AIX Inc (AIFU) 2022 Q4 法說會逐字稿

Thank you for standing by for Fanhua's Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. (Operator Instructions) The conference call is 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 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 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 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 our Chairman and Chief Executive Officer; Mr. Yinan Hu, Chief Financial Officer, Mr. Peng Ge, Chief Operating Officer; Mr. Lichong Liu; and Board Secretary Lily Li.

Mr. Liu will provide a review of our financial and operating 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. Liu.

[Interpreted] 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 constructing. Life insurance sales teams are transforming to become more distinctly professional, specialized in the lead 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 and sustained competitiveness.

We believe that while individual life insurance sales organization 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 amongst 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 2 years of transition and investments, Fanhua has largely finished the construction of our open platform, which has brought encouraging results.

One, we have established a professional empowerment system to fulfill agents' need for professional and career development. We have established FFF representing family office consultant, Fanhua 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 rolled out AAA training programs focusing on cultivating sales supervisor's ability in recruitment, career development and team management thus, supporting agents continuous career progression and 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 3 product lines. First, trust service plus insurance; second, health and elderly care service plus insurance; and third, insurance policy custodian service plus insurance, which are in variant essence and 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 customer as necessary to make sure that our customers would 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, health care 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' evolving needs throughout their entire life cycle.

Three, we have largely finished the construction of the infrastructure of our digital platform. Since our IPO, we have invested several hundreds of million RMB in building leading insurance technologies and digital tools, including Lan Zhanggui version 3.0, which enables full insurance transaction processing.

Our digital operating -- operation platform Fanhua Enterprise (inaudible), our insurance policy custodian system, our Double-recording system and our Fanhua online academy and Fanhua's insurance service butler workstation empowering our agents in managing their book of business.

We have also rolled out a Digital Tenant System, which modularizes the features on our digital platform enabling us to offer a customized stand-alone 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 have seen a decrease in total performing agents and a growth of productivity in remaining agents and in particular, continued increase of contribution from high-performing agents. The number of 100,000 premium agents has increased year-over-year for 3 consecutive quarters with their contribution of our new business in 2022, increasing to 56%, up from 45% last year.

At the same time, we've -- we are also encouraged by the significant progress of our affiliated Fanhua RONS Open Platform division which has achieved profitability in one year into operation as its business model gets more mature. As of the end of 2022, Fanhua RONS Open Platform has connected with over 130 institutional clients, facilitating over RMB 250 million first year premiums during the year, representing a growth of 6x from 2021.

As such, despite challenges from the surge of COVID-19 cases in late 2022, we delivered approximately RMB 3.6 billion in total gross written premiums for 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 RMB 84.9 million far ahead our guidance, while non-GAAP net income attributable to our shareholders grew by 76.1% year-over-year to RMB 70.9 million. For 2022, total GWP facilitated by Fanhua grew by 10.3% year-over-year to RMB 12.9 billion, of which FYP reached RMB 2.9 billion, up by 3.5% year-over-year.

It's excluding the impact of the transition towards new critical illness 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 RMB 168 million.

With this, we believe that it's high time to open up platform to the industry. Therefore, we announced our Open Platform strategy in the fourth quarter and initiated several acquisitions, including a leading MGA company Zhongrong (inaudible) and 2 regional leading companies to accelerate the expansion of our Open Platform.

Looking ahead to 2023, with the reopening of China post-pandemic, steady recovery in China's economy growth and resumed consumers' 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 to (inaudible) the professionalization, personalization and fragmentation of life insurance sales organization as Fanhua (inaudible) such developing 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 we will be open for your questions.

(Operator Instructions) Our first question comes from the line of Wenjie Zhang of CICC.

(foreign language) I have 2 questions. The first one is mainly about the outlook for insurance agent and brokerage industry in China. So could you share us some more color on the current competitive landscape? And how will it change in the future? Well, this market be more concentrated or maybe we will see increased competition? And what do you think of Fanhua's position is 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 this strategy contribute in [commence] earnings in the next 3 years?

[Interpreted] Well, with regard to the first question as to the competitive landscape in the insurance intermediary sector in China, we 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 the competitive landscape is undergoing a fundamental change.

And this change is reflected in 2 fronts. First, with regard to the sales organization, we continue seeing that it become -- they are becoming more lead-based and more personalized, fragmented, and also organized in a more flattened manner. And the major insurance brokers are also ramping up their efforts to building up the supporting platform driven by digital technologies and AI technology. .

The general perception on insurance brokers are that they're sales distributor -- they're insurance distributors. What we are seeing that in the future, the big sales organizations will become (inaudible) part. As you've seen that they are becoming more lead-based and fragmented. To maintain the professional growth as well as sustain career development, there was required support from a supporting platform. So we are -- we believe that the insurance intermediary company will transform themselves to become platforms.

The major insurance broker companies will transform into digital technology-based supporting platform. While on the other hand, the sales focused insurance intermediary companies orders more [sized] sales organizations, including independent studios or independent agents who joined the supporting platforms to enable their sustained career development and professional growth in a cost-efficient way.

This -- 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 operations.

The competition in the future will come down to the competition among platforms driven by digital technologies, digitally enabled and related capabilities in AI technology. So what we can foresee in the future is that 1 or 2 big support platforms driven by digital algorithm, AI technology to support the operations of thousands of different sizes sales entities.

Second question with regards to our Open Platform strategy. Back in 18 years ago, we have pushed forward the idea of our business model, which is the back-office support platform plus entrepreneurship development. And this Open Platform strategy is basically based on for -- now strategy of professionalization and digitalization. So the key of this Open Platform or the core of this Open Platform is to be able to empower the participants on these platforms. Otherwise, if this platform can only provide product offerings without empowerment, it is nothing but just a transaction supporting platform. So the precondition for rollout this Open Platform strategy is to ensure that we have the capabilities to support professional growth and suspend 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 these 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 would be able to save them of the investments in mid and back-office investments. So if we can't see the possibility that we are able to help them drive business growth and reduce operating costs, we will not do the acquisition. Currently, we have announced 3 acquisitions, and there are 10 in the pipeline in close discussion. For the next 2 years, we expect to invest in or acquire majority interest in 20 to 30 regional leading insurance intermediary companies.

For 2023, our target is to acquire 10 insurance intermediary companies contributing no less than 100 -- sorry, contributed no less than CNY 1 billion first year premiums. And just to how to empower these acquired entities or the players who joined our platform. After all, not all of these 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 industries (inaudible) and -- which will enable the sales entities and independent sales team to join our platform directly.

As for how we empower these participants or the users of our platforms, there will be 2 -- there will be 4 aspects. Firstly, we will offer them product -- a full set of product and service offerings. And then secondly, we will offer them professional empowerment systems, including our main resources in terms of trust services, health care 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 will also provide them with SaaS service, which -- as core licensed insurance intermediary companies are required to be equipped with information system by the CBIRC. So these participants or these users of our platform will be able to install our core business systems and information systems directly without having to invest in -- heavily in building up their own information system.

My target for the next 3 years in terms of revenue growth and profitability that I'm hoping -- my own target is that we can grow our life insurance first year premium and operating profit by 50% on a CAGR basis.

(Operator Instructions) At this time, I would 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.

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