Huize Holding Ltd (HUIZ) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Huize Holding Limited's Third Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, we will have a question and answer session.

This conference call is being recorded (and the webcast) (inaudible) will be available. Please visit Huize's IR website at IR.huize.com under the events and (webcast) section. Now I'd like to hand the conference over to your [speaker and host] today, Miss Harriet Hu, Huize's Investor Relations Director. Please go ahead, Harriet.

Thank you, operator. Hello, everyone and welcome to our third quarter 2020 Earnings Conference Call. The financial and operating results were released earlier today and are currently available on our IR website, as well as on Newswire.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call as we will be making forward 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 funder and CEO, Mr. CunJun Ma, COO Mr. Li Jiang, CFO, Mr. Minghan Xiao and CoCFO Mr. Ronald Tam.

Mr. Ma will start he call by providing an overview of the company's performance and operational highlights from the third quarter of 2020. Mr. Tam will then provide details on the financial results for the period, before we open up the call for questions. Now, I will turn the call over to Mr. Ma.

Hello, everyone and thank you all for joining Huize's third quarter 2020 earnings conference call. As China gradually recovers from the COVID-19 epidemic, the year over year growth rate of per capital disposable income reversed from negative to positive in the third quarter of 2020, according to the National Bureau of Statistics.

At the same time, we continue to observe a steady increase of people's insurance awareness, as well as increasing adoption of online purchase of insurance products by consumers.

In light of the industry's and broader economy's recovery trends, we continue to focus on executing our unique long term insurance product strategies, as well as our leading digital [development] capabilities.

As a result, we achieved double digit year over year growth in total [GWT] and total operating revenue, [hitting very quickly highs]. During the - during the quarter, total [GWT] facilitated on our platform increased by 41.2% year over year to RMB 779 million, while total operating revenue increased by 22.9% year over year to RMB 348 million, once again exceeding the high end of our previously announced guidance range.

Such growth and profitability during the period of uncertainty, continued to showcase the viability of our business model, as well as the efficacy of our strategic focus on transforming the distribution of long term life and health insurance products.

Before providing additional updates on our quarterly business progress, I would like to first discuss why we focus on long term insurance products. During the third quarter, long term life and health [GWT] accounted for 92.9% of total [GWT], a ratio, which has [stay] above 90% for the past four consecutive quarters.

At the same time, [GWT] for long term health insurance increased by 47.1%, year over year to RMB 649 million. Our ability to maintain such strong rates is largely driven by our first [mover strategy] in the long - online long term insurance space, where we have formed many competitive strengths [in brand] influence and professional capabilities, which we believe are also difficult for other industry players to replicate.

Our focus on long term insurance products has a number of [advantages]. On the one hand, long term insurance products generate higher commission rate, as well as recurring revenues via policy renewals. On the other hand, our long term [process focus] enable us to form more longstanding relationships with clients and (inaudible) a better client loyalty.

Our [persistence] ratio for long term life and health insurance [in a 13th and 25th month of the policy] remained stable at 94%, a relatively high level in the industry.

The high client retention rate provide us an opportunity to maximize customer lifetime value, [as wherever to explore] and serve the evolving protection [need] of clients in given stages of life.

In line with our forecast in developing long term insurance products, we also concentrate on building our core competencies. As a [paranera] insurance, a [common platform] in China, we have accumulated a massive amount of market dimensional client data and [trends data] over the past 14 years.

By [harvesting our superior] data resources, we have been able to develop more comprehensive client portraits, employ more precise risk management practices and deepen our understanding of client specific insurance needs, [product design messages] and risk adjusted pricing to provide clients with more valuable and customized insurance products.

For example, we officially launched a critical illness insurance product, referred to [the dary 3]. Soon after its launch, this product [has became extremely] popular. In September, [dary 3] won the popular health insurance product of 2020 award.

This was the sixth time that our [dary critical illness series] of insurance products has won such an award in the industry, further illustrating the [serious exceptional] reputation, as well as our first rate product design capabilities.

Beyond our value and positioning also continue to [gain recognition] in the third quarter. For example, in September, Huize was included in (inaudible) China's Digital Insurance Agency [2020] (inaudible), and was [grouped] among the first tier level of companies in terms of innovation capabilities and market performance throughout the past two years.

Going forward, we firmly believe that the market will increasingly understand the importance of online insurance product and [their service Chinas] as well as the [daily trends] of separation between insurance underwriting and distribution in the industry, as China's insurance market matures.

As such, we are eager to capitalize on this opportunity and [offence] our development with the wind at our back.

I would also like to talk about our future development strategies. Many of the insurance clients we have served come from families in first and second tier cities with high customer lifetime value potential.

We will be rolling out offline service centers in (inaudible) first and second tier cities in order to better serve [their differentiated demand] for higher quality products and premium insurance services in order to maximize [big customers' lifetime values].

Over the next three years, we will take the opportunity to invest in [a] comprehensive strategic upgrade for the core Huize platform, as we evolve into the post COVID era, where consumers [demand further] innovation in insurance process and digital transformation of the insurance [pressures and service] experience that (inaudible) to build an insurance product and service [call] platform, incorporating core technologies such as cloud computing, big data analysis and artificial intelligence.

We emphasize [in] (inaudible) the upgraded platform will accelerate the integration of online and offline channels, further empower upstream and downstream partners in our ecosystem with data and technology, and ultimately, enable the industry as a whole to reach insurance clients in all scenarios and provide them with a fuller range of personalized insurance products and services throughout their entire life cycle more efficiently.

This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ronald Tam. He will provide an overview of our key financial highlights for the quarter.

Thank you, Mr. Ma [and] Harriet. And hello, everyone. In summary, our third quarter results show a (inaudible) of recovery trend in China's insurance industry as a whole. And in particular [a pickup in] underlying growth momentum [as shown in] a quarter on quarter growth across the long term and short term [product spectrum].

As economic activity resumes and domestic [travel activities] pick up steam, [following] (inaudible) containment of COVID in the country - in particular, during the quarter, we have achieved record quarterly highs for both (inaudible) [payments], as well as our total operating revenue.

For Q3, we added 259,000 new insurance customers [taking our total] accumulated insurance clients [to 6.7 million]. [GWT] [facilitated during] the quarter totaled RMB 759 million. It was a record quarter, up 41.2% year over year, and (inaudible) on a sequential basis.

[GWT] contributions [in our two] largest product segments, long term health and long term life, grew by 47.1% and 49.4 % respectively year over year. In particular, [in terms of first year] premiums, long term health our largest product segment, increased by 68.1% quarter on quarter amounting to RMB 250 million, which accounts for 70% of total [first year premiums] of RMB 358 million for the quarter.

The [strong sequential growth] is primarily attributable to our [latest hot selling] critical illness product [dary 3], which we (inaudible) life insurance. [It's a] (inaudible) launch [also helped] contribute significant growth in [GWT] for COVID (inaudible) insurance products, with our [insure partners], which increased by [65%] to RMB 436 million, and accounting for 56% of our total [GWT] facilitated [three and a quarter].

(Inaudible) continued to demonstrate a deepening engagement we have with our [offstream insurance companies partners] as we continued to deliver strong (inaudible) ratios from our long time insurance customers with (inaudible) consistency ratios averaging 94% during the quarter.

Now (inaudible) revenues, total operating revenue for Q3 was RMB 348.5 million, again a record [quoting high], which was up by [22.9%] year over year and outperformed our guidance previously given to the market in our Q2 results.

The increase in revenue was primarily driven by the increase in brokerage income due to the 41.2% increase in total [GWT] (inaudible) during the quarter.

[Corporate] revenue for Q3 increased by 24% year over year to RMB [234.7] (inaudible) million, primarily due to increase (inaudible) general partners, which is generally in line with our revenue growth.

Selling expenses for the quarter increased by 43.9% year over year to RMB 57.9 million, which was primarily attributable to the increase in our sales and marketing headcount during the past 12 months, as well as an increase in advertising marketing spend during the third quarter, which increased by 78% year over year, as we (inaudible) increased spend in light of the improving industry fundamentals (inaudible) [world recovery in the economy].

G&A expenses for the quarter decreased by (inaudible) 6% year over year to RMB 30.5 million. This decrease was primarily due to the [increase] in [share based] (inaudible) expenses, which amounted to RMB 2.8 million in the third quarter, as compared to RMB 10.5 million in the previous year.

Excluding effect of [SBC] from our G&A in Q3, G&A expenses grew by 37.1% year over year to RMB [27.6] million. R&D expenses for the quarter grew by 41% year over year to RMB 11.5 million, as we continued to increase our headcount in [areas of data analytics] and AI related R&D [efforts].

During the third quarter we achieved a [GAAP net] profit of RMB 14.7 million while non-GAAP net profits for the quarter was RMB [20.4] million.

We continue to maintain robust liquidity and a strong financial position. During the quarter, we recorded a net operating cash flow of RMB 72 million, and [at the] quarter end, we had a combined balance of cash and cash equivalents of approximately [$57 - $70] million US dollars.

Now, with regard to our Q4 outlook, [we] currently [expect] (inaudible) operating revenue to be in the range of RMB 330 to [315] billion.

This forecast (inaudible) [complete current and preliminary deals on the market] and operational conditions, which are subject to change (inaudible) various uncertainties, including those related to the ongoing COVID pandemic globally. This concludes our prepared remarks for today. We will now open up the call for Q&A. Thank you, operator.

(Operator Instructions). And your first question comes from (Inaudible) from CitiGroup. Your line is open.

Thank you. (Foreign Language). So, three questions, primarily the first one is we would like to ask the management regarding the guidance on the [FY] (inaudible) in 2021, especially regarding annuities and health insurance. And related to that, we also would like to know where their growth or profit generation [would be] (inaudible) focus for [2021].

And also, I'm interested to know what are your arrangement [appropriations] regarding to [exits of your] pre-IPO principle shareholders, since we understand [the lockup] (inaudible) [shares] (inaudible). Thank you.

OK, thank - thanks for the question, and I think [that's three] questions here. I think I'll take the first question first regarding the full year outlook for I guess [first year premiums] for the business.

I think that what we've seen overall in the first half was a relative [you know, deceleration] in terms of overall industry [growth], and as a result, I think the [difference of others has] shown - you know, (inaudible) [strength along with the industry].

I think in the second half of the year, you can see that sequentially, there was [a relatively] strong rebound in terms of [new] business in the third quarter. And then fourth quarter, I think that (inaudible) [a seasonally weak] (inaudible) [weak season], we are still seeing a relatively good momentum going through the fourth quarter as - you know, [general market] is in a rebound.

So, overall I think that - (inaudible) the full year, I think it will be relatively flat versus last year (inaudible) [agreement]. But obviously, next year will show [we energized growth within how the industry dynamics] have been improving in the second half of the year.

So, the second question was regarding the growth focus for next year. I think that the question was really on whether we'll be prioritizing you know, overall topline growth versus - you know, (inaudible).

I think that for us, I think [the next year] will be a year for us for not just - you know, continue to execute on our existing business strategy on our long term products, which [was] (inaudible) we will see (inaudible) improvement next year, given the market conditions have been rebounding, we will also be going [through] new (inaudible) noted in your remarks, [that is] (inaudible) annuities of savings related products (inaudible) in the next year.

And we will be looking to target a contribution from this new product vertical approximately 20% of [our total] - you know, [FYP] for next year, [from savings] related products, and particularly annuities products.

This we've seen also a very sharp focus from the insurance companies as a whole, in terms of the new year product launch (inaudible).

And the third question, regarding the IPO (inaudible) intention post the lockup, obviously we, as a company, we focus on (inaudible) execution [and we're making good] and consistent dialog with our [existing shareholders and publically the largest shareholders].

And we believe that [both of the shareholders] have been indicating to us that they are - they (inaudible) [accommodating a] long term growth potential, and there will be - there would be opportunity for maybe monetization for [some] of these shareholders, as and when they have (inaudible).

So, I think we will be keeping a close [eye of these investors], and [should there be any] opportunities [we'll be] in close coordination with (inaudible) [orderly market for these] (inaudible) [for this potential] monetization (inaudible).

Thank you very much, Ron.

(Operator Instructions). There are no further questions at this time, I'd like to hand the conference back [to our] management for closing remarks.

OK, thanks for joining the call today, and we look forward to sharing our results [in the - next time] and (inaudible). Thank you very much.

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