Huize Holding Limited (HUIZ) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Huize Holding Limited Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions] Today’s conference call is being recorded and a webcast replay will be available. Please visit Huize’s IR website at ir.huize.com under the Events and Webcast. 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.

Thank you, operator. Hello, everyone and welcome to our earnings conference call for the fourth quarter and full year of 2021. 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. Joining us today are our Founder and CEO, Mr. Cunjun Ma; COO, Mr. Li Jiang; Co-CFO, Mr. Minghan Xiao; and Co-CFO, Mr. Ronald Tam. Mr. Ma will start the call by providing an overview of the company’s performance and operational highlights for the fourth quarter and full year of 2021. 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.

Hello, everyone and thank you for joining for the fourth quarter and full year 2021 earnings conference call. China’s insurance industry witnessed a number in 2021. However, this brought about new opportunities and a year of reform for Huize. Despite the ongoing pandemic, further regulatory refinements and increasing uncertainties in the overall market and business environment, Huize has adhered to its user-centric strategy, high-tech and digitalization philosophy and online to offline integration, which led to another year of satisfactory results. In 2021, total gross written premiums, or GWP, facilitated on our platform increased by 66.2% year-over-year to RMB5 billion, while operating revenue increased by 84% year-over-year to RMB2.25 billion, meeting the revenue guidance we provided for full year 2021. In the fourth quarter, total GWP facilitated on our platform increased by 90.2% year-over-year to RMB1.99 billion and operating revenue grew 1.5x year-over-year to RMB980 million. GWP for long-term insurance products accounted for 97% of total GWP and continue to generate high-quality business for our insurer partners. While growing rapidly, we were able to continue maintaining a high-quality user profile. In the fourth quarter, roughly 67.1% of our long-term insurance customers were from higher tier cities, with an average age of 35.3 years old. In terms of first year premiums, the average ticket size of long-term insurance products increased from RMB6,684 in the third quarter to RMB9,593 in the fourth quarter. As of November, our persistency ratios for long-term life and health insurance in the 13th and 25th month have sustained at an industry high level of 94%. Now turning to our products, following the announcement of the new regulations on Internet personal insurance, we proactively expanded our savings product line to cope with the surge in market in mind. In the fourth quarter, our savings insurance products contributed to about RMB1.2 billion of the first year premium in response to the change in the supply of online savings insurance products after the new regulations. We focused on co-developing such products with leading mid to large-sized insurer partners and launched the first Internet-only incremental whole life product in January. At the same time, we have accelerated the offline expansion to facilitate the provision of online and offline products and services. To stimulate demand for our protection products, we launched Darwin No. 6 in January, which was the first major critical illness insurance product we launched since the new regulations came into effect. In addition to the cost effective feature of the Darwin service critical illness products, Darwin No. 6 has upgraded the protection benefit such as the inclusion of coverage reinstatement benefit after the first plan of critical illness. We believe that the adjustment of our product strategy and the introduction of new products has not only demonstrated our quick response to the new operating environment, but also endorsed our experience and strength in product innovation. At the end of the fourth quarter, we have cooperated with 109 insurance partners and have strengthened our offline presence. At December, we entered into a definitive agreement to acquire 100% equity interest in Shanghai Senhao Insurance Agency Company Limited. The acquisition is expected to be completed in March this year. Senhao Insurance is a nationwide professional insurance agency company with business networks in 11 provincial areas in China. We believe the acquisition will reinforce our competitive age in both online and offline service capabilities and generate strategic synergies within our new digitalized ecosystem. We believe this will accelerate the O-to-O integration thereby strengthening our service capabilities for users through a full range of insurance products across all scenarios. This will allow us to meet some needs of users through online insurance products, while simultaneously providing efficient offline professional services through our local branches. Moreover, through our platform, we have empowered the traditional intermediaries with digitalization and product supply, thereby creating scalability and reducing the operating cost of our ecosystem. During this year of operating in the long-term insurance market, our high-quality and differentiated services remained one of our core competencies. In 2021, the total number of insurance claims cases affected by our Xiaoma plan service reached 43,000 and the total plan settlement reached RMB570 million, the highest claim settlement amount in a single case reached RMB2 million. The upgraded online plan system enables 70% of users to submit their insurance claims using photocopy whether highlighting the efficiency and potential of our online insurance services. During the year, our traceable customer service record was unanimously recognized by the industry, and we were awarded the 2021 China Insurance Ark Awards. Moreover, we have published our first ESG report, highlighting our strategic ESG initiatives and accomplishments, while providing users and investors with a new perspective on Huize. Our continued efforts on optimizing service capabilities and improving user experience has enabled us to attract more new users and increase user conversion rates. As of end 2021, our insurance clients have reached 7.5 million. In 2021, we also began to explore the digital and technology capabilities that we have developed in-house, such as the digital CRM system and the MLP Intelligent Quality Control System to insurance companies, thereby diversifying our revenue strength. At the same time, we are establishing a new business line targeting independent insurance agents. We will assist the opportunity brought forth by the reform in traditional channels, the separation of product and development and distribution in the industry and empower offline agents with a product metrics online customer application capability and online business development tools and service system through our platform. We believe this should help promote the digitalization of the insurance industry and generate a new growth driver for Huize. In 2022, as we continue to see a refinement in industry regulations and the business environment, we will actively strengthen our new leading position in the online insurance business. We will rely on our solid digitalization and data analytic capabilities to continue gaining in-depth insights on users to launch new products that meet the protection needs of users, thereby delivering the competitive advantages of an online insurance platform as an efficient, effective and inclusive distribution channel. At the same time, we will continue to expand our off-line layout and further strengthened the O-to-O integration of products and services. Through a more professional and seamless user experience we strive to promote the growth in a number of users and improve user quality, thereby driving sustainable growth in both our premiums and revenue. This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ronald Tam, and he will provide an overview of our key financial highlights for the fourth quarter and full year 2021.

Thank you, Mr. Ma and Harriet and good evening, everyone. First of all, I would like to thank everyone on this call for your continued interest in following the company, in particular, in light of the recent turbulent market conditions. And for our friends in the Asian time zone, thanks so much for spending the Friday night with us here. And to those of you who may currently be on the quarantine in lockdown or semi-lockdown load in Hong Kong or Mainland China, Please stay safe and health. For the purpose of this call, I would just like to quickly recap a few key highlights and takeaways of this quarter’s operating and financial results. And for the detailed financial line items, I would like to kind of refer you to look at our uploaded earnings for these for more details. Overall, we’re very pleased to close out the final quarter of 2021, with record highs in both total gross written premiums or GWP facilitated on our platform as well as total operating revenues. For full year 2021, total GWP amounted to RMB5 billion, representing strong growth of 66% year-over-year. First year premiums of FYP accounted for RMB3.1 billion or 62% of the total GWP, which is up 99% year-over-year from 2020. Renewal premiums accounted for RMB1.9 billion or 27.8% of total GWP, representing a year-on-year increase of 30.5% in 2021. As we have expected during our Q3 results call, our strategic focus on savings insurance products since the beginning of the year, coupled with the strong market demand for savings insurance products for consumers was expected to provide strong momentum for growth in savings products and overall FYP in the fourth quarter. Our continued strong growth in savings product FYP that we have demonstrated in the results, a real reflection of a few very important aspects of our platform business and of our customer base. First and most importantly, the quality of our existing customer base and the effective customer acquisition capability by our omni-channel distribution platform that we have built up over the years. The two key metrics to highlight here again, which demonstrate this the average ticket size of the long-term insurance products that we have distributed as well as the persistency ratios that we have delivered for the renewals of the policies. For average ticket size, this quarter, we have further seen this number increasing from RMB6,684 for the third quarter to RMB9,593 in the fourth quarter. As of November, our persistency rates for long-term life and health insurance policy renewals in the 13 and 25 months have still remained at a very high level of 94% compared to industry averages. The consistently high persistency metrics that we have delivered also helped decent engagement and relationship with our upstream insurance carrier partners, and that continues to reflect the high quality of 7.5 million customer base that we have accumulated to date and the long-term lifetime value potential that been extract. For the year 2022, one of our key strategic initiatives will be to focus on further deepening our engagement of existing high-value customers by encouraging cross-selling and upselling opportunities, leveraging the proprietary data insight that accumulated from the interactions these customers have with our platform over the life cycle, as well as utilizing our expanded off-line service coverage from a continued investment in this area. Our strong operating performance in the fourth quarter has driven a 1.5x increase in operating revenue to RMB976 million for the quarter, as well as to close out the full year 2021 at RMB2.25 billion, which represents an increase of 84% year-over-year and surpassing our full year guidance given in the last earnings call by 10%. For the quarter, we also achieved a net profit of RMB19.8 billion. As we head into the year 2022 amid a backdrop of tightening industry regulations, challenging macroeconomic and capital market conditions, the next two quarters are expected to be a period of adaptation and transition for most players in the industry. At Huize, our first priority from a strategic financial management standpoint is to further drive improvement in our overall corporate cost structure and operating efficiencies. As we have reported in the last quarter, we are currently in the midst of implementing group-wide organizational structure optimization. And so far, we have achieved a double-digit percentage improvement in our fixed cost base in the new year. In addition, the Board has also approved a share repurchase program, which we have announced also today, which is aligned with our commitment to return value to our shareholders and reflects the continued confidence that we have to purchase long-term growth prospects. We believe that the current market conditions do provide us with opportunity to strategically allocate capital to enhance shareholder value while maintaining resources to fund our operations and continued business growth. This concludes our prepared remarks for today. We will now open up the call to Q&A. Thank you, operator.

Thank you. [Operator Instructions] Our first question comes from the line of Michelle Ma from Citi. Please ask your question.

My first question is about the product mix for the first year premium and written in the fourth quarter last year, we noticed the take rate for premium actually increased as the operating revenue growth outpaced GWP underwritten in the Q4 last year. So, what’s the reason behind? And the second question is about the radical regulatory environment changes. What’s our new product strategy? And what’s the difference between the old model of cooperating with medium-sized insurance company versus currently, we need to collaborate with more top-tier insurance companies, what’s the major difference and the difficulties we face here [Foreign Language]?

Okay. Hi Michelle, it’s Ron here. Thank you so much for joining us and for the two questions. Maybe quick answers to both questions from me. First question really relating to the take rate of the fourth quarter and how the product mix is looking at into the fourth quarter for the FYP. So, I think the overall take rate that you have seen, which has increased is really a function of the fact that the mix of GWP in the fourth quarter has a much larger contribution from FYP around 71.3% of the fourth quarter GWP is coming from first year premium policies and 28.7% from renewals. And in terms of the FYP product mix, I can give you some more detailed breakdown here. Roughly 63% is coming from long-term life. And long-term life is mainly the incremental savings product that we are distributing for HongKang Life. And then around 21.6% is coming from annuities and then 10% coming from long-term health products, which is critical illness and then the rest of it is really from the short-term products. So, I think overall, the take rate has improved mainly as a result of the increased proportion of contribution from FYP over gross written premiums number. So, that’s the answer to the first question. For the second question with respect to the new operating environment after January 1st, I think on the product strategy perspective, I think they will be quite clear to tell the market that we will be seeing significant, I guess changes on the online side as it relates to the online savings product segments, which has obviously been a key driver for both. For the 2021 year and also as we expect in the New Year, I think this is a combination of a few factors at play. And most importantly, I think it’s really – it sounds a function of the market demand for insurance products in the savings or investment-linked products, continued to exist in the protection products as we have seen across the board in the industry. And so in the New Year this year, I think we will still be placing significant focus on driving the Savings Product segment online and offline. So, in online space, as you see, as we have told the audience in the opening remarks, we have already put online the first Internet online savings products with a qualified insurance company partner, and that was in January. And actually, we have also introduced an online critical units product, our number six as we approach in the opening remarks as well. We have a full suite of products that is in our pipeline close to 30 products, which we will be looking to release in this year. And so I think we are on a very good track here. As to the offline space, again, I think a lot of the midsize or smaller sized insurance companies that we have been working with, which may not qualify under the new rules on the online side, we will be able to offer offline products. And I think that’s why we are now accelerating our online, offline integration business model. We also have disclosed just now again in December that we acquired 100% interest in the Senhao Insurance, which provides us with offline coverage in 11 provincial areas. So, this will really speed up our online, offline touch points and the ability to service its customers in the offline context. So, I think that is really the major changes that we are seeing with respect to the so called regulations coming in the forcing in the New Year. And I think that we will continue to drive the momentum in the space. And hopefully, we will have more material updates in the next earnings call for us to share with everyone. Thank you.

Right. Thank you. Our next question comes from the line of Mindy Gao from CLSA. Please ask your question.

I have got two questions. The first one is regarding to the Senhao Insurance that you agreed to acquire Senhao insurance in last December. And what will be your business plan for this company? And what is your plan for online and offline integration plan in the future? And the second question is regarding the technology export. And you have mentioned previously that you have begun to export your technology to other insurance companies, and this will generate new revenue streams and just I wonder, could you please give us an update on this business and related to revenue and as well as this outlook in the future. Thank you.

Okay. Thanks, Mindy. It’s Ron again here. So, two questions. The first question on the O2O integration and the Senhao acquisition and our business plan with respect to that. I think I also touched upon that quickly just now in the response to Michelle’s question. I think the key focus areas here is that one thing we have always been trying to complement our service capabilities in the offline context. So far, that’s now up to the beginning of last year. I think over the first 15 years of the company’s development, we have really have been solely focused on the online distribution, the online service capabilities to our customer set. And I think starting from last year, we have a combination of a few things. One thing the regulatory changes and two, I think with respect to our own internal business plan to improve and deepen the engagement with our existing customers to drive repeat purchases, to drive attention, to increase lifetime values. We do have the need to have extensive offline coverage so that we can service these customers and particularly the higher value customers that we can extract from our user database internally to cross-sell and upsell as we have also mentioned in the opening remarks. So, with a bolt-on acquisition like Senhao, I think that really accelerates our efforts here while building it out organically. And it does seem quite time consuming for us to go into province on our own with respect to the regulatory in time table, etcetera, etcetera. So, that’s the first point here. And the second point is that with respect to the regulatory new environment, I think offline products will become increasingly important for us to distribute as well. We are beginning to distribute this year, starting with our own internal consultants sales force. And now with the Senhao bolt-on acquisition that will also enable us to provide the cloud platform that we have already had quite a mature supply chain with respect to the insurance products that we are cooperating with 100 – over 100 insurance companies, and particularly the customized product that we have been distributing on a very successful basis. These products can be channeled into the offline agency force that is connected to the Senhao network. And therefore, we can really streamline the online to offline integration through this way. And then I think the third point that we can also look forward to is the [indiscernible] which is the independent agency framework that is now being put in place by the CBIRC. And I think this is a very interesting and attractive opportunity for a comprehensive one-stop shop digital insurance product and service, whereby the independent agents can be plugged into our ecosystem and therefore, leveraging on our online cloud system, they can also provide front end services, product comparisons, intelligent proposals to the customers to tools and also they can utilize our intelligent underwriting systems post policy claim system services that would really enable them to provide bespoke and a very fully digitalized insurance service experience for their offline customers. So, I think all these are the things that we are looking to drive through this bolt-on acquisition into the key ecosystem that we have what we put in place over the years. Hopefully, that answers your question, indeed. Thank you.

Thank you.

Thank you. Our next question comes from [indiscernible] from CICC. Please ask your question.

First, congrats to the impressive results of our management in Q4. And I have two questions. The first one is about Senhao, so will our company continue to hire more agents or brought our business to more provinces. And next question is about profit margin. So, we see the margin has improved in Q4. So, I would like to know whether it’s sustainable since we changed more product layers to large companies, and they are still cost related to offline outlet. So overall, will the margin in 2022 to be improved or deteriorated compared with the 2021 level? Thanks.

Great. Thank you so much. So, two questions. The first question, with respect to the offline business and whether we will be looking to expand corporate. I think the answer clearly is, yes. I think right now, I think we will probably be happy to start with the first type of locations that we have already put in place through this acquisition. And I think that this has only covered, I would say, most of the key insurance heavy or the top ranking areas for our target markets. But then I think there would still be a few areas where I think we can also look to expand into. So, I think we would do it on a measured basis as we go along for the down this track. I think we will be looking to expand for that, but we will be happy with the initial kind of coverage of that work that we have already got in place through this acquisition. Secondly, on the profitability of the company, I think, yes, in Q4, we have turned a profit, albeit a marginal profitability in the fourth quarter. As we have also mentioned in the opening remarks, we do expect the next two quarters, Q1 and Q2 to be extremely challenging from an operating perspective, not only are we adjusting to the new regulatory regime and new business models and also from a macroeconomic standpoint, extremely challenging. I think most of you in Shenzhen are still placed on the lockdown in Shanghai, I think in semi-lockdown and I think over the country, the population also in kind of lockdown mode. And I think that the consumer covenants, which are very low level, particularly due to the quite massive layoffs that we have been seeing in the different industries. So, I think definitely has a great significant impact on the willingness to consume, I think the discretionary financial products and within the financial products, I guess insurance products release or the more discretionary of all. So, we do see next two quarters to be challenging. So, I think we have not given an official guidance, and I think we will deliver that for now, and we would be also in the opening remarks, we are continuing our program of cost reduction throughout the corporate structure. And I think that this is something of a priority in the first half of this year. We will be further driving cost control, driving down of this cost base. I think we have already achieved a double-digit percentage figure in the first quarter to-date, I think we will continue to drive further cost reductions in the second quarter. Thank you.

Alright. Thank you. We have reached the end of the question-and-answer session. I will turn the call back to Ms. Harriet Hu, Investor Relations Director for closing remarks.

Thank you, operator. So, in closing, on behalf of the Huize management team, I 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 us. And thank you for joining us today, and have a nice weekend.

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