Huize Holding Limited (NASDAQ:HUIZ) Q1 2023 Earnings Call Transcript

Huize Holding Limited (NASDAQ:HUIZ) Q1 2023 Earnings Call Transcript May 30, 2023

Operator: Ladies and gentlemen, thank you for standing by and welcome to Huize Holding Limited’s First Quarter 2023 Earnings Conference Call. [Operator Instructions] Today’s conference call is being recorded and the webcast replay will be available. Please visit the Huize’s IR website at ir.huize.com, under the Events and Webcast section. I’d now like to hand the conference over to your speaker host today, Ms. Harriet Hu, Huize’s Investor Relations Director. Please go ahead, Harriet.

Harriet Hu: Thank you, operator. Hello, everyone. Welcome to our earnings conference call for the first quarter 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. 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. Cunjun Ma; COO, Mr. Li Jiang; Co-CFO, Mr. Minghan Xiao; and the Co-CFO, Mr. Kwok Tam. Mr. Ma will start the call by providing an overview of the company’s performance and operational highlights for the first quarter of 2023.

Mr. Tam 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. Ma.

Cunjun Ma: Hello, everyone and thank you for joining Huize’s first quarter 2023 earnings conference call. In the first quarter of 2023, as China’s economy gradually recovers and the private consumption and consumer confidence improves, the insurance industry showed clear signs of revival. We leveraged this positive trend by actively refining our product offerings and business strategies to strengthen our comprehensive online to offline O2O integrated digital insurance service ecosystem. As a result, Huize reported another set of remarkable results in the first quarter of 2023. On a sequential basis, total gross written premiums or GWPs, 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% sequential increase. Our total operating revenue and non-GAAP net profit also increased by 15.7% and 3.3% quarter-over-quarter to approximately RMB300 million and RMB18.4 million in the first quarter. In terms of product mix, first year premium or FYP facilitated on our platform increased by 58.6% sequentially to approximately RMB660 million. FYP offer long-term health insurance product and savings products increased by 32.8% and 50.4% quarter-over-quarter to RMB180 million and RMB340 million respectively, highlighting the high quality growth driven by our comprehensive product offering. At the same time, we continue to benefit from our strategic focus on distributing long-term insurance products and the competitive edge we have established, GWP contribution of our long-term insurance products was 92.7%, 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 accumulative number of insurance clients reached 8.7 million. We remain focused on targeting high-quality customers for our long-term insurance products. 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 products and savings products was approximately RMB4,120 and RMB44,000 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 and 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 Huize and our insured partners.

As of the end of the first quarter, we have cooperated with 104 insured partners. During the quarter, in response to the increasing demand for insurance coverage for children and a huge mortality protection gap, we launched Xiao Tao Qi No.1, a customized child critical illness insurance product and Ding Hai Zhu No.3, a customized term life insurance product both of which cater to the protection needs of younger generation customers. Additionally, we launched Jin Man Yi Zu No.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 Ping An Health Insurance to co-develop Chang Xiang An, a cost-effective customers long-term medical insurance product that offers guaranteed policy renewals for 20 years discounts on family subscription and family deductible benefits.

austin-distel-jpHw8ndwJ_Q-unsplash

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. In the first quarter, GWP of our customized products accounted for 60.1% of total GWP. In the first quarter, 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.

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 first quarter. Thus far, we have successfully established offline service teams in 16 key regions nationwide. In the To-A 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.

Moreover, we have expanded our localized operations to more regions and commenced product offerings in these regions. In the first quarter, FYP facilitated by the To-A business reached RMB74.8 million, equivalent to one-third of the FYP from the To-A business in 2022, which demonstrates the increasing importance of our To-A strategy to our overall business growth. In the To-C segment, we continued to refine our operations with a strong emphasis on compliance and the strategic focus on customer acquisition, retention and activation. To better serve our customers, we have deployed sophisticated algorithm that effectively integrate 18 distinct indicators of customer demand across four dimensions allowing us to analyze customer demand across various scenarios and make targeted recommendations of the most suitable products and services.

In addition, we leveraged our comprehensive CRM system to track customer outreach, analyze customer behavior and feedback and develop tailored follow-up strategies and solutions. In the first quarter, 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 the insurance intermediary market 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 insurer 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. I will now turn the call to our CFO, Mr. Kwok Tam, and he will provide an overview of our key financial highlights for the first quarter.

Kwok Tam: 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 first quarter, 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. Leveraging our omnichannel distribution ecosystem, we have a chief business growth that far outpaced and outperform 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 first quarter.

We have also added 300,000 new customers to our ecosystem in Q1, which brings the total number to 8.7 million by the end of the first quarter. During the period, we have recorded a non-GAAP net profit of RMB18 million, which is a second straight quarter of profitability, putting us on track to meet the full year non-GAAP net profit guidance of RMB30 million, which we have given out to the market last quarter. This success can be attributed to the successful execution of our key business strategies. 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 omnichannel distribution platform, extensive product offerings and advanced technology.

Our To-A, To-C business line generated a very solid quarter with total FYP of RMB75 million alone in the first quarter, 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 an improvement operating leverage. I will now recap the key highlights and takeaways from this quarter’s operating results. First, total GWP increased by 33% sequentially, reaching RMB1.9 billion. This growth was driven primarily by a quarter-on-quarter increase in both first year premiums and renewal premiums of 58.6% and 23.2%, respectively. Second, 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 first quarter. This continues to reflect the sound quality and high potential lifetime value potential of our customer base. These overall positive metrics were primarily driven by our continuous efforts to deepen our user engagement and also convert upselling opportunities. In the first quarter, 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 solidify the position in that market segment.

The GWP contribution of our long-term insurance products remained above 90% for the 14th quarter. 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 million in the first quarter. We remain very focused on tightening our marketing and channel costs and optimizing our group-wide structure to improve our profit margin and operational efficiency. As a result, our operating cost in Q1 increased at a slower pace than revenue rising 11% quarter-on-quarter to RMB180 million.

This has led to a healthy improvement in our gross margin to 39.8% from 37.2% in Q4 – in Q1. 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 million in the first quarter, and this translates to a non-GAAP net margin of 6.2%. As of the end of the first quarter, we continue to maintain ample liquidity as evidenced by a combined balance of cash and cash equivalents of RMB230 million. We’ve continued to repurchase shares from the open market under our existing share repurchase program. And as of the end of the March quarter, we have repurchased an 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.

Moving forward, we will strengthen the integration of our O2O 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 insurer 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. 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 first quarter, we are now revising upwards our outlook guidance and currently expect to achieve a non-GAAP net profit of not less than RMB50 million in 2023. And with that, we close – we will now open up the call to questions. Thanks, and over to you, operator.

See also 20 Most Overpriced Housing Markets in the U.S. and 15 Most Suicidal States in America.

Q&A Session

Operator: Thank you. [Operator Instructions] And the first question comes from the line of Yuyu Zhang [ph] from CICC. Your line is open. Please ask your question.

Unidentified Analyst: I’ve got two 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 FYP in the first quarter? 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 times for newly launched products. So what’s our savings product sales momentum in recent weeks? And we noticed that you’ve mentioned in earlier conference call that the company saw a mild recovery on long-term health product sales in the first quarter. And now we are at the end of May. So is there still a recovery? Thanks.

Kwok Tam: Thank you, Yu. It’s Kwok here. So regarding your first question on the FYP product mix in the first quarter, I think that we can break it down for you. So we have a total of RMB661 million of FYP. And of that, roughly RMB180 million is coming from protection, so coming from long-term health and term life products. So that RMB180 million number represents about 32% quarter-on-quarter growth. So that will give you some sense of the recovery in the long-term health space and RMB340 million roughly is from the long-term savings segment, 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 FYP in Q1 is from protection, roughly 51% of the FYP is from long-term savings.

So that will be the product mix question. With respect to the second question on the downward revision on the so-called guarantee return from 3.5% to 3.0% trend and how that impacting sales. I think what we have seen in the second quarter is we are actually seeing increasing momentum of sales in the second quarter with respect to probably imminent transition to the 3.0% product pricing. So I think Q2, we should probably expect to see a larger increase in sales of this product versus quarter one. But then going forward into the second half of the year, what we have seen in quarter two as well to date is that we are seeing a pickup in annuities especially in China, is calling [indiscernible]. So this category is actually picking up the momentum.

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’re 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 will be more seasonality effect from the 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. Q1, we definitely see a relatively robust recovery from Q4 of last year.