AIFU Inc. (AIFU) Q4 2022 Earnings Report, Transcript and Summary

Thank you for standing by for Fanhua's Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. [Operator instructions] I would now like to 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 year 2022 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 know that the discussion today will contain forward-looking statements made under the safe-harbor provision of the US Private Securities Litigation Reform Act of 1995. The accuracy of this statement 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 not limited to those outlined in our filings with the SEC, including our registration statement on From 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 Chairman and Chief Executive Officer, Mr. Yinan Hu; Chief Financial Officer, Mr. Peng Ge; Chief Operating Officer, Mr. Lichong Liu and Board Secretary [ph]. Mr. Hu will provide a review of our financial and operational highlights in the fourth quarter and fiscal year 2022. There will be a Q&A session after the prepared remarks. Now, I will turn the call over to Mr. Hu.

[Indiscernible] Good morning and good evening. Thank you for joining today's conference call. Over the past few years, China's insurance industry has been undergoing ongoing transformation in the life insurance distribution. While the traditional pyramid structure of life insurance sales force is the constructing, life insurance, sales teams are transforming to become more distinctly professional, specialized and elite and are structured in a more flattened, small, dispersed, and personalized manner. A large number of scattered individual insurance sales organizations and independent agents are in great need of the support of a third party public professional platform to ensure continuous professional growth in sustained competitiveness. We believe that while individual life insurance sales organizations will become more fragmented, support platforms will be more concentrated to enable cost efficiency and high quality business growth. The competition in the life insurance sales market will ultimately come down to the competition among platforms, driven by digital technology and artificial intelligence. Fanhua initiated the strategy of professionalization, career-based development, digitalization and open platform starting from the second half of 2020, dedicated to transforming from a traditional insurance distributor into a digital technology-based platform company, empowering the industry. After more than two years of transition and investment, Fanhua have largely finished the construction of our open platform, which has brought encouraging results. One, we have established a professional empowerment system to fulfil agent's needs for professional and career development. We have established Triple F representing family office consultant fund, while retirement planner and family policy custodian training programs to help agents improve professional skills and help them transform from focused experts from on insurance products to broader experts on family-based asset allocation and then expanding to experts on elderly care and legacy management. In 2022, a total of more than 26,000 agents have attended these training programs. In addition, we've also wrote out Three A training programs focusing on cultivating sales supervisors ability in recruitment, career development and team management, thus supporting agents continuous career progression in the sustained development of our sales force as a whole. Leveraging on our various service resources and technology and the targeted trainings, we have put in place three product lines. First, trust, service plus insurance; second, house and elderly care service plus insurance, and third, insurance policy custodian service plus insurance, which are in their essence an insurance as a service model to drive agent activity and significantly improved customer experience leading to better productivity and performance. We understand that it takes time for agents to achieve professional perfection. Therefore, we implemented a RRR marketing model, which assembles a team of internal and external experts to support agents throughout all the key steps of their engagement with customers as necessary, to make sure that our customers will be able to enjoy consistent high quality professional services and drive better conversion rates. Two; we have pulled a wide range of insurance products as well as quality insurance trust; healthcare and senior care and wealth management service resources, so as to enable our agents to broaden their service scope to offer a complete set of products and services to their customers by matching customers involving needs throughout their entire lifecycle. Three, we have largely finished the construction of the infrastructure of our digital platform. Since our FPO, we have invested several hundreds of million RMB in building leading insurance technologies and digital tools, including [indiscernible] Version 3.0, which enables full insurance transaction processing. Our digital operation platform, Enterprise recheck [ph], our insurance policy custodian system, our double recording system, and our Fanhua online academy and Fanhua Insurance service Workstation [ph], empowering our agents in managing their book of business. We have also wrote out a digital tenant system, which modularizes the features on our digital platform, enabling us to offer a customized standalone front-end application to each institutional users according to their respective business needs, which allows us to open our platform to the industry in a highly efficient way. With the implementation of the open platform strategy, we have seen significant growth across multiple operating metrics, fully demonstrating the platform's powerful support for agents in their professional and career development. With our strategy of developing top performing agents, we've seen a decrease in total performing agents and a growth of productivity and remaining agents and in particular, continued the increase of contribution from high-performing agents. The number of the 100,000 premium agents has increased year-over-year for three consecutive quarters with their contribution of our new business in 2022, increasing to 56% up from 45% last year. At the same time, we have -- we are also encouraged by the significant progress of our affiliated fund RONS Open Platform division, which has achieved profitability one year into operation as its business model gets more mature. As of the end of 2022, fund RONS Open Platform has connected with over 130 institutional clients, facilitating over RMB250 million first year premiums during the year, representing a growth of six times from 2021. As such, despite challenges from the surge of COVID19 cases in late 2022, we delivered approximately RMB3.6 billion in total gross written premiums or GWP in the fourth quarter of 2022, up by 11.7% year-over-year, of which first year premiums or FYP grew by 19.6% year-over-year. Operating income came in at RMB84.9 million, far ahead our guidance while non-GAAP net income attributable to our shareholders grew by 76.1% year-over-year to RMB70.9 million. For 2022, total GWP facilitated by Fanhua grew by 10.3% year-over-year to RMB12.9 billion of which FYP reached RMB2.9 billion up by 3.5% year-over-year. It's excluding the impact of the transition towards new definition framework, which created a high base in January, 2022, our FYP grew by approximately 20.1% year-over-year. Operating income for 2022 reached RMB168 million. With this, we believe that it's high time to open our platform to the industry. Therefore, we announced our open platform strategy in the fourth quarter and initiated several acquisitions including a leading [indiscernible] and two regional leading companies to accelerate the expansion of our open platform. Looking ahead to 2023, with the reopening of China post to pandemic, steady recovery in China's economy growth and resumed consumer's confidence in spending, will certainly provide a more favorable environment for deepening the transformation and drive the development of the insurance industry. In the meantime, it becomes more evident that independent insurance intermediaries are playing a more important role as customers demand and product offerings getting increasingly more diversified, which will continue the personalization and fragmentation of life insurance sales organizations from such evolving trends. As we accelerate the execution of our strategic transformation in 2023, we aim to gain more market share by focusing on the following initiatives; one, enhancing efforts on the professionalization and career-based development of our sales force. Two, increasing investments in enhancing digital operation capabilities and three, speeding up strategic acquisitions. Our target is to achieve no less than 50% year over year growth in both life insurance, first year premiums, and operating income in 2023. This concludes my presentation and now the floor will be opened for your questions.

Thank you. At this time, we will conduct the question-and-answer session. [Operator instructions] Our first question comes from the line of [indiscernible] of CICC. Please proceed with your question.

I have two questions. The first one is mainly about the outlook for an insurance agent and brokerage industry in China. So could you share us some more color on the industry's current competitive landscape, and how will it change in the future? Will this market be more concentrated or maybe we'll see impressed competition and what do you think of Fanhuas position as in this whole landscape? And the second question is related to the open platform strategy. We've already seen a few acquisitions in the last few months. Could you give us some more details on the pace of your future acquisitions and how will the strategy contribute in common earnings in the next three years? Thanks.

For the questions, our Chairman who will take the question. With regard to the first question as to the competitive landscape in the insurance intermediate center in China, I'll talk about my view on the competitive landscape and how it evolves in the life insurance intermediary sector in particular and my basic conclusion is that we are seeing that competitive landscape is undergoing a fundamental change And this change is reflected in two fronts. First, with regard to the sales organizations, we are continuing seeing that it become -- they're becoming more elite-based and more personalized, fragmented, and also organized in a more flattened manner. And major insurance brokers are also ramped up their efforts to building up operating the supporting platforms driven by digital technologies and AI technology; the general perceptions on insurance brokers are that their sales distributor, their insurance distributors. We are seeing that in the future the big sales organizations will become falling apart. As we're seeing that they're becoming more elite-based and fragmented to maintain their professional growth as well stand career development, they will require the support from a supporting platform. So we believe that -- we believe that insurance intermediate company will transform themselves to become platforms. The major insurance broker companies will transform into digital technology-based supporting platform. Well, on the other hand, the sales focus insurance intermediate companies orders more sized sales organizations, including independent studios or independent agents, will join the supporting platforms to enable their sustained career development and professional growth in a cost-efficient way. They are encouraging the digitalization of all industries and how the insurance industry is going to transform themselves digitally for the thousands of small sized and medium sized sales organizations, including agencies and brokers, it's not realistic for all of them to invest heavily to digitalize their operation. The competition in the future comes down to the competition among tough on student by driven by digital technology digitally enabled analytics capabilities and AI technology. So what we can foresee in the future is that one or two big support platforms driven by digital algorithm, AI technology to support the operations of thousands of different sizes entities. Second question regard to our open platform strategy. 18 years ago, we have pushed forward the idea of our business model, which is the back office support platform plus entrepreneurialship development and this open platform strategy is basically based on upon our strategy of professionalization and digitalization. So the key of this open platform, or the core of this open platform is to able to empower the participants on this platforms. Otherwise if this platform can only provide products offerings without empowerment it is nothing but just a transaction supporting platform. So the pre-condition for rollout this open platform strategy is to ensure that we have the capabilities to support professional growth and sustain career development of sales agents and sales organizations. So the precondition for us to execute the acquisitions is that we will be able to support this acquired entities in terms of driving substantial business growth and help them to reduce their operating costs, especially the investment in IT technology costs. So, we will be able to save them of the investments in mid and that office investment. So if we can see the possibility that we are able to help them drive business growth and reduce operating costs, we will not do the deleveraging. Currently we have announced three acquisitions and there are 10 in the pipeline in close discussion. For the next two years, we expect to invest in or acquire majority interest in 20 to 30 regional leading insurance intermediate companies. For 2023, our target is to acquire 10 insurance intermediate companies contributing no less than 100 sorry, contributing no less than one billion first-year premiums and as to how to empower this acquired entities or the payers who join our platforms, after all, not all of this sales entities want to be acquired and they want to remain independent. for that, we are going to launch our digital tenant systems to the industry system and which will enable this sales entities and independent sales team to join our platforms directly. As for how we empower this participants or the users of our platforms, they will be to -- there will be four as aspects. Firstly, we will offer them products -- a few set of product and service offerings and then secondly, we will offer them professional empowerment systems, including our main resources in terms of the trust services, healthcare services and elderly care services, as well as our insurance policy custodian system. And thirdly, we'll provide them with digital tools, including our double recording system, digital operating platform. And then fourthly, we'll also provide them with service [ph], which as or license insurance intermediate companies are required to be equipped with information system by the CPRC. So this participants or this users platform will be able to in-store our core business systems and information systems directly without having to invest in have they in building up their own information system.

My Target for the next three years in terms of revenue growth and profitability is that helping my own target is that we can grow our live insurance first premium and operating platform by 50% on CAGR basis.

[Operator instructions] At this time, I'd now like to turn back to Oasis Qiu for closing remarks.

Thank you for joining us on today's conference call. If you have any follow-up questions, please feel free to contact us. Thank you. Have a good day.

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