Thank you for standing by for Fanhua's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being broadcasted live over the Internet. The webcast replay will be available within 3 hours after the conference is finished. Please visit Fanhua's IR website at ir.fanhuaholdings.com under the Events & Webcasts section. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the meeting over to your host for today's conference, Ms. Oasis Qiu, Fanhua's Investor Relations Manager.

Good morning. Welcome to our fourth quarter and fiscal 2018 earnings conference call. The earnings results were released earlier today and are available on our IR website as well as on Newswire. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, those outlined in our filings with the SEC, including our registration statement on Form 20-F. We do not undertake any obligation to update this forward-looking information except as required under applicable law. Joining us today are our Chief Executive Officer, Mr. Chunlin Wang; Chief Financial Officer, Mr. Peng Ge, and Board Secretary, Lily Lee. Mr. Wang will provide a review of our financial and operational highlights in the fourth quarter and fiscal year 2018. He, Mr. Ge and Mrs. Lee will take your questions after the prepared remarks. Now I will turn the call over to Mr. Wang.

[foreign language]

Hello, everyone. Welcome to joining us on today's conference call. Here with me, we have our Chief Financial Officer, Mr. Peng Ge; and our Board Secretary, Mrs. Lily Lee. We will begin today's call by reviewing our fourth quarter and fiscal year 2018 financial results, and I will share some of the operational highlights in 2018, followed by a brief discussion of our business outlook for 2019. There will be a Q&A session after the report.

[foreign language]

As the CIRC No. 134, issued by the CIRC in 2017, continued to exert its impact in 2018 and against the backdrop of tightened regulation focusing on steering the China's life insurance industry back to its fundamental function of providing protection to the society, we report a solid set of key operating metrics, which be our prior expectations.

[foreign language]

Of which, our annualized insurance premiums on regular life insurance products reached RMB 1.9 billion in the 2018, up 3.8% from a year ago, while renewal insurance premiums registered a growth of 119.3% year-over-year to RMB 3.7 billion, leading to a total of RMB 6.2 billion life insurance premiums, representing a growth of 46.2% year-over-year.

[foreign language]

Our operating income grew 55.9% year-over-year to RMB 425.7 million in 2018, with net income growing 35.8% year-over-year to RMB 609.9 million and earnings per American Depositary Share is up 34.8% year-over-year to USD 1.43. We distributed cash dividend of $1 per ADS in 2018, representing a dividend payout ratio of 69.9%.

[foreign language]

In the fourth quarter of 2018, we had a stellar growth of 80.9% year-on-year growth in total insurance premiums to RMB 1.7 billion, of which annualized premiums equivalent on regular life insurance products grew by 37.7% to RMB 467.9 million, and the newer insurance premiums were RMB 1.1 billion, up 100.4% year-over-year.

[foreign language]

We wrapped up the year with strong note in the fourth quarter of 2018, with an operating income increasing by 34.3% from a year ago to RMB 83.4 million.

[foreign language]

And in the second part, I would like to discuss some of the key operational highlights in 2018.

[foreign language]

Fanhua made steady progress on expanding our sales force to 1 million, while many insurance companies faced increasing difficulty to recruit and retain agents. As of December 31, 2018, we added over 300,000 sales agents from a year ago, and total number of our sales agents top over 800,000. It shows that separation of product design and distribution is an inevitable change, and Fanhua is the best choice to embrace this trend. We firmly believe that we will be able to reach our target of 1 million sales agents by 2019.

[foreign language]

In 2018, all of our provincial subsidiaries or branches, which have been operating for more than a year, have become profitable. In addition, except for eHuzhu, which is essentially a public charity platform, all of our other online platforms have also achieved profitability.

[foreign language]

In 2018, of all our provincial branches or subsidiaries, there are 5 which can each generate more than RMB 100 million annualized life insurance premiums each year, and 10, which can each generate more than RMB 15 million annualized life insurance premiums each year. And all of them can each generate more than RMB 10 million annualized life insurance premiums equivalent each year. These are the strong testaments of a robust operation and development of our subsidiaries and branches nationwide.

[foreign language]

In 2018, we made some solid achievements in sales network development. As of December 31, 2018, we added 180 new sales outlets to a total of 682.

[foreign language]

In 2018, Baoxian.com generated RMB 1.3 billion insurance premiums, representing a growth of 80% from a year ago, with approximately RMB 10 million operating profit. It has become a leading Internet insurance service provider in China.

[foreign language]

In 2018, eHuzhu continued to pursue steady and healthy development. As of December 31, 2018, it has added 800,000 new registered members and a number of effective members reached 3.4 million. Since its inception, it has raised RMB 314 million funds and helped more than 1,840 families. It has won wide recognition from its members and become a good window to showcase Fanhua's brand image.

[foreign language]

In 2018, Lan Zhanggui has gathered more than 807,000 registered users, including approximately 150,000 users, who have sold at least 1 life insurance policy through the platform during the year, generating a total of RMB 2.3 billion new life insurance premiums. Meanwhile, we continue to improve the digital tools user experience by adding and optimizing its key features, especially the features related to agent recruitment, insurance proposal, tracking and notification, online training and training courses development, online system building and event announcement centers. There are several technologies related to Lan Zhanggui, leading the industry.

[foreign language]

In 2018, Fanhua has welcomed more than 20 new managers and 35 senior executives in the group and our operating subsidiaries and branches, who are the backbone that helped significantly strengthen the company's management and operational capacities during the year.

[foreign language]

Our accomplishments have won the recognition of the media, our clients and the general public. Fanhua and our subsidiaries were honored with several awards during 2018, including the Outstanding Brand of the Year 2017 awarded to Fanhua Inc., China leadership and Outstanding Insurance intermediary of the Year 2018 and the best insurance intermediary Brand of the Year 2018 in the 13th China Insurance Innovation Awards granted to our wholly subsidiary Fanhua Insurance Sales and Service Group Limited; the Internet Insurance Platform of the Year 2017 won by Baoxian.com and Internet Enterprise Social Responsibility Award won by eHuzhu at the 8th China Public Charity Festival. In addition, one case handled by our subsidiary Fanhua insurance claims and loss adjuster related to loss assessment for a catastrophic flood-stricken aluminum manufacturer was named among the top 10 leading examples of risk management in China in 2017. We are also honored to rank 46th among Fortune's Top 100 Fastest Growing Companies. And we're included in MSCI China Small Cap Index. We were also ranked among of Top 20 Global Insurance Brokers in 2017, according to A. M. Best, and we have been in the list for 4 consecutive years.

[foreign language]

In the third part, I would like to share our view on the outlook in 2019 and in the first quarter of 2019. Looking ahead to 2019, as the complex international geopolitical landscape has shown uncertainty in the macroeconomic environment in China and abroad, the China Banking and Insurance Regulatory Commission will inevitably focus on the theme of strict regulatory supervision and risk control in 2019. However, we are convinced that we are on track towards a continued growth, benefiting from a rapidly expanding middle class in China and accelerated trend of division of manufacturing from distribution and based on China's scalable platform, rapidly expanding sales force, nationwide footprint and large customer base built over the past 20 years.

[foreign language]

As such, we expect our annualized premium equivalents on regular life insurance products to increase by 30% year-on-year and operating income to increase by 40% year-over-year in the first quarter of 2019.

[foreign language]

For 2019, we expect annualized premium equivalent on life insurance products to increase by 30% year-over-year to RMB 2.5 billion, renewal insurance premiums to grow by 50% year-over-year to RMB 5.6 billion and operating income to grow by 40% to RMB 600 million.

[foreign language]

Non-operating income and share of income of affiliates may decline in 2019 primarily because, firstly, investment income is expected to drop mainly due to a decrease in cash reserve as a result of the company's increasing spending on share buyback and dividends and the loans related to the company's 521 Development Plan; and secondly, the interest derived from the loans related to the company's 521 Development Plan won't be recognized as interest income in the company's income statements and instead will be recorded as additional paying capital when received according to relevant rules under the U.S. GAAP; and thirdly, CNFinance Holdings, in which Fanhua owns 18.5% equity interest, intends to upgrade its business model from heavy-asset model to light-asset platform model, which may impact its profit in 2019. As a result of the aforementioned factors, we expect a slight increase in net income attributable to shareholders in 2019 on a year-on-year basis. However, as the shares related to the 521 Development Plan will be treated as treasury shares, which won't be included in the shares used for calculating basic earnings per share, according to relevant rules under the U.S. GAAP, we anticipate this growth of our basic earnings per share will be approximately 10%.

[foreign language]

At the board meeting held on March 8, 2019, at the company's headquarter, our Board of Directors has the below resolutions. Firstly, the board approved to increase the company's annual dividend by 20% from $1 per ADS in 2018 to $1.2 per ADS in 2019, which will be paid on a quarterly basis. Management believes that firstly, our strong cash reserve of RMB 2.3 billion as of the year-end of 2018 should be sufficient to support our need for future business development, since we currently, primarily, rely on organic growth to expand our business. And secondly, the long-term regular life insurance business that Fanhua focuses on has high embedded value and cash value, which will provide a strong base for sustainable cash generation in the long run. And thirdly, our cash dividend is determined based on the company's operating cash flow to make sure that dividend distribution won't eat into the company's existing cash reserve.

[foreign language]

So secondly, the board approved a share repurchase program authorizing the management to execute a repurchase of up to USD 200 million of the company's ADS by December 31, 2019, in any form that the management may think appropriate.

[foreign language]

To our dearest shareholders and all of our friends who are concerned about us, I would like to take this opportunity to solemnly announce that the era of separation of production and distribution in the China life insurance industry has arrived, which will present a once-in-a-lifetime golden opportunity to Fanhua and Fanhua's employees and sales teams. Fanhua model is the right direction in which all Fanhua employees and sales teams should forge ahead as one. Fanhua's 521 Development Plan will be the core engine to drivers to make big stride by leaps and bounds. We believe that with no borrowing, profit growth and continued increase in dividends, the company will be able to build trust and win support from our shareholders. I firmly believe that the aspiration to become a company that can generate hundreds and billions of insurance premiums won't be just a dream. To achieve this target, we Fanhua people are dedicated to fulfilling our mission and sparing no efforts to pursue continued development with all of our sales force under my command whatever might come, being a difficulty or a challenge, we are not afraid, and we will work as one to tackle all of the obstacles to achieve our goals. I love Fanhua. Thank you. Now the management will open the floor for questions.

[Operator Instructions] Our first question comes from the line of Yuan Xue from CICC.

[foreign language]

Two questions. Firstly, company announced a major increase in annual dividends in 2019 and basically increased the annual dividend from USD 1 per ADS to USD 1.2 per ADS. In view of the fact that the company's dividend payout ratio is already pretty high, will the increase in dividend payout put pressures on the company's operating cash flow and operation? And the second question, company expect to grow annualized premium equivalent by 30% year-on-year in 2019. What are the drivers behind the growth? Is it because the company expect number of sales agents to continue to grow? Or is it because company expect to sign more contracts and establish more partnership with more insurance companies? And what is the year opening sales look like at this stage?

[foreign language]

In 2018, our dividend payout ratio was approximately 69% against, as a percentage of the net income attributable to shareholders. And for the dividend in 2019, after deducting the impact from the 521 Development Plan and even though we increased the annual dividends by 20% in terms of the operating cash flow, the cash flow impact is more or less the same in 2018.

[foreign language]

We expect our operating profit to grow by 40% in 2019, which will be a strong base to support our dividend distributions in 2019. And then secondly, we had about RMB 2.3 billion cash and cash equivalents and short-term investments by the year-end in 2018. As the company currently primarily rely on organic growth to develop our business and we do not have a lot of M&A trends in the short term, we believe that our current cash reserve should be sufficient to support our continued business growth. And then thirdly, the long-term life insurance business that Fanhua is specialized and focuses on has high embedded value and high cash value, and, which will support the company to continue to generate strong cash flow. So dividend payment will not use up, will not eat into our current cash reserve.

[foreign language]

We started distributing life insurance business in 2005. And over the past decade, we have put a lot of focuses on business quality, i.e. the persistency ratio of our life insurance business and also focused a lot of energies to build up our technological capabilities and improving our services as well as accumulating talent. So as a result, when the life insurance industry took off in 2015, we were able to generate growth much faster than most of the insurance companies or even much faster than a lot of peers in the independent insurance intermediaries.

[foreign language]

So therefore, despite the tightening regulations in the past 2 years, we continue to able to benefit from expanding middle class in China and continue to benefit from the acceleration of the trend of separation of production and distributions in the China life insurance industry. We believe that we are well positioned to sustain growth amid difficulties and, as well as to achieve a much faster growth than the industry when the industry went up.

[Operator Instructions] Our next question comes from the line of Arthur Hall from Hallco Corporation.

My question is related to the primary insurance companies that underwrite your insurance. Could you list the top 3 or 4 and the percentage they, you expect them to do in 2019?

[foreign language]

[foreign language]

We have maintained very good relationship with all our business partners. But of course, we will address our cooperation with our insurance company partners in different stages depending on their product offerings and depending their services and support as well as the terms that they cooperate with us.

[foreign language]

Our top 3 life insurance company partners are Huaxia, Tian'an and Aegon, and currently, we have more diversified and more broad life insurance business partner structure. And in addition to that, we have also continued to keep a very active partnership with 10 other life insurance companies.

[foreign language]

In 2019, we expect more and more insurance companies, especially the small- and medium-sized insurance companies will have more stronger political role to cooperate with independent insurance intermediaries and, as a result, we do expect the shares generated by Huaxia and Tian'an to come down as a total percentage of our life insurance business.

There are no questions at this time. I would now hand the call back to today's operator. Please continue. Presenter, you may continue. Thank you.

[foreign language]

Hello, operator?

Yes, there are no questions. Please continue.

If there are no further questions, okay, thank you for joining us, everyone. If you have any further questions, just feel free to contact us. Thank you.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.