AIX Inc (AIFU) 2021 Q2 法說會逐字稿

Thank you for standing by for Fanhua's First Quarter and First Half 2021 Earnings Conference Call. (Operator Instructions)

For your information, this conference call is now being broadcasted live over the Internet. 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 and Webcast section. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would like to turn the meeting over to your host for today's conference, Ms. Oasis Qiu, Fanhua's Investor Relations Manager.

Good morning, and good evening. Welcome to our second quarter and first half 2021 earnings conference call. The earnings results was 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 the 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 not limited to, those outlined in our filings with the SEC, including our registration statement and 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 and Chairman of the Board, Mr. Chunlin Wang; Chief Financial Officer, Mr. Peng Ge; and Board Secretary, [Lily Li]. Mr. Wang will provide a review of our financial and operational highlights in the second quarter and first half 2021. There will be a Q&A session after the prepared remarks.

Now I will turn the call over to Mr. Wang.

(foreign language)

[Interpreted] Good morning, and good evening. Thank you for participating in today's conference call.

(foreign language)

[Interpreted] On the first part, I will talk about our views on the market trends. Firstly, the resurgences of COVID-19 have bought far-reaching impact on China's economy and business activities, directly or indirectly hurting consumer confidence and purchasing power of the middle-class families. Many industries have been drastically impacted and the insurance industry was certainly not immune.

(foreign language)

[Interpreted] Even so, we are firm believers that challenges and opportunities coexist. We still believe that there is tremendous room waiting to be explored in China's life insurance market in the long run, and that professional insurance intermediaries, as an important insurance distribution force, still enjoy huge growth potential.

The progress made in the past in the professional insurance intermediary industry was only to lay the foundation for future development, and COVID-19 is expected to speed up the development of the industry. It is inevitable and irreversible that the market share of professional insurance intermediary will continue to increase.

(foreign language)

[Interpreted] Thirdly, health insurance market is getting saturated and growth is expected to slow down in the next stage. However, with an aging population, the demand of Chinese middle-class families for commercial pension insurance and long-term annuity is expected to continue to grow, and that opens up a huge blue ocean market.

The key to cultivating and meeting such demand is to build a high-quality sales force, gain customer insights through digital intelligence, and provide customers with a variety of customized products according to their individual needs, thus prolonging customer life cycle.

(foreign language)

[Interpreted] Fourthly, we firmly believe our strategy of professionalization, digitalization, and open platform will prepare this route to seize the new opportunities emerging from the market changes. Hence, we will stay committed to pushing forward our strategy.

(foreign language)

[Interpreted] On the second part, I will give a review of our financial results in the second quarter and first half 2021.

(foreign language)

[Interpreted] Life insurance industry witnessed a sharp decline in total gross written premiums by 16.6% in the second quarter of 2021.

(foreign language)

[Interpreted] Against the industry headwind, Fanhua managed to record RMB 2.5 billion worth of total life insurance, GWP, representing a positive growth of 4.9% year-over-year with operating income reaching RMB 51 million higher than expectation in the second quarter of 2021.

(foreign language)

[Interpreted] As compared to only 0.4% year-over-year growth in total life insurance GWP in the industry in the first half of 2021, Fanhua registered RMB 5.5 billion in life insurance premiums, up by 16.9% year-over-year, and RMB 191.4 million in operating income, meeting nearly 2/3 of our target for 2021.

(foreign language)

[Interpreted] In the third part, we share the progress that we've made in our strategy of professionalization, digitalization and open platform strategy, and we have made encouraging progress.

(foreign language)

[Interpreted] Firstly, in terms of professionalization, we approved the establishment of 14 Yuntong branches, among which 9 are in the preparatory stage for opening and over 100 Yuntong advisers have been recruited after much rounds of rigorous tests and assessments.

(foreign language)

[Interpreted] Secondly, in terms of digitalization, we rolled out 3 major digital tools in the second quarter of 2021, i.e., digital asset management platform, RONS digital operating platform and Rons Guanjia. The key value of using these digital tools is in helping team leaders with managing teams more efficiently, and empowering agents to better engage clients based on data-driven insights and digitalized operations.

(foreign language)

[Interpreted] We apply new digital tools in Hebei province on a pilot basis since May with about 8,000 agents installing our WeCom and over 2,000 registering as digital asset originators, and connecting to more than 40,000 clients through WeCom. Digital tools and operations have significantly helped mobilize our existing sales force and connected clients, laying a solid foundation for further team management and client operations.

(foreign language)

[Interpreted] Building on our experience in the Hebei pilot zone, we plan to roll out digital tools among our frontline sales force on a wider basis and implementing a new development model to expand our entrepreneurial sales teams backed by digital empowerment, i.e., to digitalize off-line operation to WeCom-based online chat group operation so as to assist our team leaders to manage their team activities more efficiently and professionally while empower our agents to better engage with their clients in a professional manner.

(foreign language)

[Interpreted] The fourth part is about our business outlook for the third quarter and the second half of 2021.

(foreign language)

[Interpreted] We expect our new business for the third quarter of 2021 to grow on a quarter-over-quarter basis, while operating income expected to be no less than RMB 25 million, with increased spending on implementing our Yuntong plan and promotion of digitalization initiatives. In the meantime, we will spare no efforts to ramp up sales in the last quarter to achieve our full year sales target and gear up for the Jumpstart Sales Campaign for 2022.

Operating income is expected to exceed RMB 100 million for the second half of 2021 and no less than RMB 300 million for 2021.

(foreign language)

[Interpreted] Fifthly, our dividend plan for the second quarter of 2021.

(foreign language)

[Interpreted] Our quarterly dividend for the second quarter of 2021 is USD 0.15 per ADS. The dividend is payable on or around September 23, 2021 to shareholders of record on September 7, 2021.

(foreign language)

[Interpreted] Thank you. Now the floor will open for your questions.

(Operator Instructions) Your first question comes from the line of [Alan Sung] from Morgan Stanley.

(foreign language) I just have 2 quick questions. First, what is the impact of the so-called double recording practice on off-line insurance sales? And secondly, could you just quickly comment on the sales -- new sales trend of critical illness products as well as savings-type products in the -- since the third quarter of this year?

(foreign language)

[Interpreted] Firstly, from Fanhua's perspective, we welcome this new regulation. We believe that it will help to regularize -- to standardize the operation in the industry and help to reduce malicious policy cancellation and reduce sales misrepresentation. And then secondly, short term-wise, there may be some adverse impact. But from long-term perspective, we believe that the benefits will be much larger than the adverse impact. And thirdly, this regulation will also pose higher requirements for professional insurance intermediaries to standardize their operations and it will help to improve the quality of the professional insurance intermediary sector as a whole.

(foreign language)

[Interpreted] We believe that this double recording requirement is a positive for those companies who have already more standardized operations and have strong capability.

(foreign language)

[Interpreted] In the past, as life insurance sales organizations are mostly organized in a pyramid structure, and a lot of the sales agents are actually working as a sales agent on a part-time basis, so not a lot of them have strong ability in the sales skills. So critical illness, which is relatively easy to sell became the major product for professional insurance intermediaries. And as a result, the penetration rate of critical illness products has been quite high in China.

(foreign language)

[Interpreted] Therefore, we expect that the room for further development for critical illness products will be quite limited.

(foreign language)

[Interpreted] And we believe that the broader market will come from the demand from the 400 million middle-class families for diversified family asset allocation solution.

(foreign language)

[Interpreted] Such demand opens up a new blue ocean market, but such demand will also require the services of more professional sales agents who will be able to offer customized products for their clients based on the individual needs.

(foreign language)

[Interpreted] So therefore, our future market propositions [or] (corrected by the company after the call) our major focus will be to meet the demands of these 400 million middle class for family asset allocation plan.

(foreign language)

[Interpreted] Therefore, we're going to actively pursue [product innovation and product customization] (corrected by the company after the call) so as to make sure that in the future, these customized products will account for a majority of our sales.

(foreign language)

[Interpreted] On August 26, we're going to host a new product launch conference, for a customized products, a whole life insurance product, which is called Huading Number one. And this product will be officially launched to the market in September and which will be our major product in September.

(foreign language)

[Interpreted] We already established cooperation agreements with 6 reinsurance companies. So in the future, we will work with those reinsurance companies and insurance companies to customize and design products for our customers. Thank you.

Your next question comes from the line of [Xiexing Wang].

(foreign language) Okay. I will repeat my questions in English. First, congrats to the company and management for the higher-than-industry growth in the first half. Here are my 2 questions. The first one is about the product mix. What is our current product mix, say, the proportion of annuity critical illness and life insurance? And is there any change compared with the previous year? And next question is about the regional strategy. Which provinces or cities are our main targets? And which group of people are our targeted customers?

(foreign language)

[Interpreted] By 20-year APE, whole life insurance, critical illness, and annuity represented 49%, 43% and 6%, respectively, compared to 19%, 69% and 9%, respectively, in the same period last year. And by first year premiums, whole life insurance, critical illness and annuity represented 69%, 20% and 7%, respectively, as compared to 31%, 45%, and 14%.

(foreign language)

[Interpreted] Our critical illness product as a percentage of our total mix dropped quite significantly. I believe that there was 2 major factors. Firstly, in the first quarter, there is the transition between the new critical illness definition to -- with the old one. And after the transition, we believe that the critical illness products are not as good as the old one. And so therefore, the demand for critical illness has weakened after the transition.

(foreign language)

[Interpreted] And then secondly, I believe there is already a market consensus that critical illness product has reached a significantly high level. So the major markets of full future will be the savings products.

(foreign language)

[Interpreted] So we believe that critical illness growth will slow down while savings products will continue to grow.

(foreign language)

[Interpreted] But of course, it will also take time for the savings product to achieve expansive growth.

There are no further questions at this time. I would like to hand the conference back to today's presenters. Please continue.

Operator, we haven't covered the second question yet. Hold on.

(foreign language)

[Interpreted] Most of the 400 million middle-class families live in urban areas. Therefore, our strategy has always been urbanization and elite sales force-focused. And as we mentioned, we're going to implement our digitalization and professionalization strategies. And the major market for us to implement this strategy will be the major cities.

(foreign language)

[Interpreted] We have 2 strategic priorities. Firstly, is the development of entrepreneurial sales teams backed by digital empowerment. We hope that we can attract more and more elite sales agents to join our sales force. And secondly, the second priority is our Yuntong plans. As we mentioned just now, we have approved 14 interim branches, and we expect to have 25 interim branches by the end of this year.

(foreign language)

[Interpreted] These Yuntong branches will be mainly located in first-tier cities, including Shanghai, Beijing and Guangzhou, Shenzhen as well as provincial capital cities.

(foreign language)

[Interpreted] So far, we have made good progress. Thank you.

There are no further questions at this time. I would now like to hand the conference back to today's presenters. Please continue.

Thank you for participating in today's conference call. If you have any further questions, please feel free to contact us. Thank you. Hello, you can conclude this call.

Yes, this concludes today's conference call. Thank you for participating. You may now disconnect.

Thanks.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]