance partners. During the period, we continued to optimize our product offerings from leading insurance companies, striving to develop more customized and reliable products for our users. Apart from our strategic partnership with Ping An Health Insurance and Ping An Property and Casualty Insurance to co develop Changtiao An, a customized long term medical insurance product and Xiaozheng Phone 3, a customized accident insurance product for children, respectively. We also strengthened our strategic cooperation with various subsidiaries of China Pacific Insurance Group.

Speaker 1

In June, we signed a new strategic partnership agreement with China Pacific Property Insurance. And jointly, we launched Xiaoxing An No. 3, which is a comprehensive accident insurance product customized to meet the protection needs of the elderly. In August, we signed a strategic partnership agreement with China Pacific Life Insurance Hong Kong and announced the co launch of Simaizu Multicurrency, which is an increasing whole life insurance product targeting Hong Kong customers. This is an innovative product in the market, promoting the concept of underwriting Hong Kong and retirement in the mainline, representing a milestone in the development of cross boundary insurance services in the Greater Bay Area.

Speaker 1

In the second quarter, we continue to deepen the online to offline integration of our insurance service ecosystem, which continues yield encouraging results. At present, we have opened branches with regulatory approval, sales qualifications in 18 provinces and cities across the country with a full coverage in major Tier 1 localities, including the Beijing Tianjin Corporate region, the Yangtze River Delta and the Pearl River Delta. In the QA segment, we kept exploring new technology and we have empowered independent agents with sophisticated intelligent tools. During the period, we launched ReLink, a proprietary user management system that helps agents manage users more efficiently and effectively, enabling them to scale up businesses and customer bases with ease. Going forward, we will make further improvements to the rail link system, upgrading it from manual lead management to AI assisted lead management.

Speaker 1

In the Q2, AYP facilitated at a QA business, reached RMB160 1,000,000, up by 2 70% year over year and 110% sequentially. In the first half of twenty twenty three, the FYP facilitated by the 2A business amounted to RMB230 1,000,000, surpassing the FYP facilitated in the whole year of 2022. In the Q3 segment, we remain committed to our customer centric approach and continue to fine tune our operations to better recognize client needs and risks and provide targeted products and service matching for various customer segments. In the Q2, we launched a series of brand promotions and customer engagement activities, including company anniversary celebration and various value added health care services targeting existing and new users, high lifetime value users and the tariff group users. We successfully reached more than 60,000 users through these efforts and achieved more than 20,000 sales conversion.

Speaker 1

We also continued to provide users with professional and efficient claims assistance services. In the first half of twenty twenty three, the total number of insurance claim cases assisted by Huizhou reached 37,000 with a total claim settlement amount of approximately RMB290 1,000,000. We further expanded the scope of our Xiaoma Cement services and offering Cement settlement services to a wider range of users in need. Going forward, we strive to create a win win dynamic for insurance companies and insurance customers, demonstrating the value added of insurance intermediaries and driving the high quality and sustainable development of the industry. For insurance customers, we will continue to enhance our product and service offerings and strengthen our user engagement and online to offline integration.

Speaker 1

With a further optimized operational system, sales process and localized deployment plan. We believe Huizhou will be able to provide more flexibilities to users to choose between online and offline one stop insurance services. For insurance companies, we will continue to explore new industry dynamics and new growth drivers to help bring down operating costs and improve operational efficiency for our insured partners and empowering them to build a high quality customer base and deliver top notch insurance services. This concludes my prepared remarks for today. I will now turn the call over to our CEO, Mr.

Speaker 1

Wong Tan, and he will provide an overview of our key financial highlights for the Q2.

Speaker 2

Thank you, Mr. Ma and Harriet, and good evening, everyone, in the Asia time zone. In the Q2, amidst further recovery in consumer confidence and total incomes, the insurance industry in China grew steadily. Capital wide growth within premium increased by 22% year over year to RMB900 1,000,000,000 during the quarter. At Frater, we leverages on our OTO integrated insurance service ecosystem and our business will continue to significantly outpace the broader market.

Speaker 2

We have delivered a 58% year over year increase in total GWP facility on our platform, which reached RMB1.4 billion in the 2nd quarter. We have also added about 200,000 new customers to our ecosystem in the second quarter, bringing the total number to 8,900,000 at the end of the June quarter. During the quarter, we recorded a non GAAP net profit of RMB19 1,000,000 marking our 3rd consecutive quarter of profitability and putting us on track to meet the upward revised full year non GAAP net profit guidance of RMB15 1,000,000 that we have issued in the last quarter. This can be attributed to the successful execution of our key business strategies. 1st, we continued our strategic focus on long term insurance products with GWP contribution from these products remaining about 90% for the 15th straight quarter.

Speaker 2

2nd, we continued to target high quality mass affluent customers and empower insurance agents to our omni channel distribution platform, rich product offerings and sophisticated technologies. Our 2A2C business line remained solid with total FYP of RMB156 1,000,000 in the 2nd quarter, representing a year over year increase of over 2x and a sequential increase of over 1x. And third, we continue to place an emphasis of optimizing operational efficiency throughout our business and this can be demonstrated by the improving operating leverage and profitability per quarter. Some key highlights and takeaways from this quarter's operating results include the following. Total gross written premiums increased by 58% year over year reaching RMB1.4 billion and this growth was mainly driven by an 85 point 2% year over year increase in 1st year premiums or FIP as well as a 24% year over year increase in renewal premiums.

Speaker 2

Our persistency ratios for long term life and health insurance remain at an industry high level. As of May, 13th 25th month persistency ratios are maintained at above 95%, respectively. The average ticket size for our long term savings in insurance products increased by 44% year over year to about RMB53000. These positive metrics reflect our high quality customer profile and our relentless efforts to enhance upselling opportunities and tap into the lifetime value potential of our customer base. In the Q2, we solidified our market leading position in long term savings products, in particular, the increasing sum assured whole life and retirement annuities product categories.

Speaker 2

The FYP of our long term savings product surged by 1.4x year over year to RMB665 1,000,000. The FIP of our long term health products also increased by 10.4% year over year to RMB139 1,000,000 in the second quarter. Looking ahead, we anticipate to achieve a more balanced product mix between the long term health and savings categories in the definition with the evolving customer needs. The robust growth in FYP helped drive a 48% year over year increase in our total operating revenue, which reached RMB368 1,000,000 in the Q2. We remain focused on tightening marketing channel costs and optimizing our operations to improve our margins and efficiencies.

Speaker 2

As a result, our operating costs in the second quarter increased at a slower pace than revenue, driving 40% year over year to RMB244 1,000,000 and this has led to a healthy improvement in our gross margin to 34% compared to 30% in the Q2 of last year. In Q2, our total operating expenses continued to decrease, falling by 1.8% year over year, resulting in our expense to revenue ratio improvement to 32% in the second quarter from 48% over the same period of last year. Our GAAP and non GAAP net profit figures were approximately RMB14 1,000,000 and RMB19 1,000,000 in the 2nd quarter respectively. At the end of the Q2, we continue to maintain ample liquidity as demonstrated by our combined balance of cash and cash equivalents of RMB248 1,000,000. We have continued to repurchase shares from the open market under our existing share repurchase mandate.

Speaker 2

And as of the end of the June quarter, we have repurchased an aggregate of approximately 1,000,000 ADSs, demonstrating our continued confidence in the business prospects and our long term growth prospects. Moving forward, leveraging our continued investments in generative AI technologies will further improve operational efficiencies across our business value chain, strengthening the integration of our OTO ecosystem enriching our product and service offerings across all scenarios and empowering our agent and insurance partners with technology enhancements. These efforts should help us gain market share and solidify our position as a top tier digital insurance product and service platform and ultimately striving to enhance shareholder value and achieve sustainable business resilience. Now turning to our outlook for the year. While we remain cautiously optimistic regarding the macro and insurance industry outlook in China, in light of the better than expected results in the first half and our strong execution in acquiring high quality customers from the market, improving cost efficiencies and enhancing customer engagement, we once again revised our outlook guidance upwards and currently expect to achieve a non GAAP net profit of not less than RMB16 1,000,000 in 2023.

Speaker 2

And with that, we will now open up the call to questions. Thank you and over to your operator.

Operator

Ladies and gentlemen, we now begin the question and And the first question from Coco Gaung from MS. Please go ahead. Your line is open.

Speaker 3

So hi, everyone. I'm Tomo from Morgan Stanley. So congratulations to the management on the various results. So I have two questions. And the first one would be on the product transition and product performances potentially in the Q3 and first half of next year because of the pricing interest rate cut on basically August 1.

Speaker 3

So we're wondering if the management sees any sort of potential product transition and how the performance will be in Q3. And because of the high base this year, how is management thinking about going forward into next year first half? That's the first question. And the second would be what plays a strategy in Great Bay Area given that the new products which launched with TTSD Life Hong Kong? And overall, what would be the outlook and strategy for this opportunity area?

Speaker 3

Thank you.

Speaker 2

Thank you for the question, Coco. It's Ron here. So regarding the first question on the outlook for Q3, I think indeed the 3.5% pricing products have been off the shelves effective on August 1. In Q3, we do have the month of July contributing to our Q3 results. So we can say that July sales numbers are quite strong across the board.

Speaker 2

And I think as one of the leading participants in this industry, I think we also have benefited from good sales in July. In the Q4, I think over the next two quarters, I think the auto industry is going to an adaptation space with respect to the product structure. I think the mainstream opinions on this topic is highly topical right now. A lot of people discussing what's the more mainstream product that will be coming to the market in the next 2 quarters. I think a lot of the insurance companies now have rolled out the 3% and 0% pricing productivity.

Speaker 2

This will be the traditional type products increasing some assured guaranteed 3% or close to 3%, I would say. There's also the anticipation of rollout of participating products with variable returns We were slightly lower 2.5% guarantee, but variable returns depending on the investment performance. So I think the whole industry is still going through this adaptation right now. It's a bit too early to tell. But we do think that the overall savings product category will continue to be well received by the average insurance customer in China, mainly because of the continued anticipation of a declining rate environment leading to the rapid attractiveness of these payments products will continue to have a appeal to customers versus other wealth management alternatives in China, for example, bank deposits and other wealth management products in the market.

Speaker 2

So our anticipation is that the savings product category will continue to perform well, but then over the medium term and long term, but then in the short term, there will be a slight lukewarm market demand for such products, particularly on the back of the strong sales in the Q2 and the month of July itself. So that will be the outlook for the product perspective. And the second question on the Greater Bay Area business plan for ourselves. I think overall, we have been in the industry for 17 years already and we have the benefit of to rapidly being located in the center or the heart of TBA in Shanghai, Shenzhen. So we sit right in the center of the whole GBA region.

Speaker 2

So with the open up the borders of Hong Kong this year, we are now capitalizing on this new opportunity on potential cross border activities. And this latest product launch that we have achieved with CPIC Hong Kong Live is a good testament of our continued innovation to provide the right products for the customers in our respective markets. And this marks our first foray into the Hong Kong market with this product targeting Hong Kong customers and also new immigrants in the Hong Kong from China. These 2 sets of customers are applying target customers for this product. And we do believe that with the long term trends of the climate demand from the Hong Kong residents in the Greater Bay region, we believe that this product would address this market niche very precisely.

Speaker 2

And we do have a very strong anticipation for the sales of this new product, the CBIC in Hong Kong.

Operator

Thank you for your question. We're now taking the next question. And the next question from Mindy Galves of CLCA. Please go ahead. Your line is open.

Speaker 4

This is Mimi from CLSA. My first question is about the gross margin trend. So I wonder how do you see the trend of gross margin in the second half and the rationale behind? So my second question is about your overseas expansion plan. So can you share with us more color about Huazhu's overseas expansion plan?

Speaker 4

And when do you expect to see a more meaningful revenue contribution from this part of business? Thank you.

Speaker 2

Thank you, Mindy. It's Ron here. Two questions. The first question on our gross margin outlook. I think we have been demonstrating that we have achieved cost efficiencies throughout our business lines.

Speaker 2

And as a result, our gross margin for the 2nd quarter has improved by almost 4 percentage points from same period last year. I think we continue to strive to maintain gross margins at the current level through 3 main areas. One is we continue to have a very disciplined cost control on our marketing spend, on our customer acquisition channel cost. We have actually been quite stringent on our direct acquisition budgets. We have been quite focused on harvesting our existing customer base as well in terms of repurchases.

Speaker 2

We have actually achieved more than 3% repurchase rate from our direct 2C business line in this quarter. So this demonstrates that we have been able to achieve premium growth for my existing customer base. And we balance that very carefully with new customer acquisition spend to attract new customers. Secondly, I think we continue to invest in the technology and we have been also deploying more capital into AI efforts. I think we are expecting to yield efficiency enhancements again on many aspects of our business across the value chain.

Speaker 2

So that will be a second measure. And I think a combination of these measures and strategies will help us maintain our gross margins at the current level. So that will be the answer to your first question. The second question on overseas expansion, I think Hong Kong is the first destination in terms of international strategy or expansion. Hong Kong is a natural extension for our Mainland China business because Hong Kong, we do have a very good opportunity in the overall MCB business in the Hong Kong market.

Speaker 2

This is a HK40 1,000,000,000 dollars Hong Kong dollar market pre COVID and we expect that to be around 80% or 100% recovery this year. So as a major player in the mainland Chinese insurance brokerage industry, with the brand recognition that we have with many of the Hong Kong local residents who have a linkages in China, we believe that our brand equity will able to help us achieve a decent market share in the Hong Kong local market as well. So we are targeting to become a top tier broker in the Hong Kong market in the next 3 years and to achieve a meaningful market share as well in the MTV business and also for the local Hong Kong market business. And I think on the back of the Hong Kong expansion, we are looking into potential investment opportunity in Southeast Asia. We are not currently in the feasibility study stage.

Speaker 2

We are in preparation for a potential rollout of our business across the region. But right now, we are still in the early phase of identifying opportunities and identifying potential joint venture partners in targeted countries in Southeast Asia.

Operator

Thank you for your question. We are now taking the next question. And the next question from Michelle Mark from Citi. Please go ahead. Your line is open.

Speaker 4

The first question is about our thoughts on insurtech. So for smaller players, should we think about like a smooth or early move advantage or we should follow the steps of those industry intermediates for Asia for infra tech consideration. So we just want to have the management thoughts on this issue. And the second thing is about the operating leverage, and we are seeing some deterioration in the operating leverage, but with I think a very promising net profit outlook for wholly and for the second half this year. So will Hoists return to a path to continue expansion or we should pay more attention to the cost control?

Speaker 4

And how about the revenues growth are you paying the second half? Thank you.

Speaker 2

Thank you, Michelle. I'll take your questions. So the first question on AI, I think the way that we look at AI is we don't really see as a first mover or second mover. I think the most pertinent question is for AI to really work for any particular company in the respective industry vertical, I think the key prerequisite is you have data in the platform. You have the right data in the platform to help you deploy AI technology to improve efficiency.

Speaker 2

So to that regarding what we have is we have over 17 years now of transaction data and this encompasses presales consultation conversations because we have a real time compliance and monitoring system as you well know. So we have a lot of daily conversation between our consultants and the end customers as data to be fact into AI training models. We also have a lot of underwriting data. We have auto claims processing data. As you understand, we have some Alipay, the Sharma claim service.

Speaker 2

So therefore, we actually have accumulated a lot of this data. So all these actually helping us to effectively train any type AI algorithms internally, so that we can potentially divide game changing AI technologies to be deployed in house. So I think that to the extent would be the answer to your first question. I think we have the natural advantage to deploy AI because we hold proprietary data within our ecosystem, within our platform. And hopefully, over the next 6 to 12 months, we will be able to release the market or to announce the market as some of the milestone achievements in this regard.

Speaker 2

So in relation to your second question also, some expenses might have creeped up in the Q2, but we still intend to maintain cost discipline very, very rigidly to the extent that the macro economy in China, as everyone is well aware, is still relatively challenging. Although, overall, it's in a recovery mode. I think most industry participants remain cautious on the outlook. We do think that the overall business dynamics with respect to HVACER continue to be very solid and resilient and sustainable as we have proven over the last few years now, aside from COVID, where everything needs to be happening online and we have a network advantage being an online native platform. And over the last 1 year or so when timing economy has been negatively impacted by restrictions relating to COVID leading to much dampening in consumer confidence and demand.

Speaker 2

We'll be able to ride through these cyclical challenges and have emerged since the Q4 of last year being profitable for 3 consecutive quarters. So I think the overall trajectory is in terms of medium to long term as an insurance intermediary as a leading player in this space, we have very positive outlook in the long term in terms of the market share of a digital brokerage like ourselves with the increasing separation between record the distribution and the product manufacturing in China, the single digit percentage market share of insurance brokerage should go up to a more of a high double digit, mid double digit as we have seen in the advanced economies. So I think that will be the overall outlook on that front. The second half of this year, we are constructive. I think there will be some product transitions in this period.

Speaker 2

Everyone is anticipating that. But at the end of the day, I think it depends on what the customers in the market would demand. I think that savings product will continue to be the mainstream product in the insurance industry. And we still hold an advantage in customizing the better and newer products with insurance companies. And we already have a backlog of new products to be launched in the Q3 and Q4 when the time is right, which will be suitable for the average customer in the new environment.

Speaker 2

Thank you.

Operator

Thank you for your question. I will now hand the conference over to Ms. Sege Tu for closing remarks.

Speaker 1

Thank you, operator. Only now for today'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 your hotel IR team. And thank you all for joining us today. This concludes the call.

Operator

And that concludes the conference for today. Thank you for participating. You may all disconnect.

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Key Takeaways

  • In Q2, the platform facilitated a 58% year-over-year increase in total GWP to RMB1.4 billion, driven by first-year premiums up 85% and renewal premiums up 24%.
  • Achieved a third consecutive quarter of non-GAAP net profit of RMB19 million, supported by a 34% gross margin and a 32% expense-to-revenue ratio.
  • Long-term insurance products accounted for over 93% of GWP (15th straight quarter), with first-year savings premiums surging 136% and health premiums up 10.4%.
  • Expanded the customer base to 8.9 million, with a mass affluent profile (average age 34.4) and industry-leading persistency ratios exceeding 95% at both 13 and 25 months.
  • Strengthened partnerships with 110 insurance partners and rolled out new offerings including a cross-border Hong Kong multicurrency whole life product, while enhancing O2O integration and AI tools like ReLink.
AI Generated. May Contain Errors.
Earnings Conference Call
Huize Q2 2023
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