Huize Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 23, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by and welcome to Huizi Holdings Limited First Quarter 2024 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 the webcast replay will be available. Please visit Wehua IR website at irhuihua.com under the Events and Webcast section.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the Q1 of 2024. 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. Please also note that we will discuss non GAAP measures today, which are more thoroughly explained in our earnings release and filings with the SEC.

Speaker 1

Joining us today are our Founder and CEO, Mr. Sunjun Ma COO, Mr. Li Xiang Co CFO, Mr. Minhan Xiao and Co CFO, Mr. Ronald Tan.

Speaker 1

Mr. Ma will start the call by providing an overview of the company's performance and operational highlights for the Q1 of 2024. Mr. Chen 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, and thank you for joining Huizi's Q1 2024 Earnings Conference Call. In the Q1 of 2024, China's economy continued its recovery and showed positive momentum. The insurance industry also made progress towards high quality development with original premium income increasing by 5.1% year over year to approximately RMB2.2 trillion. Adaptively navigating the profound impact of the alignment of registered and actual expenses on the insurance market with our diversified product offerings, omni channel distribution capabilities and international business footprint allowed us to deliver solid results surpassing industry average.

Speaker 1

In the Q1, total gross written premiums or GWP facilitated on our platform reached RMB1.7 billion, up 38% sequentially. Total revenue increased by 31.5% sequentially to RMB 310,000,000. We achieved a net profit of RMB6.9 million, marking our 6th consecutive quarter of profitability. In terms of product mix, the increased volatility in domestic capital markets and the continued decline in interest rates during the quarter strengthened demand for insurance products with relatively stable returns. Spotting this opportunity, we further enriched our offerings of savings insurance products, including participating and annuity products.

Speaker 1

As a result, total 1st year premiums or FYP facilitated on our platform more than doubled sequentially to RMB860 1,000,000. On a sequential basis, FYP of long term life insurance products more than tripled to RMB438 1,000,000. FYP of annuity products increased by 47.9 percent to RMB 100 and 57,000,000 and FYP of long term health insurance products increased by 12.2 12.2 percent to RMB96 1,000,000. We further strengthened our industry leading position in the long term insurance market. Percent of total GWP, marking our 18th consecutive quarter with a ratio above 90%.

Speaker 1

Renewal premiums reached RMB860 1,000,000, up 4.1% sequentially. As of the end of the Q1, our cumulative number of insurance customers has grown to 9,600,000, representing an increase of 220,000 new insurance customers sequentially. Among the long term insurance customers from the Q1, 66.4% were from higher tier cities and their average age was 34.8 years old, Benefiting from the success of our Hong Kong business expansion, contributing premium product sales, the average SYP ticket size of our savings insurance products reached a record high of approximately RMB 69,000 representing a 17% increase from the previous quarter's high base. As of the end of February, cumulative persistence 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 Q1, we have cooperated with 120 Insure Partners amidst the implementation of alignment of registered and actual expenses and the continuous reduction of guaranteed returns on traditional life insurance, we quickly adapted to customer demand and seize the market opportunity by introducing Yisheng Zhuyi, a participating whole life insurance product underwritten by Generali China, which generated significant sales during the quarter.

Speaker 1

In April, we partnered with AVEVA Cofco Insurance to launch Fumanja, a customer participating whole life insurance product that offers customers a wide range of choices for future financial planning, combining the operational strength of AvivaCostco and our expertise in customer insights and product design. This differentiated product has received significant attention from the market. We also partnered with PICC Life Insurance to launch iWuYo Low Threshold Edition, a compromised critical illness insurance product for sub health individuals. At the same time, we launched Star Wing Critical Care 9, the latest customized critical illness insurance product in the dark green critical care series to meet the evolving needs of younger customers. In the Q1, FYP facilitated by our independent financial advisors or IFA platform reached RMB 127,000,000, a year over year growth of 69.9%.

Speaker 1

The number of high performing IFA studios increased by 105% year over year. In our direct to consumer or DTC segment, we successfully achieved more than 16,000 sales conversions in the first quarter through various promotions, marketing campaigns and customer engagement activities. In addition, we expanded our presence in the Hong Kong market to satisfy the demand for premium insurance products and services of high value customers. In the Q1, the growth momentum of mainline Chinese visitors purchasing Hong Kong Insurance products continued, contributing 7% of our total revenue. Leveraging our comprehensive IFA platform, high quality lead generation and strong sales conversion capabilities of the DTC segment and successful penetration into the Hong Kong market, we have further maximized the LTV potential of our customers and reflected in our high repeat purchase rate for long term insurance products of 40.4 percent in the Q1.

Speaker 1

Recognizing the uncertainties created by ongoing industry reforms, we maintained our focus on optimizing operational efficiency with total operating expense decreasing by 24.9 percent and our expense to revenue ratio improving by 10 percentage points when compared with the same period last year. To date, our proprietary AI marketing assistant has been fully deployed and utilized by our consultants and agents as we consistently make its rate improvements to its algorithms and optimize its capabilities in empowering our consultants. We also launched a new AI powered tool providing business development support to further drive the digital transformation of the industry. This tool is currently available on PC and is undergoing internal testing for external agents. We are committed to expanding the functionality of our insurance AI product, which will uniquely position us to meet customers' demand for personalized content and services, support distribution partners in improving productivity and adjust insurance carriers' needs for market insights and risk management.

Speaker 1

As the insurance intermediary industry enters the era of alignment of registers and actual expenses, Huizhou will adapt to the new regulatory and operating environment while continuously improving its core competence and efficiency to maintain its industry leading position. Looking ahead, our strategic focus will remain on customized insurance product innovation for our targeted demographic sub segments, platform efficiency and productivity improvements driven by our investment in proprietary AI capabilities, international expansion and digitalization. We will continue to co develop differentiated products with our insured partners, optimize our organizational to enhance operating leverage and tighten cost controls to ensure long term sustainable profitability. We will also expand our customized product offerings and distribution capabilities in Hong Kong, while actively pursuing opportunities in emerging markets of Southeast Asia. Finally, we will accelerate the integration of our AI product throughout the entire insurance service team to empower our partners such as insurance carriers, ISAs and distribution channels.

Speaker 1

This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Rong Chen, and he will provide an overview of our key financial highlights for the Q1.

Speaker 2

Thank you, Mr. Ma and Harritt, and good morning, everyone in Asia, and good evening for those in the U. S. We're very pleased to report that the total GWP facilitated on our platform during the Q1 of 2024 has increased by 38% sequentially amid challenging industry landscape to over RMB1.7 billion as the overall market landscape and macroeconomic recovery gradually improved. This growth has been largely driven by our omni channel distribution platform model and a diverse range of product offerings that are attracting new high value customers and enhancing existing customer engagement, as well as the increasing contribution of international revenue from a successful expansion into the Hong Kong market since the second half of last year.

Speaker 2

We are also pleased to announce a 6th consecutive quarter of profitability. Our sustainable profitability further ascertains the effective execution of our key business strategies. Firstly, we have maintained our strategic priority on long term insurance products, which contributed to over 90% of our GWP in the Q1. Secondly, our open platform continued to empower the Independent Financial Advisors or IFA with our omnichannel distribution network, diversified product matrix and advanced AI productivity tools. FYP generated by our IFA platform reached RMB127 1,000,000 in the Q1 of 2024, which is up significantly by 70% year over year.

Speaker 2

Thirdly, we further deepened our customer engagement in our direct to consumer segment. In the Q1, the repeat purchase ratio for our long term insurance products has increased by 4.5 percentage points year over year to 40.5%, which reflects our relentless efforts in exploring the long term value or lifetime value of our customers. Finally, we leverage our proprietary AI solutions to further streamline our operations and further enhance our operating leverage as evidenced by the further improvement in our expense ratio. As we look at our operational results, I want to highlight several key achievements that drove our strong performance in the Q1. 1, FYP more than doubled sequentially to approximately RMB 857,000,000.

Speaker 2

2, the quality of our renewal business remains solid and as of the end of February our 13th 25th month persistency ratios for long term life and health insurance products remained at industry high levels of over 95%. And third, the average ticket size for our long term savings products has increased by 58% year over year to reach RMB 69000 in the Q1 of 2024, which is a record high for our platform, demonstrating the progress that we have made in upselling our existing customer base and increasing contribution from premium product sales in Hong Kong market. These highlights are just a few examples of a high quality customer profile and success in capitalizing on the lifetime value potential of our customers. In the Q1, we sustained our market leading position in long term insurance products. FYP for long term health products increased by 12% sequentially to approximately RMB 100,000,000 while FYP for our savings products surged 1.6x sequentially to approximately RMB 600,000,000.

Speaker 2

And we will continue to pursue a balanced mix between long term health and savings product categories to satisfy evolving customer needs. At the same time, we further diversified into customized P and C insurance products to create new revenue streams with FYP from this business increasing by 74 percentage points sequentially to approximately RMB 151 1,000,000. Apart from strengthening our market share in China, we remain committed to capitalizing on the long term digitalization opportunities of Asia's insurance industry. We further expanded our presence in Hong Kong through the expansion of our team in Hong Kong and the promotion of high value products to capitalize on a robust MCV demand from higher LTV customers. Total international revenue contribution from Hong Kong increased to 7% in the Q1 of 2024.

Speaker 2

We are also proactively identifying growth opportunities in markets with supportive demographics in Southeast Asia to replicate a proven business model in China. By developing new revenue streams and strengthening brand awareness and recognition internationally, we are confident that we will be able to grow international revenue contribution to double digits this year. Meanwhile, our omnichannel distribution platform capabilities and our proprietary AI products have helped enhance our customer acquisition and engagement capabilities and streamline our operations to improve efficiency. We have net added more than 220,000 new high quality customers to the ecosystem in the Q1, increasing the total customer count to over 9,600,000 as of the end of March. In the Q1, our total operating expenses continued to decrease, falling by 25 percentage points year over year.

Speaker 2

Our operating expense ratio further improved to 26.2% in the Q1 of 2024 from 36.2% a year earlier. And as of the end of March, our financial position remained solid with a combined balance of cash and cash equivalents of RMB281 1,000,000 Moving forward, we'll continue to leverage our deep customer insights in our own proprietary AI model to enhance product innovation and create additional upselling opportunities. We will leverage on our omni channel distribution platform, our rich product offerings and advanced technological tools to enhance customer acquisition and engagement by insurance agents and IFA partners. We will remain laser like focus on driving further improvements to operating efficiency by optimizing resource allocation and deploying AI solutions to ensure profitability sustainably. We will also strengthen our overseas expansion efforts to explore opportunities in new markets.

Speaker 2

In summary, we are optimistic about the outlook of 2024 and we currently maintain our outlook for a non GAAP net profit of RMB16 1,000,000 for the full year. We are confident that our strategies will solidify our position as a leading insurance technology platform in Asia, connecting consumers, insurance carriers and distribution partners digitally and efficiently via our data driven and AI powered solutions. And with that, we will conclude our opening remarks and open up the call to questions. Thank you and over to you, operator.

Operator

Thank you. We will now conduct the question and answer session. Our first question comes from Yu Yu Zu from CICC. Please go ahead.

Speaker 3

So my first question is related to the health insurance. So beyond your observations, how's the recent amount of short term and long term health insurance products? What's the customer portrait of such products? Can we see the tendency of so called consumption downgrade? And how you see online health insurance future?

Speaker 3

And my second question is, as we see, fee regulation is moving on, many insurance brokers from the face, the challenges to go through this strict regulation period. And they have taken actions to avoid a sharp decrease of their revenue and the profits. We just want to know in terms of the mainland business from short term, maybe in 2024, what's your cost of strategy? And from the view of a long term, what measures will you take to ensure your sustainable growth? Thanks.

Speaker 2

Okay. Thanks, Yu Yu, for your two questions. Let me address these two questions 1 by 1. With regards to the first question on the demand for long term or short term health products, I think we are seeing similar trends in the Q1 in line with the broader market. I think as we have seen in the broader market, this category continues to be quite weak in terms of the recovery, although we did disclose in our opening remarks that we have seen sequential growth in our long term health product segment in the Q1.

Speaker 2

I think we have quoted actual numbers here whereby our long term health products have achieved FYP of RMB96 1,000,000 in the Q1, which increased sequentially by 12%. I think this is a demonstration of how we have been always at the forefront of product innovation to adapt to changing consumer behavior or budgets or preferences, if you will. Obviously, in the macro downturn whereby consumer demand for reimbursement type products or protection type products continue to be relatively weak as compared to savings products, which are the key focus for consumers right now. So I think going forward in terms of health products we will continue to be very focused on the innovation of products as we have also delivered recently cooperating with bigger brand insurance, for example PICC. In April, we have launched the new Darwin product, which is targeting some optimal health groups.

Speaker 2

So further to expand the addressable market from what the industry has been kind of selling to previously over the past 2 to 5 years where for example critical illness products have been relatively well marketed and saturated and then the further production gap that customers or consumers require in the broader market will be satisfied by way of more targeted customized products which will require innovation from us to cater with the insurance carrier partners. We also see that there's a modification in terms of health product demand. We see that in the premium segment, in the middle to high end segment, demand continues to be there. So I think going forward, we also like to focus on product innovation together with the insurance carrier partners on how to come up with a better product to suit this premium market where the FYP is in the middle of the low 1,000, 3000 to 5000 kind of range. Short term help us with guaranteed renewals features for medical reimbursement for inpatient type categories.

Speaker 2

So I think that will be the answer to your first question. With regards to the second question, which is really the topic of the day, the so called Baoxing He Yi regulation impact on the brokers and agencies industry, I would like to say a few points here. I think first of all, as demonstrated in our Q1 results, we have been very resilient, if not quite particular in terms of adapting to changing environment. FIP has increased substantially, sequentially and year over year, which we do believe we have been far outperforming the broader or traditional insurance brokers or agents in China. And that's really thanks to the omni channel platform model that we have, whereby we are more reliant on platform in terms of lead generation versus entrenched agency force led type of business development for the more traditional players in the market.

Speaker 2

So I think that is one key point I'd like to make. 2nd point is that on the cost side as you have asked, you have seen that we have continued to improve on our efficiencies as demonstrated by our continued improvement in extensive income ratios across the operating and selling expenses categories. And that's really a demonstration of the ability for our platform or business model to develop business growth with less headcount. And also the fact that we are technology enabled, the fact that we have AI products that really are contributing to the efficiency gains throughout the business processes. So that is another point that I would like to make with respect to countering the regulatory pressures on the cost side.

Speaker 2

And finally, I think that the key differentiating factor that our company has always been demonstrating to the market is the product innovation capabilities. And then the fact that big brands are trusting us in terms of the digital channels for distribution is a very strong case in point. Over the past 1 year or so, we have been partnering with the big brands like Ping An Health, PICC, Generali China, Aviva, Costco. These are all names that would resonate with the current market conditions where I think the Chinese consumers overall are preferring higher quality or bigger brand names for peace of mind when it comes to financial products and wealth management. So I will just stop there in terms of answering your questions and I hope that will be clear to you.

Speaker 2

Thank you.

Speaker 4

Thank you.

Operator

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

Speaker 4

ahead. Hi, this is Amy. Thank you for this opportunity. The first one is on net profit actually. Congratulations on a consecutively profitable quarter.

Speaker 4

However, we do notice that the net profit in the Q1 this year is actually significantly lower compared to the same period last year. May I know what's the main reason behind this? And also on the cost of revenue, we noted that this actually up around over 20% and probably due to higher channel cost. Could you please elaborate on that front? And the second question is also on Baoxinghe Yi.

Speaker 4

Could you please I'm wondering if you could provide more color with respect to how this has impacted your commission level on say saving type products as well as on protection type products? Thank you.

Speaker 2

Thanks Amy for joining us again. So, yes, key questions from you with regards to margins compression. I would say that's really a direct result of the regulatory changes. That will be one key part of that. But the other will also be due to the fact that as you currently pointed out, in the Q1, channel costs have increased quite a bit.

Speaker 2

I think it was a strategic move in the Q1 to capitalize on the expected strong demand in the market for the last available savings products under the previous regulatory regime. And so that also led to quite fierce competition among different players in the market to convert policies from leads. So that has resulted in some surge in the channel costs. And also there's another reason for that, which will be the relative smaller contribution from our DTC segments for Q1 distribution as compared to our 2B2C and 2A2C, and therefore resulting in the higher cost of revenue as a percentage of the revenues in the Q1. We do target to improve that over the course of the next few quarters as we continue to adapt to the changing environment.

Speaker 2

So that will be the first answer for the questions. And on Baoxinghe Yi's, on the regulatory impact on commissions, I would say we are now seeing the effects on the agencies and brokerage channels starting in the second half first quarter to the second quarter. In general, I think I would say savings products have broadly declined in the neighborhood of 30% to 40% in terms of commercial rates for the 1st year. For protection products, we are seeing somewhat more resilient or less of an impact because for protection products we have always been more focused on the so called online products, the hodenwang, jiangshu products. So for this type of products we're not seeing as much of impact on commissions as compared to savings products.

Speaker 2

But obviously right now in the broader market most of the distribution and most of the products that has been bought by customers are in the savings category. So the decline in the commission risk for savings products have a more market impact on overall commission levels versus protection in the same concept that we are looking at the numbers right now.

Speaker 4

Thank you. That is very clear.

Operator

Our next question comes from Kenny Lim of UOB, Can't Han. Please go ahead.

Speaker 5

Hi, Ron. Thank you very much. First, congratulation to management on achieving another profitable quarter. So basically two questions from my end. First, could you give us more color about your expansion plan in Southeast Asia?

Speaker 5

And how is the progress so far? Do this segment start to contribute any revenue? And second, I wanted to ask whether there is an update on your shareholder return policy.

Speaker 2

So thank you, Kenny, for joining us for the first time and appreciate your coverage. So first question on Service Asia, yes, we to this point, we have in terms of Service Asia, we have been in active active dialogue with multiple parties over the course of the past two quarters in terms of expanding into various markets. And the list includes obviously Singapore and also other growth markets like Indonesia, Philippines and Vietnam. So we are very focused on landing on our first overseas market outside of Hong Kong in the next two quarters. But right now Service Asia is still not contributing international revenues to the overall group revenues.

Speaker 2

But if you count Hong Kong as Service Asia then gets 7% in the Q1, We will look to improve that percentage to double digits this year from both organic growth in Hong Kong as well as a new market in Southeast Asia. And the Southeast Asia expansion would most likely be an initiative under a M and A kind of a buy and build strategy. But we also will rule out partnerships with local groups where we have also received some reverse inquiries in terms of performing joint ventures from local groups in respective countries where they see the large potential for digitalization of insurance distribution in their respective countries and markets. And we're seeing a very fruitful dialogue in those areas. So that will be my answer to your service agent question.

Speaker 2

The second question on shoulder returns, I think we are planning to in the next 2 to 3 years to return capital to shareholders by way of dividends. So we are planning ahead on setting up the right structure to enable this dividend distribution. But for 2024, I think that will be unlikely. I think it's more probably in the next 2, 3 years kind of horizon that we will be looking to initiate other bidding policy. So that will be my answers to your questions, Kenny.

Speaker 2

Thank you.

Speaker 5

Thank you.

Operator

Thank you very much. This concludes our Q and A session. Now I'll hand back to Harriet for closing remarks.

Speaker 1

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

Speaker 2

Thank you very much.

Operator

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect.

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Key Takeaways

  • Huizi delivered RMB1.7 billion in gross written premiums in Q1, up 38% sequentially, with total revenue of RMB310 million and a net profit of RMB6.9 million for its sixth consecutive profitable quarter.
  • Demand shifted toward savings insurance as first-year premiums more than doubled sequentially to RMB860 million, with long-term life premiums tripling and annuity and health premiums rising 47.9% and 12.2% respectively.
  • The IFA platform saw first-year premiums of RMB127 million, up 69.9% year over year, while direct-to-consumer sales topped 16,000 conversions and Hong Kong contributed 7% of total revenue.
  • Operational efficiency improved as total operating expenses fell 24.9% and the expense-to-revenue ratio tightened by 10 percentage points, supported by full deployment of proprietary AI marketing and business-development tools.
  • Looking ahead, Huizi plans to focus on customized product innovation, AI-driven productivity gains, cost controls for sustainable profitability and expansion into Hong Kong and emerging Southeast Asian markets.
AI Generated. May Contain Errors.
Earnings Conference Call
Huize Q1 2024
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