Cheche Group Inc (CCG) 2024 Q3 法說會逐字稿

Good day and welcome to the Cheche Group third quarter, 2024 earnings conference call. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Crocker Coulson investor relations for the Cheche Group. Please go ahead.

Thank you, Betsy. Hello, everyone. Thanks for joining us to review Cheche's 2024 third quarter results. This morning Cheche posted both the earnings release and the related investor presentation to our website, which you can find at Ir dot Cheche group dotcom.

With us on the call today are Lei Zhang Cch's founder and CEO and Sander, Cheche's Chief Finance Officer. After their prepared remarks are concluded, we're going to open up the call for any of your questions. But before we begin, some statements in this conference, are forward-looking within the meaning of federal securities laws.

Although management believes these statements are reasonable, we can provide no assurance that they will prove to be accurate because they are prospective in nature, actual results could differ materially from those we discussed today.

Therefore, we'd like to encourage you to review the most recent filings with the SEC for risk factors that could materially impact our results.

As I mentioned, the earnings result release is available on ir.chechegroup.com. We encourage you to review in addition, reconciliations of certain non-GAAP measures contained within that with those formalities. Now out of the way, it's my pleasure to turn the call over to Lei Zhang, CEO Lei. Please go ahead.

Thank you, Crocker. Hello everyone. We are so glad you have joined us. The third quarter was a notable quarter for us. Churches results reached a profitable inflection point recording that income. On both a GAAP and adjusted basis.

The company shift to profitability service as a concrete proof that our complaining value proposition and the focus on operations are paying off. Church continues to offer the largest auto insurance technology platform in China.

We lead the industry by providing customized intelligent software and embedded insurance that gives consumers great choice and cognition.

Between 2021 and the third quarter of this year has provided a quote for almost 50 million workers placed over USD9 billion in written premiums and collaborated with 100 insurance carriers.

Chinese manufacturers continue to lead the world in the production and sales between January and October of this year.

Chinese EV makers sold 1.7 million vehicles an increase of 34% over provider year A EV sales overtook conventional ICE autos in July 2024 and they now make up the majority of new vehicle sales each month.

This change in the market is profound implications for the auto insurance ecosystem.

Auto insurance is increasingly sold and renewed through OM apps and vehicle screens rather than traditional brokers currently partners with 14 different AEV manufacturers including most of the largest industry player.

We anticipate that over the next three years. Premiums generated through OEM channels will exceed RMB200 billion.

According to analysts at the BOCOM International premium for AEV insurance are expected to approach RMB500 billion by 2030.

The top three auto insurers realize they need to participate in this market but they are struggling to make money due to higher rate and higher claims ratios of NV.

However, the Chinese government has recently widened the band for different pricing providing insur with great latitude to reward positive drive behavior.

Church platform offers to capability for more personalized auto insurance pricing. We also enable a EV manufacturers to automate claims management and repair routing to validate claims, manage the cost of repairs and reduce the risk of fraud.

At the end of the third quarter, the number of embedded policies sold on church platform was up to 140% year. Over the year to 200,000 policies.

A EV growth premiums grew 120% from prior year to USD126 million. Over the same period, we launched the customized system for Baidu, which of the variety of products and solutions, both online and offline. As a industry, Mahu and underwriting becomes more places, the sustainably higher margin margins of our growing number of nev policies will become apparent as the revenue mix shift our agreement with Great Wall Motor companies insurance company provided our transaction system to support its direct sales network in more than 20 city National wire with plans to develop additional solutions for traditional automakers within in the next 24 months, partnerships with insurance carriers. Other essential component of our strategy. While we have maintained a long term relationship with the mainstream insurance companies in China.

This quarter also marked our first collaboration with a foreign owners insurance carriers as we signed an agreement with Tokyo Marines, Chinese subsidiary, enhancing our service capabilities and opportunities to scale.

We are also launching new S and data analytics tools to enable medium size in insurance to compete more effectively in underwriting auto insurance for both NEV and ICE workers.

Expanding the number of active participants in the market is essential to bring the benefits of the competition to consumers.

Looking ahead our technology, road map, prioritize and even manufactures and embedding ourselves across the life circle as a level two plus to level three self driving and above become more common on China's road O ems and insurance will increasingly need to determine if the cause of the accident is a result of human error or failure of the autonomous driving system.

True will play the role of the trusted third party by embedding this critical data on independent 30 platform so that OEM insurers and the consumers can have higher confidence in the assignment or liability.

Our unique perspective and the comprehensive capabilities contributed to thriving digital insurance industry that added value for our partners.

In the long term, we are working to extend our partnerships with auto manufacturers beyond China and into additional regions such as Southeast Asia and the Middle East.

Given our broad experience and success in China, the most substantial nev market in the world and inherent data within our platform would provide us with advantage over local insurance companies when underwriting embedded policies in this region.

Having deep confidence in the company. I intend to continue purchasing shares in the open market during available trading windows.

Moreover, the company is planning to adopt a share back buyback plan once the board approved it, we we are deleted with our accomplishment and I look forward to capitalizing on future opportunities.

I will now turn the call over to our CFO Sander. Thank you.

Thanks today. I want to begin by touching on our third quarter, operational and financial highlights. Before taking questions, the total written premiums placed for this quarter increased to 4% to RMB four point sorry two RMB5.9 billion or us dollar 800 million. The total number of policies issued grew 5% in this quarter to 4.2 million. As I mentioned before, 292,000 policies and the RMB884.2 million of funding premiums were embedded in the deliveries growing 149.6% and 121 0.6% respectively year over year.

Currently, the insurance policies on nev enjoy lower commission rates than ie due to the reduced profitability of insurance carriers. However, we can secure significantly higher margins on these policies. That means we can, that, that means may have positive implications for our bottom line as the mix shift continues in terms of our net revenues, we generated RMB850.5 million or us dollar 121.2 million in the third quarter.

An increase of 3.3% year over year, the cost of revenues in the quarter was RMB808.1 million or USD115.2 million. Up 3% from the prior year quarter. We also reported a 53.6% drop in selling and marketing expenses to RMB18.1 million or USD2.6 million. Primarily due to decrease of staff cost and share based compensation expenses. The general and administrative expenses were also lower this quarter at RMB20.4 million or USD2.9 million from RMB34.8 million in the prior year quarter. Mainly due to decrease the share based compensation and professional service fees.

Research and development expenses decreased to 24.5% to RMB10.2 million or USD1.4 million, mainly driven by lower share based compensation expenses and the partial ofss by higher staff cost. The total cost and operating expenses decreased by 1.8% to RMB856 point 8 million or USD122.1 million from RMB872 million in the prior year quarter. Mainly due to the decrease in share based compensation expenses and partially offset by an increase in cost of revenues excluding share based compensation expenses, amortization of intangible assets related to acquisition and the listing related professional services fees.

The total adjusted cost and operating expenses increased 3% from the prior year quarter. Net income turned positive for this first time in the quarter resulting in RMB4.1 million or US dollars, 0.6 million compared to the RMB55.4 million loss in the quarter of Chinese three adjusted net income for this quarter was also positive. Improving to RMB2.6 million or US dollars, 0.4 million from RMB0.6 million adjusted net loss in the prior year quarter.

Turning to our balance sheet, we reported RMB194.6 million or us dollar 27.7 million in cash, cash equivalent and short term investments.

As for guidance, we are affirming our 2020 for four year guidance. The four year net revenues are expected to range from RMB3.5 billion to RMB3.7 billion. Representing an increase of 6.1% to 12.1% compared to four year of 2023 total written premiums placed are expected to range from RMB24.5 billion to 26.5 billion, representing an increase of 8.4% to 17.3% compared to the 4th year of 20 century.

With that, we'll be happy to address your question.

(Operator Instructions)

Allen Klee, Maxim.

Hello, congratulations on very strong results and, and everything you're doing, your profitability came over a year and a half earlier than what I was modeling. So I quite impressive. My, my first question has to do with, with your partnerships. You said you have 14 ne the companies now and you're expanding with insurance companies. How do you think about kind of as you sign these, how they like ramp up and can help the to translate into revenues?

Okay. Yes, I will answer in chinese 1%. Thank you, myology. Can translate it to English.

And so as you just mentioned right now, we are cooperating with 14 OEM. We are providing insurance transaction services for them. So we are actually we are actually working to extend our scope of partnership with the existing brands. For example, we are currently providing services for two week models for Byd. And in the future, we plan to exchange to provide more services for their more brands.

That's, that's very positive. Thank you. You mentioned that for any of these, the rates are lower since it's less profitable business for the for the insurers but but your company can get better profitability out of them. Could could you just explain how that why that is?

Okay. That to you me so you know your year.

Okay. So basically for the NUV insurance, the COR is high and also the the claim, the claim ratio also high. But for us, we do not take the risk of claim. We are just we are a platform company. We have the insurance companies and the OEM to create a win win situation.

So through our platform, we can provide the OEM to provide a better pricing for their car owners through our models and we can provide a better and more, more cheaper insurance insurance prices. So that's why we go, we believe that we going to have a huge increase in this market and we going to have a strong profitability.

Thank you. With you, you talked about self driving and how you're employing that technology to give greater confidence of where what might have caused the and a potential play an accident. And can you explain what what you're actually providing and, and where, how you're thinking about rolling this out?

Okay. So the you mean the so in.

So basically there are two aspects. The first one is we are sharing the data with the OEM because as we all know the they are embedded with intelligent devices so our data could help to improve efficiency as well as decreasing risk.

And that's the first one. The second is when inter driving is becoming more and more popular. And as you can see, the level two to level three is becoming more popular in China. So basically there are around 70% of are equipped with intelligent driving service. So when accident accident occurs, when the entire driving is working, we can have to decide whether this accident is because of the driver or is because of the the equipment going wrong. So that's our capability and basically we are leading in this industry.

Thank you. That's great. Thank you. You talked about potentially expanding in within Southeast Asia and the Middle East. Do you think that was the way that could potentially happen, is a similar creating an online marketplace in other countries or would it be something else?

Okay. Right.

So basically, as for our expression strategy, you mentioned, we have just mentioned the Southeast Asia and the Middle East and even some countries in Europe, we actually doing this following our existing clients such as the 14 MV makers. We just mentioned when they are going abroad, when they are going overseas, we follow them to go overseas. We can help these makers to build connections with the local companies just like what we did in China and we can provide the systems and software and a full suite operation services as well. Thank you.

Thank you. Could you talk about how non auto insurance and yours offerings, how, how they performed and how you're thinking about those two areas strategically to potentially grow them.

That number.

So for the non auto insurance, we have several lines. And the first one is the insurance product that are related with auto, for example, the liability insurance, basically, they are, they are sold bundled with the auto insurance. And the second one is the pro property insurance and health insurance.

These are all the extensions of our product and service model. Thank you.

Okay, that those are my questions. Congratulations again. Thank you very much.

Steve Silver, Argus Research.

Operator. Thank you for taking my questions. So looking at the quarter, the growth in revenues outpaced the growth in in in gross expenses. So it looks like the gross margin continues to be around the 5% range. Was curious as to your thoughts about the expansion of gross margins over time as the platform continues to bring new value added services onto the platform. And then similarly on the operating expense line, do you expect the operating expenses to continue to decline as a percentage of revenues moving forward? Thank you.

Thank you. And this is Sandra. I will answer this question. Yeah, you're quite right. Actually, we are quite confident with the gross margin. Yeah, we believe the gross margin of our business will be keeping increasing along with the mix of the our revenues changes. As we mentioned, you know, because we enjoy a way higher margin in EV insurance market than AE. So that means, you know, the more business, the more business from ie the insurance, the higher the margin we we will have.

So that's the logic and apparently, yeah, that will be become reality soon because you know, our total business growth rates only, you know, single digit. But as for the insurance market, the growth rate is over 100%. So that means that we will, that means the insurance the the insurance revenue will account for more and more percentage from the total picture. And that's the logic.

And beside that, as they mentioned before, we are also planning to launch a new sub and the date analytical tours related to insurance to the market that will bring more high margin revenue to our total picture. Yeah, so that's another factor will contribute to our growth margin growing in the future. But you know, in the short term, the growth margin may fluctuate on quarterly basis due to the different market condition in short term, but definitely very long term. The trend, the growing trend will will will be not changed. So the the the gross margin rate will be increasing going forward. Thank you.

Okay, thank you so much for the color. And my congratulations on the quarter as well.

(Operator Instructions)

Ryugio, CICB.

Thank you. And congrats on the three Q results and I have three questions and the first is, how much do you believe in the near future with a EV insurance account for the total motor insurance market? And the second is within the A EV insurance market. How much do you believe it comes from a EV manufacturers related or affiliated insurance? They would like GXI guide to the, to the Liang, the whole water.

Yeah, the wex just JJ the we like the so like the X so the maybe yeah, there is that the whole lis who like we this Xiang Guan who the zo this.

So to do this.

So basically we can see from the current forecast, the annual insurance in the last year has reached RMB800 billion. And this year is going to we it is expected to reach RMB150 billion. So basically we expect that in the three, in the following three years, annual insurance will take around 40% to 50% basically half of the total insurance market, auto insurance market.

So in the and.

So and because of the NUV insurance, the market or an insurance is, is growing hugely. The OEM, they are taking highly value of insurance because it's the entry is a, it's important portal for the after sales services and after sales services, very important part of revenue to these companies. So that's why they are, they decided to work with us and we provided system and software for them. So basically we also we expect that in the following three years, the insurance, the auto insurance controlled by the OEM, we going to take at least a third third of the market.

This concludes our question and answer session. I would like to turn the conference back over to the company for any closing remarks.

We appreciate you taking time to join us on the call today. If you have any follow up questions, please reach out to investor relations. Thank you. Have a wonderful day. Bye-bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.