Huize Holding Ltd
NASDAQ:HUIZ
Earnings Call Analysis
Q4-2023 Analysis
Huize Holding Ltd
As the world adapts to post-pandemic economic conditions, a particular company witnessed significant growth and financial strength in 2023. The firm, navigating through an evolving macroeconomy and industry landscape, announced an 18.2% increase in total Gross Written Premium (GWP) to RMB 5.8 billion. This growth spurt is largely attributed to their effective omnichannel distribution, a high-quality customer base, a diverse range of product offerings, and entering the Hong Kong market. Adding over 212,000 new customers in Q4, the company boosted its customer count to surpass 9.3 million. Notably, they achieved a non-GAAP net profit of RMB 72.3 million for fiscal 2022, comfortably exceeding their earlier guidance of RMB 60 million, marking the fifth straight profitable quarter.
At the heart of the company's success is a strategic focus on long-term insurance products, which have consistently contributed to over 90% of GWP for 17 quarters straight. By enhancing insurance agents' capabilities through their distribution network, product innovation, and technological advancements, premiums from their Independent Financial Advisors (IFA) platform jumped by 73.4%. Another critical factor was their ability to leverage upselling opportunities—evidenced by the repeat purchase ratio for long-term insurance products climbing by 6.9 percentage points to 36.9%. Operational efficiency and customer acquisition optimization were also instrumental, leading to gross margin improvement to 37.4% from 36.6%, and a reduction in the operating expense ratio from 40% to 33%. The firm's financial position remains firm, with a cash and equivalents balance of over RMB 249 million.
In 2023, the company maintained its leading position in China's long-term insurance product market. Its First Year Premiums (FYP) for health products increased by 19% to RMB 500 million, and life and annuity products surged 35% to RMB 1.7 billion. Product diversification strategy paid off as well, with the FYP from their customized Property & Casualty (PNC) insurance products growing by 74% to RMB 400 million. The expansion into Hong Kong yielded promising results with total international revenue from the region constituting 6% in Q4. Committed to international growth, the company aims for a double-digit percentage revenue contribution from international markets by 2024.
The company continues to pursue long-term opportunities in Asia's insurance industry, focusing on digitalization and market expansion, particularly in Hong Kong and Southeast Asia. They are investing in proprietary AI technology to enhance their service chain and prove the scalability of their business model. Shareholder value remains a priority, evidenced by repurchasing approximately 1.5 million of their ADSs, reaffirming management's confidence in their long-term prospects.
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Ladies and gentlemen, thank you for standing by, and welcome to Huize Holding Limited's Fourth Quarter and Full Year 2023 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 host today, Ms. Harriet Hu, Huize's Investor Relations Director. Please go ahead, Harriet.
Thank you, Sarah. Hello, everyone, and welcome to our earnings conference call for the fourth quarter and full year of 2023. Our financial and operating results were released earlier today and are currently available on both our IR and the new flyer. Before we continue, I would like to refer you to the safe harbor statement in our earnings press release, which also apply today's call and 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 past 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 2023. 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 to Huize's Fourth Quarter and Full Year 2022 Earnings Conference Call. In 2023, China's insurance industry continued a positive growth trajectory, marking the second consecutive year of growth following the industry's significant reform. In particular, the demand for savings insurance products remain robust, driving a 12.75% growth in total premium for China's life insurance industry amid the declining R&D interest rate. The China insurance consumer confidence intact also reflected a resurgence in consumer confidence towards the macroeconomic environment and the insurance industry. Notably, the intention to increase insurance coverage has rebounded for 3 consecutive quarters, surpassing levels seen in the same period of both 2021 and 2022. Navigating through the evolving market trends whether has successfully as the market opportunities in long-term savings products, delivering our strategic focus on long-term insurance products, diversify operational tactics, product innovation and customer acquisition capabilities we have once again delivered satisfactory results. In 2023, total gross written premium, or GWP, facilitated on our platform reached RMB 5.8 billion, up 18.2% year-over-year. Our total revenue increased by 3.3% year-over-year to RMB 12 billion, and we achieved a non-GAAP net profit of RMB 72.3 million, excluding our guidance of RMB 60 million. [Foreign Language] First-year premiums or FYP facilitated on our platform reached RMB 2.6 billion, up significantly by 42% year-over-year, and renewal premiums increased by 4% year-over-year, reaching RMB 3.2 billion. In terms of product mix, the GWP contribution from long-term insurance products in 2023 was 92.3%, representing the fourth consecutive year exceeding 90%. During the year, we witnessed a rise in demand for savings products and leveraged our deferred product offering and omnichannel distribution capabilities to capitalize on line market opportunities. In light of that, FYP from our long-term savings products increased by 54.6% year-over-year to RMB 1.7 billion, and FYP from our long-term cap product increased by 19% year-over-year to RMB 510 million. While we maintained high-quality growth in our long-term insurance business, we also provided customer products and risk management solutions to our corporate clients, which led to a 74% search in the FYP of our PMC Insurance products, reaching RMB 390 million in 2023.[Foreign Language] As of the end of the fourth quarter, our cumulative number of insurance customers exceeded 9.3 million among the long-term insurance conference from the fourth quarter, 65.8% were from higher tiers and their average age was 34.1 years old. 41.8% were repurchased from existing customers, which has increased by 8 percentage points year-over-year. We also witnessed a substantial increase in the fourth quarter in the average ticket size of saving products in terms of FYP, which was approximately RMB 59,000, representing a 30% increase year-over-year. This was primarily driven by our focus on acquiring high-quality customers and upscaling existing customers with high LTV potential as well as the success of our on core business expansion contributing premium international product sales in the fourth quarter. As of the end of December, our accumulated persistence ratio for the long-term insurance in the 13th and 26 months remained at industry high levels of more than 95%. [Foreign Language]As of the end of the fourth quarter, we have cooperated with 123 insurer partners. Throughout the year, we maintained solid collaboration with leading insurance companies, further enrich our diversified product measures in order to meet the differentiated protection mix from customers, whether they are in search of premium brands for cost-effective products. For example, in November, we partnered with Daija Annuity Insurance to launch Daija operations, a customized retirement and net insurance product, adjusting the unique needs of the post-80s and 90s customers by offering elderly care services and various types of protection options. In December, we partnered with PICC Life Insurance, we launched the Darwin Critical Care #8 Advance. This is launched in 2018, the Darwin Critical Care Series products have provided over 310,000 customers with enhanced protection through higher limit, broader coverage and better service quality. In 2023, the GWP contribution from our customized insurance products was 61.6%. [Foreign Language] In 2023, FYP is facilitated by our independent financial advisers or ISA platform reached RMB 350 million, representing a significant increase of 73% from the previous year. The number of high-performing ISA studio increased by 106% in our direct-to-consumer segments. We launched a series of promotions and marketing initiatives to engage potential and high-value customers, which effectively reduced customer acquisition costs and post-conversion rate. As we expand our customer base, we continue to remain highly committed to deepening our engagement with existing customers. In 2023, we served more than 1 million families with over 11 million insurance policies and assisted with 92,000 insurance plans, amounting to a total plan settlement of RMB 570 million. [Foreign Language]Recognizing the growing demand for premium insurance and overseas at the allocation, we took the actions rapidly and saved the opportunities in the Hong Kong insurance market, which has allowed us to diversify our revenue streams, bolster our operational resilience and enhance our risk management abilities. During the year, we partnered with China Pacific Life Insurance, Hong Kong, to co-develop the Jin Man Yi Zu multi-currency products. With the expansion of our product portfolio, we have also expanded our Hong Kong insurance brokerage business, creating a comprehensive suite of high-end insurance services tailored for high-value customers. With the resumption of pro-forward travel, we saw a substantial surge in the sale of our MCV business. The revenue contribution from our Hong Kong brokerage business already reached 6% of our total revenue in the fourth quarter. Beyond Hong Kong, we are actively exploring insurance business opportunities in Southeast Asia. Market statistics shows that the average insurance penetration rate of Asian emerging markets was 3.6% in 2022, while that for life insurance was only 2.1%. In particular, the insurance penetration rate in Vienna and Indonesia was at a low level ranging from 1% to 2%. We believe that the proven success of our business model can be replicated overseas, especially as suitable for emerging markets where the per capita disposal income continues to rise. We see that the potential in the insurance market in this region is massive. And with relief we are in a good position to capture these opportunities. [Foreign Language]Finally, I'm excited to share some of our advancements in the development of AI large language models for insurance applications. Further, has accumulated reserves over 60 million insurance customers today, amassing a wealth of data that encompasses not only our user profile and plan statistics, but also product details and sales information. Leveraging the strength of our dual data pools, coupled with our industry-leading technology and innovation capabilities. We have launched a suite of tools powered by our AI marketing assistance. These tools include the annuity calculator and extensive insurance code and knowledge bank and the intelligent chatbot, all of which are widely adopted by our consultants and agents. To provide more color, where our annuity calculator is designed to instantly and automatically display annuity payouts upon calculation and really illustrate product features, reducing the time it takes for consultants to prepare product proposals and enabling them to quickly address users increase. This AI-driven tools not only increased consultant efficiency, capacity and conversion rate, but also improve the overall user experience by precisely pinpoint user needs and reducing wait time. [Foreign Language]Looking ahead, Huize is committed to capitalizing on the long-term growth opportunities of the insurance industry in China and Asia. We will enhance our ability to customize, differentiate these products and integrate online and off-line product distribution and services in our home markets. We will continue to invest in our market expansion in Hong Kong and actively pursue opportunities in the emerging markets of Southeast Asia. Our goal is to identify addressable growth market with supportive demographics and replicate our proven business model, further diversify our revenue streams to more markets and elevate our brand awareness and recognition on the international stage. We are targeting a double-digit percentage revenue contribution from international markets in 2024. At the same time, we will be investing in our own proprietary AI watch language model and will strive to integrate our AI products throughout the entire insurance service chain to empower our business operations and ecosystem partners, which includes insurance carrier, independent agents and distribution channels from the initial insurance product competition to user engagement, marketing, risk management, customer service and plan service. [Foreign Language]This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ron Tam, and he will provide an overview of our key financial highlights for the fourth quarter.
Thank you, Mr. Ma and Harriet. Good evening, everyone, in the Asian time zone, and good morning to everyone in New York. As the macroeconomy and industry conditions gradually recover, we are very pleased to report that the total GWP facilitated on our platform for the year increased by 18.2% to RMB 5.8 billion in 2023. We think that this growth is largely driven by our omnichannel distribution platform capabilities, a high-quality customer base, our diverse range of product offerings as well as our maiden contribution of international revenues from our expansion into the Hong Kong market in the second half of 2023. Our efforts to acquire new customers have also become increasingly efficient with more than 212,000 new customers added to our ecosystem in the fourth quarter. By the end of the year, our total customer count has exceeded 9.3 million. We are proud to announce that we recorded a non-GAAP net profit of RMB 72.3 million for the 2022 fiscal year, surpassing our previously given guidance of RMB 60 million. Our fourth quarter non-GAAP net profit of RMB 16.4 million also marked our fifth consecutive quarter of profitability. Our best financial results are a testament to the effective execution of our key business strategies. To elaborate, first, we have consistently prioritized our strategic focus on long-term insurance products, which have contributed to over 90% of our gross written premium for 17 straight quarters. Secondly, we have continued to empower the capabilities of insurance agents through our superb distribution network, product innovation and technological advancements. This has resulted in a significant 73.4% year-over-year increase in premiums generated by our IFA platform, reaching RMB 354 million in 2023. Thirdly, we continue to pursue upselling opportunities across the high-quality customer base. In 2023, the repeat purchase ratio for our long-term insurance products climbed by 6.9 percentage points year-over-year to 36.9%, reflecting the deepening loyalty and trust of our customers in our brand. And finally, we continue to optimize our operational efficiency and customer acquisition costs as reflected in the further improvement in our gross margin and expense ratio. As we look at our operational results, I want to highlight several key achievements that drove our strong performance. One, our first-year premium that renews premiums increased by 42% and 4% year-over-year, respectively, indicating our ability to attract new customers and also engage with existing ones. Second, our persistency ratio for long-term life and health insurance remain at an industry high level. As of the end of the year, the 13th and 25th month persistency ratio stood about 95%. And third, the average ticket size for our long-term savings insurance products, which has become increasingly important as a category for distribution increased by 31% year-over-year to over RMB 54,000 in 2023, demonstrating our continued success in upselling our existing customers. These highlights are just a few examples of a high-quality customer profile and our relentless efforts and successes in capitalizing on the lifetime value potential of our customers. In 2023, we proudly sustained a market-leading position in long-term insurance products in China. The FYP of our long-term health products increased by 19% year-over-year to approximately RMB 500 million, while the FYP of a long-term life and annuity products surged 35% year-over-year to RMB 1.7 billion. We will continue to pursue a balanced product mix between long-term health and savings categories to satisfy evolving customer needs and market environments. In parallel, we have actively diversified our product portfolio to include also customized PNC insurance products. This diversification has also paid off as the FYP from this business grew by 74% to approximately RMB 400 million in 2023, providing us for new and promising revenue stream diversification. In addition, our expansion into the Hong Kong market yielded encouraging results with total international revenue contribution from Hong Kong, reaching 6% in the fourth quarter. Throughout the year, we have diligently maintained tight control over our marketing expenses and continue to streamline our operations to improve our profit margins and efficiency. Our gross margin improved to 37.4% in 2023 from 36.6% in 2022. This improvement reflects the enhanced customer acquisition efficiencies and the increased repeat purchases by existing customers. In 2023, our total operating expenses continued to decrease, falling by 15% year-over-year. Our operating expense ratio further improved to 33% in 2023 from 40% a year earlier, decreasing by 7 percentage points. We also achieved non-GAAP net margin of 6% for the full year of 2023. And as of the end of 2023, our financial position remained strong as a combined balance of cash and cash equivalents stood at RMB 249 million, which is more than $30 million. In addition, with our commitment to drive shareholder value, we have continued to buy that shares from the open market under our existing mandate. And as of the end of 2023, we have repurchased an aggregate of approximately 1.5 million ADSs, which reiterates management's confidence in our long-term business model prospects. As we continue to solidify our market share in China, we are committed to capitalizing on the long-term digitalization opportunities of Asia's insurance industry. Our key focus will be to increase our presence in the Hong Kong market where we plan to expand the sales team and launch more customized products to capitalize on the robust MCB demand and also local insurance demand for high-value customers. We also proactively identify addressable growth markets with supportive demographics in Southeast Asia and largely untapped market potential to replicate our proven business model in China and further diversify our revenue stream to more markets and elevate our brand awareness and recognition on the international markets. We have set the target to achieve a double-digit revenue contribution from international markets by 2024, and this goal reflects our confidence in the scalability and replicability of our business model itself. Moving forward, we'll continue to leverage our deep customer insights and our own proprietary AI products to enhance the product innovation and upselling capabilities. We'll also further strengthen the integration of our online to off-line ecosystem to enhance customer acquisition and engagement capabilities of our insurance agents by providing them with the tools and support in an increasingly competitive landscape. As we recognize the importance of resource allocation across the businesses, we'll maintain a laser sharp focus on driving further improvement in operating efficiency to be aim to enhance our overall profitability. And in summary, considering a robust AI-powered product innovation capabilities, our extensive online to offline distribution ecosystem, the empowerment of our insurance agents and IFA partners and our proactive overseas expansion efforts, we are continuing to be optimistic about the outlook for 2024. We are now targeting a non-GAAP net profit of RMB 16 million for 2024 with continued investments in new markets and AI. We are confident that our strategies will solidify our position as a leading insurance technology platform in Asia, connecting consumers, insurance carriers and distribution partners digitally and efficiently through our data-driven AI power solutions. And with that, we will now open up the call to questions. Thank you very much, and over to you, operator.
[Operator Instructions] We will now take our first question, and this is from the line of Amy Chen from Citi.
First of all, I want to congratulate management on another profitable quarter. And then I have two questions. The first question is on the rationalization of compensation paid to the brokerage channel, which is [indiscernible] in Chinese. And I'm wondering, how will this impact our brokerage income in terms of, for example, for annuity products or, say, for CI products, how would this impact our first-year commissions and the renewal commissions? And the second question would be on customer demand. Going to 2024, how has the product mix shift so far? And what is our most mainstream or most popular products at the moment?
Amy. So I've got two questions from you. The first one on policy employee impact on the business. So we know that this is a very important topic among investors' minds right now. And so far, I think what we've seen -- which has happened already for the bancassurance channels, is that commission rates have generally been reduced by around 30% to 50% in that area. For the brokerage and agency channels, of course, the actual regulations have not come out officially or in effective yet. But we do expect that this will come probably in the next few months, maybe as early as April. So what we envisage is that probably there will be a somewhat similar kind of impact on the brokerage and agency channels as we have seen in bank assurance channels, in terms of commission rate impact, generally speaking. And I think the impact on the off-line so-called savings products will be more marked, or more adversely impacted and versus some of the online-only products. So that's what we see as the potential market impact on that question. On your second question about customer demand and product mix shifts. I think we have also continued to see strong and sustained momentum in the long-term savings category or annuities. This has still been the most popular or most in-demand product among Chinese consumers due to the declining rate environment and probably the lack of attractive alternative investment alternatives in the China market right now with what we've seen in the real estate market and also underperforming equities market. So the long-term savings products offered by insurance companies still represents a very viable and attractive investment product or wealth allocation product for general Chinese consumer. So we see that for the rest of this year and as for the first quarter, we are still seeing very strong demand for savings products. And in particular, we have been distributing participating long-term savings products. And we are probably one of the leading online platforms to distribute hopefully the most popular participating product right now offered by the market, which is from generality China. So we are probably one of the leading platforms distributing this product in the China market. So I think this is probably -- this is going to be the mainstream product for the rest of the year, and we will continue to work hard to co-develop customized products in this category with some of the larger brand names, which we hopefully will be able to launch as early as April next month. So we will be looking to cooperate with one of the top brands in the China market for a customized fit exclusive long-term participating savings products. So those would be the answers to your questions, Amy.
We'll now take our next question. And this is from the line of Coco Gong from Morgan Stanley.
Yes, congratulations on the very good results. I only have one question that's a little bit specific. Ron talked a lot about like about the savings products to mine. And obviously, the protection is still on investors' mind, although the demand seems to be still kind of weak right now, especially in China. So I want to understand since we can see a lot of data on this. Do we see a marginal improvement on critical illness like the long-term health insurance product? Specifically, are we seeing more customers, new customers, buying this insurance product, or are we just seeing more existing customers buying more coverage? And do we see any other potential signs of marginal improvement in a specific product type?
Coco. So a question on customers or consumers demand on long-term health products, particularly in the critical illness type of products. I think we do see continued -- or at least from our internal data, I mean, obviously, the savings category is what people want these days and especially in the current macro environment. I think generally, Chinese consumers have a relatively stringent budget to allocate the money. So long-term savings or whole life products or particularly participating products these days have drawn a lot of the customers' focus and budget. And so I think this is why we still continue to see a readily lukewarm growth in the long-term health categories, for example, critical illness, which has continued to be recovering slowly. We do see customers, existing customers and new customers, buying these products to our platform. It's not like the demand is not there. It's just that with the relative attention more towards savings products generally in the market, and especially it's a function of intermediaries like ourselves, platforms like ourselves and our competitors and also generally insurance agents in the overall market, mainly pushing the distribution and sales of savings products, which has resulted in such a market phenomenon. So what we'll do is we'll continue to innovate on the health products. So we mentioned that we have just launched our #8, which is a new version of our long-term successful brand IP in the critical illness category. And this time, we're actually now working with PICC, which Mr. Ma mentioned earlier in the call, we are working now with large insurers on these customized products to hopefully create more attention among our customer set and to drive more sales in these categories.
We'll now take our next question. This is from the line of Zeyu Yao from CICC.
Congrats on your good result, I'm Zeyu Yao from CICC, and I have one question here, and my question is for the 2A segment. Could you give us some more color on how is it going so far? And we've noticed that the recently insurance association of China has opted for industry advice about agent classification. So if it's a increment, I think it may have some effect on to a business. So could you share some more views on that?
Right. So we touched on the 2A business earlier in the opening remarks. I think this business line has continued to be very strong, at least in 2023. It is contributing almost 20% of our overall premium facilitated, and we continue to see strong growth in this business line. So specifically, I think there's a number that I can share here, so yes. So FYP facilitated by the IFA platform, which is the 2A platform, was RMB 350 million last year, which is a year-over-year increase of 73%. And I think the most important thing is more and more independent agents or IFAs are now coming to our pipes partners because they find the three things that are very much our competitive strengths. Firstly, we have a very extensive product matrix from simple PNC products to the extensive life and health products that we have, and in particular, the customized exclusive at products that we could develop with insurance carriers. So I think that's a big door to these independent agents to become associated with us as a partner. And secondly, I think, obviously, because of our scale advantage, we earn top commission rates with most of the insurance carriers and thereby, these agents by plugging into our platform will be able to enjoy the revenue pickup versus maybe parting with another platform or as an agent inside an agency. So I guess these are the things that are helping us attract more and more agents to come. And I think finally, most importantly, we have the whole suite of the digital tools that we have been mentioning across our opening remarks, which really helps digitalizing the customer journey for these agents and also help them manage customers very efficiently with our digital AI tools. And this is something that I think is quite a unique proposition in the Chinese market at least. So just to touch upon the IFA business model. I think what we're looking to launch is we want to replicate this into the rest of Asia. So I think we'll be starting with Hong Kong and also going into other parts of Southeast Asia. I think that's something that we think will be a very good value proposition to those local markets as well. So yes, I think in short, it's performing very well, and it will continue to be -- it will be increasingly important as a revenue stream and business line for us. And your second part of the question is regarding the -- I believe it's the finite fund, right? [indiscernible] So the agent qualification exams and the differentiation of different gradings. So what we understand is right now, there is four grades for agents, grade one to grade four. So for Grade 1, you can sell all the complicated products, life and health savings, whatnot. And Grade 4, you only sell very simple products like protection or PNC. What we think that is for most of the agent partners that we have on our 2A business or our IFA platform, most of these are relatively experienced agents who have been working in the industry for over 5 years on average. So this regulatory impact will be minimal because I think most of these experienced agents have already qualified or can qualify for the higher tiers of the classification. And therefore, it will not have a limiting impact on what they can sell or distribute to the customers. And I think the thing can be applied to our in-house consultants and agents in the Huize platform. And most of our high-performing agents can qualify under these new regulations. And we think that the draft paper has been out, but then the effective date will likely to be next year.
Thank you. At this point, we have no further questions. I would like to hand the conference back to Harriet for closing remarks.
Thank you, operator. So on behalf of Huize's management team, we would like to thank you for your participation in today's call. And if you require further information, please feel free to reach out to Huize's IR team. And thank you again for joining us today. This concludes the call.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.