Huize Holding Ltd (HUIZ) 2022 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Huize Holding Limited Fourth Quarter and Full Year 2022 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 section.

I'd now like to hand the conference over to your speaker 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 2022. 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. Ron 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 2022. 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.

(foreign language) Hello, everyone, and thank you for joining Huize's Fourth Quarter and Full Year 2022 Earnings Conference Call. In the fourth quarter, COVID outbreaks weakened private consumption and consumer confidence in China, hampering the recovery of both the overall domestic economy and the insurance industry. Against the challenging macro backdrop, Huize reported another set of encouraging results as we took proactive steps to adjust our product offerings and business strategies to mitigate downside risk in line with our mission to achieve operational resilience.

We also made good progress in implementing our strategic roadmap to build an omnichannel digital insurance service ecosystem that integrates agents, business and customers or ABC. In 2022, total gross written premium, or GWP, facilitated on our platform remain stable at RMB 4.9 billion, despite a high base for comparison. In line with our guidance in the third quarter, we achieved non-GAAP net profit of approximately RMB 14 million for the fourth quarter.

(foreign language) In terms of product mix, although the pandemic limited our growth in terms of total first-year premiums or "FYP" facilitated on our platform, we continued to see heightened public health awareness drive a rebound in the demand for health insurance. In the fourth quarter, the FYP of long-term health insurance products increased by 39.2% sequentially. Benefiting from our leading market position in long-term insurance and relentless efforts to maintain a high-quality user profile, the GWP contribution of our long-term insurance products was 96.2%, remaining above 90% for the 13th consecutive quarter. Renewal premiums also increased substantially by 80.8% year-over-year to more than RMB 1 billion, which highlights our operational resilience amid the complex business environment.

In terms of user profile, about 65.3% of our long-term insurance customers were from higher-tier cities with an average age of 33.8 years old. The average ticket size of long-term insurance products in terms of FYP was approximately RMB 3,625, while that of long-term savings products increased substantially to approximately RMB 46,000 during the quarter. As of December, our average persistency ratios for long-term life and health insurance in the 13th and 25th month remained at industry-high levels of 90% and 96%, respectively.

(foreign language) As of the end of the fourth quarter, we have cooperated with 106 insurer partners to co-develop a wide range of cost-effective and high-quality customized products. During the quarter, we launched "Xin Xi Ren Sheng Premium', an increasing whole-life insurance product designed to satisfy the needs of our users in multiple scenarios, including children's education, retirement and inheritance. We also entered into a strategic partnership with Pramerica Fosun and launched the "Xing Hai Ying Jia series" of pension annuity products, demonstrating our efforts in offering products that combine insurance and retirement services.

In March, we established a strategic alliance with Ping An Health Insurance and launched our first co-developed product, "Chang Xiang An" long-term medical insurance. We look forward to accelerating our cooperation with Ping An Health Insurance in the fields of insurance product customization and promotion, customer engagement and health management service.

Meanwhile, our Darwin Critical Care series was once again honored with the "China Insurance Innovation Ark Award" for 2022, and in the fourth quarter, our innovative critical illness product, "Darwin Critical Care No.7" was named one of the "Top 10 Recommended Commercial Health Insurance Products" in China.

For the full year 2022, the GWP contribution of co-developed products increased by 4.6 percentage points year-over-year to 64.8%, which underlines our ability to identify market opportunities based on our in-depth customer insight and offer a full range of insurance products across all scenarios.

(foreign language) In 2022, we achieved effective cost control and continued to implement our group-wide organizational structure optimization, driving a considerable improvement in our gross margin from 24.7% in 2021 to 36.6% in 2022. Our operating expenses decreased by 30.1% year-over-year in 2022 and 16% sequentially in the fourth quarter. Even as we continue to reduce our cost base and improve our efficiency, we remain committed to our core belief in providing high-quality services to our customers. In 2022, Huize provided professional insurance services to more than 780,000 families through over 2 million insurance policies. During the year, Huize provided claim assistance service to 70,000 customers with the total claim settlement amount increasing by 8.8% year-over-year to RMB 620 million. Across these numerous user interactions, we achieved a 92% customer satisfaction rate according to our "2022 customer service report".

(foreign language) During the year, we made substantial progress on executing our 3-year ABC strategic business plan to build an omnichannel digital insurance service ecosystem. In the "To-C" segment, we have classified our target users into different groups and adopted a unique business strategy for each group. These differentiated service strategies have enabled us to deepen our engagement with existing customers, driving repeat purchases of new insurance products and providing upselling opportunities to optimize lifetime customer value.

In the fourth quarter, although the pandemic limited users' willingness to purchase insurance, we continue to promote our customized products to existing users, particularly high-value users and female users. Through these targeted monthly promotions, branding and customer care activities, we reached more than 50,000 users and achieved approximately 10,000 sales conversions.

Since our inception, we have served a large number of young middle-class families, which should become a cornerstone that sustains our long-term development. Going forward, in the "To-C" segment, we will build a business model based on systematic operations and standardized sales processes, and strengthen the service capabilities of our localized sales team, facilitating our online-to-offline integration through enhanced operational and sales capabilities.

(foreign language) In the "To-B" segment, we continued to export various digital tools and technologies to insurance companies. In 2022, the total revenue contribution of our technology service business reached RMB 15.2 million. In the "To-A" segment, we launched our new user management system, "Hotlink 1.0", which enables agents to accurately identify users， quickly view user profiles on the mobile device, filter and target users based on profile similarity， and share information through individual or group messaging. This system will enhance our core capability to empower insurance agents in all aspects of their business. FYP facilitated by the "To-A" business increased by 26.7% sequentially to RMB 82.6 million in the fourth quarter and exceeded RMB 200 million for the full year.

(foreign language) In 2023, we will focus on our localized deployments plan, aiming to establish professional and high-quality offline service teams in 16 key regions nationwide. We will also strive to boost user activity through increased engagement with high-value users and enhance our core strengths through technology upgrades, with particular focus on optimizing our transaction systems, user management system and insurance policy custodian systems.

(foreign language) This concludes my prepared remarks for today. I will now turn the call to our CFO, Mr. Ron Tam, and he will provide an overview of our key financial highlights for the fourth quarter and full year of 2022.

Thank you, Mr. Ma and Harriet. Good evening, everyone. In the fourth quarter, operating conditions in China remained tough. The significant macroeconomic challenges during the quarter weighed heavily on consumer confidence and recovery in household income and hindered sales of insurance products in China. The total gross written premium or "GWP" for the entire insurance industry in China was RMB 531 billion in Q4, which is down 16.3% sequentially.

Against the backdrop of macro challenges and a sluggish industry recovery, we were very pleased to still achieve a 16% quarter-on-quarter increase in total GWP facilitated on our platform, totaling RMB 1.4 billion in Q4, and to close out the full year 2022 with total GWP facilitated on our platform of RMB 4.9 billion, which is essentially flat on a year-on-year comparison basis. For the full year of 2022, we have added 1.2 million customers to our ecosystem, bringing the total from 7.5 million to 8.4 million as of the end of 2022.

And most importantly, in line with our guidance given in the previous quarter, we also achieved profitability in Q4, thanks to the successful execution of our key business strategies.

First, on the product front, we continued our strategic focus on long-term insurance products and our offerings in this category continued to be well received by customers. The GWP contribution of our long-term insurance products exceeded 90% for the 13th consecutive quarter.

Second, on our channels, we continued to improve the quality of our user base and enhance customer acquisition capabilities via our omnichannel distribution platform. Our new 2A2C business line maintained strong growth momentum in the offline market, generating a total FYP of more than RMB 200 million in 2022.

And finally, on the corporate front, we continued with our group-wide organizational structure optimization, and achieved significant cost savings in our fixed cost base across all business lines in 2022, establishing a solid foundation for sustained improvement in operating leverage as the macroeconomy and consumer consumption recover in the post-pandemic world.

I will now recap a few key highlights and takeaways from this quarter's operating results. In the fourth quarter, the 16% sequential increase in our GWP was mainly driven by robust quarter-on-quarter growth in renewal premiums, which increased 83% to RMB 1 billion. Our other renewal metrics have also remained healthy with our persistency ratios for long-term life and health insurance in the 13th and 25th month, both remaining at industry-high levels of 90% and 96% as of December, respectively.

In addition, the average ticket size for our long-term savings insurance products was approximately RMB 46,000 in Q4. These metrics not only reflect the high-quality and LTV potential of our 8.4 million strong customer base, but also highlights our efforts to successfully deepen our engagement with users existing and realize upselling opportunities to increase customer lifetime value.

In terms of FYP product mix, we are seeing a sequential recovery in the long-term health insurance category, and we expect that for the year 2023, our overall product mix to be more balanced between the long-term health segment and the savings categories as compared to 2022.

The anticipated macro recovery should drive consumption of protection products and especially with the pandemic effect on raising consumers' awareness of the need to procure health insurance. For this, we will continue to invest heavily in co-develop market-leading long-term health insurance products, such as our Darwin Critical Illness series, which is now in its seventh iteration, as well as long-term medical insurance products such as the latest exciting strategic collaboration we have just announced last week with Ping An Health Insurance.

Amid the tough macro environment and COVID challenges, our total operating revenue in Q4 was RMB 258 million, down 27% sequentially. Nonetheless, we continued to focus on tightening marketing channel costs, optimizing our group-wide organizational structure and improving operational efficiency. And as a result, our operating costs for Q4 decreased by 78% year-over-year to RMB 162 million, prompting a healthy improvement in our gross margin to 37.2%, from 23.4% a year earlier.

In Q4, our SG&A and R&D expenses both decreased by 63% year-over-year. And overall, we recorded a GAAP and non-GAAP net profit of RMB 8 million and RMB 14 million in Q4, respectively. This translates to a non-GAAP net margin of 5.5% for Q4.

At the end of 2022, we continued to maintain a strong liquidity position, as evidenced by our combined balance of cash and cash equivalents of RMB 277 million. We have continued to repurchase shares from the open market under our existing share repurchase program and as of the end of the December quarter, we have repurchased an aggregate of approximately 655,000 ADSs. On March 17, our board has just authorized a new share repurchase program to buy back up to USD 5 million of ADSs over the next 12 months, which continued to demonstrate the confidence that we have in our business model and our long-term growth prospects.

Going forward, we will further scale our omnichannel digital insurance service ecosystem by executing our ABC business plan to secure our position as a top-tier insurance intermediary in China. Strengthening this ecosystem should help us gain market share among high-quality new-generation consumers and families who demand innovative and customized insurance products, a seamless digital experience and professional customer service. We'll continue to streamline our overall corporate cost structure and enhance sales conversions, striving to strategically allocate capital to create shareholder value and sustain our long-term business growth.

Now turning to our outlook for the year. At this time, we are cautiously optimistic about the sustained recovery in the economic activity, which should improve customer confidence and consumption in China, although the complex external environment and geopolitical tensions will continue to provide challenges for the global and Chinese economy. We expect to remain profitable in 2023 on the anticipated macro recovery, our improving operational efficiency, our continued efforts to upsell existing customers and our ability in acquiring new mass affluent customers.

Based on our preliminary assessment, we currently expect that for the full year of 2023, we will achieve a non-GAAP net profit of not less than RMB 30 million in 2023.

Before we conclude our prepared remarks for the call, I would like to provide a quick update on the notice that we received from the NASDAQ Listing Office regarding our compliance with listing requirements with the NASDAQ Listing Rule 5450(a)(1) in October 2022. We would note that the matter has been fully resolved and closed and we have regained compliance as of December 14, 2022.

And with that, we will now open up the call to questions. Thanks, and over to you, operator.

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

(foreign language) So I have 2 questions. The first one is related to your operating strategy. This year, will you put more emphasis on growth or profitability? What business goals to set and then how to achieve them? And the second one is in terms of AI technology. We've noticed that Huize Digital Technology has announced to connect Baidu Ernie Bot. I'm just wondering how AI can affect the insurance sales business. Could you share some more color on this?

Thank you. It's Ron here. Two questions from your side. So the first one is regarding the business strategy for this year. I think clearly, we are seeing the end of the pandemic towards the last quarter of last year and that we're seeing that the reopening of the Chinese economy has seen the consumer recovery in everyday consumption in the first quarter. I think we're also seeing initial effects of that spilling over to the insurance industry. And in the first quarter, we're seeing some modest recovery on a year-on-year basis across all business lines. And with the pandemic effect on raising people's awareness on procuring health insurance for themselves and their families, I think we are seeing structural long-term growth to be very intact with the improved awareness.

I think in the product perspective, we will continue to very focus on developing variable money propositions for the broader market. And I think the recent announcement that we have with Ping An Health Insurance is a very good example of that. We will continue to iterate and upgrade our product matrix and co-develop products with leading insurance companies. And now that we have a new strategic collaboration with Ping An, I think that will be very positive for the product side of things.

I think your question on the growth versus profitability. I think this year, we'll be cautiously optimistic on the growth prospects for the economy and the industry, as I just said before, but then I think the focus for the organization, and I think for the industry overall will be very much on the profitability side. The bottom line of the P&L will be the main focus for this year. And I think we have just given out clear guidance for the full year 2023 that our profit will be no less than RMB 30 million, which states our clear intention on the focus on bottom-line profitability for this year. So that will be question one.

And for question 2 on AI deployments and Baidu. I think we have been investing heavily in our R&D over the last 2.5, 3 years that we have been consistently telling the market. And throughout the years, we have also been able to incubate AI tools and technology to increase efficiency throughout our entire operational processes. For example, on the front end on CRM and we have an AI proposal engine that enables our consultants, et cetera. I think these products that we have developed in-house are an example of that, and that's basically already our in-house AI investment and deployment.

Now that we have entered 2023 under the heavy influence of the AI capabilities of, for example, ChatGPT and Baidu, we are definitely going to explore and trial test the deployment of these technologies in our in-house business processes. And for Baidu, we did announce that collaboration, and we're already doing trial testing internally, as well as ChatGPT, we have already now done some trial testing in-house on our product development and R&D personnel to utilize ChatGPT on improving systematically the coding and programming work streams, and we are now already seeing some initial results on that.

So I think on the product development side, definitely, the AI will also be very helpful in terms of improving efficiency and thereby even further improving our operating leverage in the next few years. That will be all. Thank you.

(Operator Instructions) Our next question comes from the line of Amy Chen from Citi.

(foreign language) The first question is regarding latest regulatory notice, regarding the self-inspection of the online marketing of insurance agents. We're wondering what would be the potential impact for Huize's sales going forward. The Second question is relating to Huize's products. We see that more and more smaller insurers are actually exiting the online insurance space, and we see that Huize has been starting to collaborate with relatively larger-scale insurers. We want to understand more about the difference in terms of commission take rate and product design regarding these new products. And also regarding to the full year of 2023, is there guidance for premium facilitated?

Thanks, Amy. It's Ron here again. Thanks for joining again. So the first question on the regulatory, the self-inspection notice, I think this is something that we have been taking seriously ever since the first regulation came out on the online insurance marketing business compliance requirements 2 years ago. And then we have been continuously adapting to the regulatory changes. And this is something that it's definitely not new to us. And in fact, basically over the last 2 years, we have been adjusting our business processes, and we have been strengthening our controls of our third-party channel partners into the compliance requirements. We have clear guidelines and clear requirements for our channel partners to obey and to abide by, in order to cooperate with us in a compliant manner.

So we have been holding compliance very highly throughout the last 2 years. And I think this self-inspection is just an execution step by the regulators based on the earlier regulatory framework. And this is not a new regulatory requirement per se. It's just an execution step. So for Huize, because we have been maintaining high standards of compliance throughout a whole ecosystem, we are relatively confident that, first of all, we will be fully compliant with the regulator's self-inspection requirements. We will also encourage our third-party channel partners to cooperate fully. And we should come up from this 3-month inspection, which starts from April 3, and to finish by June 3. We should come up from the self-inspection even stronger from a competitive standing versus some of our peers in the industry, just because of the higher compliance benefit we have here at Huize.

And I just want to note that also to give you a sense of the regulatory compliance that we have. We're actually one of the only 2 insurance intermediaries in China, which is operating on the online context, it's us Huize and Tencent, which has voluntarily connected our back-end system to the regulator's East system which mandates a real-time sharing of transaction data with the regulatory body. So I think we are one of the very few market participants that are able to do this. And I think this is a very strong testament as to our compliance with the regulations. So that will be the first question.

And the second question on the future development of our business vis-a-vis the upstream insurance partners. Yes, I think the Ping An Health Insurance is a very good example of now that we are moving into a post-pandemic world and also that the more stringent requirements on the regulatory side would mandate that we will be working even more now with the midsized to larger-sized insurance companies in the market. And Ping An Health Insurance definitely is a very strong first step in this foray. And the long-term health insurance product remains to be a very attractive market segment for China. I think that working with Ping An definitely will give us a very strong advantage in the market in providing good value for money and customer-centric products, which will help address some of the vacuum in the marketplace right now. So that will be the question 2.

For full-year guidance, I think that, again, we are giving up clear guidance on the profitability side of the P&L. For topline, I think we are cautiously optimistic that with a continued and sustained macro recovery, we should see modest growth in the premium facilitated this year.

Our next question comes from the line of Rick Zhao from Morgan Stanley.

(foreign language) The first question is that the regulatory is doing research on reducing the pricing rate. What might be the potential impact on the company and any preparation from our side? And the second question is that, with China's economy and the consumer recovery, have we seen a better selling trend on protection products like the critical illness and also medical, versus the pandemic in the industry?

Thanks, Rick. Thanks for joining. Welcome you to Huize's conference call. I think the first question on the pricing front, yes, I think that we do note that the regulators are now looking into maybe adjusting the pricing rates on the products. And I think the short-term impact on not just the company but also on the overall industry is that we might see some of the current products to switch the end of the life cycle. So I think that that might translate into some of the accelerated sales of some of these existing products in the next quarter or 2. I think that will be some of the short-term impact, which actually should be a net positive for the company because we are well-positioned in terms of the product supply side, with very good market-leading products that we can facilitate to the market.

For the medium-to-longer-term, I think that because we have always been very focused on co-developing new products with our upstream insurer partners. We are fully prepared, and we are already in discussions to iterate the savings products into the next version, maybe post the pricing rate regulatory changes. So I think we are fully anticipating some of these changes going into the second half of this year and 2024 onwards. So with that, I think that, again, because of the way that we have been operating with a very clear focus on middle-class, mass-affluent bandwidth in China. I think that the good quality customer base and the ability that we can acquire new customers will provide us an upper hand in terms of negotiating and working with the mid-to-larger-sized insurance partners to help co-develop new versions of these savings products and health products to the marketplace to adapt to the changes in the regulatory side. So I think that will be the first question.

Second question, I think I talked to the other analysts earlier on the call. We are seeing some modest recovery in Q1. On a year-on-year basis, actually, we're quite strong versus Q1 of last year. So we are still cautiously optimistic. I think the broader external environment is definitely very challenging right now as we speak. I think the geopolitical tensions remain extremely tight, as well as there are still a lot of uncertainties on the exports and I think that will also have some snowball effects on the SMEs in China and so forth into consumer covenants. But then I think Q1, we are seeing modest and healthy recovery across the key product segments, i.e., long-term health and long-term savings products. So I think that we should be hopeful for a modest rebound in the first half of this year. Thank you.

Thank you. There are no further questions at this time. So I'll hand the call back to you for closing remarks.

Thanks, operator, and so in closing, on behalf of the Huize's management team, we 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 Huize IR team. And thank you for joining us today. This concludes the call.

Thank you, everyone. Have a good evening.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.

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