Huize Holding Limited

Ladies and gentlemen, thank you for standing by and welcome to Hui Ze's third quarter 2024 earnings conference call. At this time, all participants are in the listen-only mode. After the management's prepared remarks, we will have a question and answer session. Today's conference call is being recorded and a webcast replay will be available on Hui Ze'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, Mr. Kenny Lo, Kuwait's Investor Relations Manager. Please go ahead, Kenny.

Thank you, operator. Hello, everyone, and welcome to our third quarter 2024 earnings conference call. Our financial and operational results were released earlier today and are currently available on both our website and global newswire services. Before we continue, I'd like to refer you to the safe hub statement in our earnings price release, which also applies to this call, as we will be making forward-looking statements. Please 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. Chen Jing Ma, COO, Mr. Lee Yang, Co-CFO, Mr. Minghang 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, followed by Mr. Tam, who will go over financial results for the quarter before we open up the call for questions. I will now turn the call over to Mr. Ma.

Hello, everyone. Welcome to the press conference of the third quarter of 2024. In the third quarter of 2024, with the emergence of the power of policy integration, the market is expected to boost confidence. Our country's macroeconomic situation is gradually improving. In September, the State Council released the new National Insurance Act, which is the direction of high-quality development of the insurance industry. The trend of the industry is to investigate the industry in detail. By actively adjusting product strategies, At the same time, the company has actively deployed itself in the overseas market for the past two years. This quarter, the company has achieved outstanding performance. In the third quarter, the total insurance fee for the entire platform reached 2.6 billion yuan, creating a new high in the total insurance fee for the company in the first quarter. The total profit reached 3.7 billion yuan, and the net profit reached 18.7 million yuan.

In Q3 2024, as the effects of the government's policy mix began to materialize and market confidence improved, China's macroeconomics normally show signs of steady recovery. In September, the State Council issued the Opinions on Strengthening Supervision, Preventing Risk, and Promoting High-Credit Development of the insurance industry, charging a cost for the high-quality development of the insurance sector. In response to industry trends, Queda refined its product strategy, capitalized on market opportunities, and built on its international expansion efforts over the past two years. As a result, the company achieved strong performance this quarter. In Q3, Gross Rating Premiums, or GWP, facilitated across all platforms reached RMB 2.06 billion, setting a new quarterly record. Total revenue amounted to RMB 370 million, and net profit reached RMB 18.7 million, delivering a solid and commendable result.

In the third quarter, our platform raised RMB 13.5 billion, which increased by 110%. The next-generation insurance fee is about 7.1 billion yuan, which has increased by 18% in total. From the product structure, in the window period of the pre-ordering period, the insurance product sales of Chuxi County are high. In the third quarter, the first-tier insurance fee of Chuxi County has increased by 1.5 times. Among them, the first-tier insurance fee of long-term risk has increased to 7.6 billion yuan, which has increased by 1.5 times. In the third quarter, in the short-term risk business, In the first quarter, total first year premiums, or FYP, facilitated on the platform amounted to approximately RMB $1.35 billion, up 110% year-over-year.

Renewal premiums reached approximately RMB $706 million, up 18% year-over-year. From a product mix perspective, savings products were among the most popular insurance offerings prior to the downward adjustment of the assumed interest rate. In the third quarter, FYP from savings products saw a 1.5-fold increase year-over-year. Notably, FYP for whole life insurance reached approximately RMB 765 million, up 150% year-over-year. Meanwhile, our short-term insurance business recorded double-digit growth, with growth rate and premiums climbing 40% year-over-year to approximately RMB 129 million. This further enhanced our ability to provide diversified product offerings.

Huize insists on using high-quality users as the core. With deep user insight and service capabilities, it provides users with excellent experience. By the end of the third quarter, the number of users who have accumulated on the platform has exceeded 10 million, and achieved an important milestone. Of these, the average age of users who have long-term insurance for the third quarter is 35 years old. Among the long-term insurance customers, cities above the second quarter have reached 68.7%, 68.7%. To maintain high-quality customer group images, In the third quarter, the growth of the military in the long term is about 9,630 yuan, which is 1.4 times higher than the growth of the military in Chuxi County. The growth of the military in Chuxi County reached 7.9 million yuan, which is 59% of the same growth. By the end of August, the accumulation rate of the 13th month and the 25th month of the long term will be higher than 95%, keeping the industry at a higher level.

Building on our profound customer insights and service capabilities, we remain committed to serving high-quality customers and delivering superior service experience. By the end of the third quarter, the cumulative number of insurance clients served surpassed the significant milestone of 10 million. The average age of customers who purchased long-term insurance products in the third quarter was 35. among which 68.7% were located in high-tech cities, reflecting our high-quality customer profile. The average FYP ticket size of long-term insurance products rose nearly 140% to approximately OMB 9,630. The average FYP ticket size of savings products reached approximately OMB 79,000, up 59% year-over-year. As of the end of August, 13-month and 25-month persistency ratios for long-term insurance both exceeded 95%, remaining at an industry-high level.

At the end of the third quarter, Huize maintained a stable cooperation relationship with 123 insurance companies. With the deep insight and product customization capabilities of the consumer's needs, we continued to develop customized insurance products. In August of this year, Huize joined Taibao We have also launched a small-school children's health insurance, which provides insurance for students with accidents, diseases, and other critical areas. At the same time, we continue to upgrade our high-quality series of products. In September, our company, Xinhua Insurance, has upgraded and launched the快享福二号, which is a life-long pension insurance. Through product innovation, we support the high-quality development of national third-party pension insurance.

of the end of the third quarter, we maintained stable partnerships with 123 insurance companies. Drawing on deep insights into customer needs and leveraging on our product development capabilities, we continued to introduce new tailored insurance offerings, enriching our product matrix. In August, we partnered with CPI, CPNC to launch Little Scholar, accident and health insurance, covering two critical areas of protection for students. Meanwhile, we continued to iterate and upgrade our existing products. In September, we partnered with New China Life Insurance to launch the upgrade at least 2.0, lifetime annuity insurance, leveraging product innovation to support the high quality development of the national third pillar pension system.

In the absence of artificial intelligence, The company is continuously promoting the digital upgrade of sales, creating innovative industrial products, and significantly improving internal efficiency and external expansion capabilities. Since this year, we have been able to create high-quality marketing materials by creating high-quality marketing materials by creating high-quality marketing materials by creating high-quality marketing materials by creating high-quality marketing materials by creating high-quality marketing materials by creating high-quality marketing materials by creating high-quality marketing materials by creating high-quality marketing materials by creating high-quality marketing materials to provide efficient insurance consultation support for external users, agents, and backstage teams. In terms of sales tools, AI has realized the production and optimization of planning books and health insurance tools to provide accurate support for sales teams. In addition, AI sales assistants help to design more targeted communication strategies through language analysis and sales stage interpretation. These measures

Empowered by AI, we have been driving the digital upgrade of our sales operation and developed a suite of AI powered tools that can improve internal efficiency and business development capabilities. Since the beginning of this year, we have leveraged AI to swiftly generate high-quality marketing materials, including articles, infographics, videos, and customized digital epitaphs, enabling widespread content distribution on social media. Meanwhile, AI-powered knowledge bases and customer service tools provide efficient insurance support for external users, agents, and back office teams. streamlining their access to information and solutions. In terms of sales tools, AI enables the intelligent generation and optimization of proposals and underwriting tools, providing precise support to the sales team. Furthermore, we introduced an AI sales assistant that can conduct semantic analysis and evaluate the sales stage to help formulate more targeted communication strategies. By year-end, these initiatives are expected to drive a 50% improvement in content production, further enhancing the surface capabilities of our teams.

Since this year, Huize has continued to make remarkable progress in international business expansion. In the third quarter, in the background of strong growth in domestic business, international business has contributed a significant amount to the total revenue, reaching 19%. In the previous quarter, it steadily increased by 8%.

This year, we have made encouraging and continuous progress in expanding our international business. In the first quarter of 2023, even with strong performance in our domestic business, our international business contribution to total revenue reached a new record high of 19%, up big percentage points compared to the previous quarter. mainly driven by the strong demand for premium products in our international business.

Our international goal is very clear. First, we want to expand the overseas market and achieve the diversification of income sources. Second, we want to build a new growth curve and promote the long-term sustainable development of the Group. For this purpose, we set up the headquarters of the overseas brand PolyInsultage in Singapore. As a strategic input for overseas business, we have combined The way of purchasing and financing is to cooperate with local partners to accelerate the expansion of the Southeast Asian market. Our business model has distinct regional characteristics. In Hong Kong and Singapore, we will provide high-quality and rich public customers with entry-level insurance services for the region. In Vietnam, Indonesia, and the VIP market with high growth potential in the Philippines, we will strive to provide an in-depth insurance solution. Our international goals are clear.

First, to diversify revenue streams by expanding into overseas markets. And second, to establish new growth trajectories and foster the group's long-term sustainable development. To this end, we have established the headquarters of our overseas brand, Pony Energy Tech, in Singapore. positioning it as the strategic hub for our international operations. Through mergers and acquisitions and joint ventures, we are working with local partners to accelerate our expansion in Southeast Asia with clear regional business model. Hong Kong and Singapore will cater to the inbound insurance needs of high network and mass affluent clients in the region, while in the VIP markets of Vietnam, Indonesia, and the Philippines, We will focus on the high growth potential of these markets, enhancing digital insurance penetrations by offering embedded insurance solutions, further expanding user coverage and market share.

In September this year, we completed the acquisition of the leading digital insurance platform, GlobalCare, in Vietnam. We officially entered the Vietnamese market. In October, we partnered with GlobalCare to launch an insurance comparison platform in the Vietnamese market. GlobalCare.vn is positioned as a one-stop insurance supermarket. In September, we have successfully entered the Vietnam market with the acquisition of a leading issue tech platform, GlobalCare.

In October, we jointly launched GlobalCare.vn with GlobalCare in Vietnam, an insurance comparison platform positioned as a one-stop insurance supermarket to provide consumers with a superior, transparent, and user-friendly insurance shopping experience. This milestone signifies the continued deepening of our international expansion. The successful expansion into the Vietnam market has not only reinforced our leadership in the international expansion journey, but also set a benchmark for future market expansion.

We plan to enter two new overseas markets in the next year, including Singapore and the Philippines. Looking forward, we plan to enter two additional overseas markets within the next 12 months, Singapore and the Philippines. In the Philippines, we have identified a well established

electronic service provider and plan to form a joint venture combining Kuwait's technological capabilities with our partners' local resources to promote digital insurance services for local consumers. In Singapore, we have formed an experienced team and are in the process of applying for an insurance brokerage license. We plan to further develop high-end insurance services in the region and establish another key insurance service hub in our international expansion journey. By 2026, we target our international business will account for 30% of our total revenue, driving diversified growth and creating long-term value to the group.

The year of 2024 is a year of challenges and opportunities. Guizhe, with its in-depth understanding of consumers and outstanding product capabilities, has made flexible adjustments to the business strategy, and has shown strong resilience in the change of industry. has shown a strong growth in the international business layout. Looking forward to 2025, China's insurance market is filled with rich development opportunities. We will work closely with insurance companies to fully utilize and play out our own resources and advantages, closely surround the needs and trends of the market, and continue to launch diversified customized innovative products. At the same time, we will also actively grasp the needs of the international market and the insurance market. 2024 has been a year of both challenges and opportunities, leveraging our deep understanding of consumer needs and exceptional product capabilities.

We have demonstrated remarkable resilience by adapting our business strategies in industry transformation, while also experiencing significant growth in our international business. Looking ahead to 2025, the Chinese insurance market continues to present opportunities for development. We will continue to collaborate closely with insurance companies to maximize and leverage of combined resources and strengths, while launching a diverse range of innovative, customized products tailored to the market needs and trends. Moreover, we will proactively capitalize on opportunities in the international markets, particularly in emerging Southeast Asian markets, to enhance Huize's competitiveness. With this effort, we aim to inject new growth momentum into the company and remain committed to delivering greater value for our shareholders. This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ron Tam, who will provide an overview of our key financial highlights for the third quarter.

Thank you, Mr. Mai and Kenny. Good morning to our friends in the U.S. and good evening, everyone from Asia. So just to quickly recap the third quarter results, I think we have delivered a very strong set of record results in terms of GWP facilitated on a platform amid the challenging macro environment in the industry landscape. Total GWP reached a record quarterly high of RMB 2 billion, while our total FYP also more than doubled to RMB 1.35 billion. We also recorded a non-GAAP and GAAP net profit of RMB 18.3 million for the quarter. Our robust ability to meet evolving consumer demand for long-term insurance products amid ongoing regulatory reforms can be attributed to our efficient omni-channel distribution network. Covering online and offline channels, our relentless efforts to attract high-quality customers, our sophisticated product innovation capabilities, and our proprietary AI solutions. More importantly, we are the pioneer in the industry to initiate international expansion, a strategic move that is set to become a new growth driver for long-term sustainable development. Our strategic focus has still remained on long-term insurance products, which have accounted for over 90% of our premiums facilitated for five years. Meanwhile, our omnichannel distribution ecosystem and proprietary AI tools further strengthen our customer acquisition and engagement capabilities. In the third quarter, we added about 287,000 new customers to our ecosystem, bringing our total number of customers to a milestone of 10 million mark as of the end of the third quarter. The repurchase ratio for our long-term insurance products stood at a very high 40.2% during the quarter as well, which highlights our ability to continuously upsell, cross-sell, and capitalize on the lifetime value potential of our high-quality customer base. Our open platform architecture continues to empower both our internal financial advisors and also external independent financial advisors, or IFAs. Total FYP for our 2A business surged by 102% year-over-year to RMB 181 million in the third quarter. We also leverage on our self-developed AI solutions to streamline operations and further enhance operational efficiency. In the third quarter, our expense-to-revenue ratio improved by 5 percentage points year-over-year to 24%. I will also highlight other key achievements over the quarter, which includes the following. Number one, renewable premiums increased by 18% year-over-year to approximately R&B $706 million, which again is underpinned by our by high percentage ratios for long-term life and health insurance, which, as of the end of August, remain at an industry-leading high level of over 95% for both 13th month and 25th month. The average ticket size of a long-term savings product reached a record high of over 78,000 RMB in the third quarter, which is up by 59% year-over-year, partly reflecting an increased contribution from premium product sales in our international market segment. which is predominantly Hong Kong. We continue to pursue a balance mix between long-term health and savings products. FYP for our long-term health products surged by 67% year-over-year to approximately RMB 173 million, primarily driven by our customized products with CPIC. Meanwhile, FYP from short-term health and P&C products sustained a steady growth of 14% year-over-year to approximately RMB 129 million. In terms of our liquidity position, our financial position remains very robust with a combined balance of cash and cash equivalents of RMB 243 million or USD 35 million as of the end of September. Going forward, we will continue to empower our insurance agents, our distribution partners, and our IFA partners with an optimized omnichannel distribution ecosystem. our rich product offerings and advanced AI tools to support customer acquisition and engagement. In parallel, we continue to leverage on our successful China proven business model to capitalize on the tremendous untapped market opportunities across Southeast Asia through our international arm, Pony InsurTech. Our total international revenue contribution for this quarter rose to 19% of total group revenues, which is up from 11% in the last quarter which is mainly driven by our ongoing expansion of the business in Hong Kong segments. Alongside our expansion in Hong Kong, in September we completed the acquisition of a controlling stake in GlobalCare, our Vietnam-based subsidiary. We have since enhanced the GlobalCare platform with innovative, customized insurance products, distribution partnerships, and comprehensive AI solutions. which is aiming to accelerate business growth through its mainly embedded insurance model. We are confident that we can achieve a more prominent revenue contribution from our Vietnam operations in the new year 2025. Moreover, as we have alluded to earlier in the opening remarks, we plan to enter two further markets in Southeast Asia, which is mainly Singapore and the Philippines, in the next 12 months. We believe that these initiatives will further diversify our revenue streams, and serve as new growth drivers to enhance long-term shareholder value. We are now presently on track to achieve our international revenue contribution target of 30% of group revenues by 2026. In summary, we are very well positioned to benefit from China's evolving industry landscape, which is expected to foster healthy and sustainable growth across the entire insurance value chain. We are also capitalized on growing economies, large and young demographics, urbanizing middle class populations, and an increasing demand for digital insurance solutions in Southeast Asia to expand our international footprint. We are confident that our strategies will further solidify our position as Asia's leading insurance technology platform, connecting consumers, insurance carriers, and distribution partners digitally and efficiently through our data-driven and AI-powered solutions. And my final remark on a recent capital market development. As of yesterday, December 9th, our ADS ratio change has become effective, which in effect has a 5 to 1 reverse split effect on our shares outstanding in share price. And this has been reflected in the market trading as of yesterday. And with that closing remark, we'll now open up the call to questions. Thank you and over to you, operator.

Thank you. We will now begin the question and answer session. To ask a question, please press star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. There may be a short pause as questions are collated. Once again, that's star one one for questions. We'll now take our first question from the line of Amy Chen from Citi. Please ask your question, Amy.

Hi. Thank you very much, and congratulations on a very decent quarter, especially a very strong GWP growth. My first question would be on your four-year guidance for net profit. It's very good to see that Blizzard has turned profitable again in the third quarter. what would be your outlook for the fourth quarter and also for the next year of 2025? The second question is mainly on expense-wise. First, I noticed that actually the gross margin has been a little bit of pressure in the third quarter this year. Do you think that the impact of the expense rationalization in the broker channel has been fully reviewed, or do you think that close margin could be further pressure going on? Secondly, we noticed that the G&A expenses actually rose quite significantly, and management actually attributed this to increase in rental and utility expenses. Would you mind elaborating more on this? Thank you very much.

Thank you, Amy. Thanks for joining us again, as always. So with regards to your few questions, I would just address one by one. In terms of the first question on our four-year guidance for 2024, I think we would like to say that Q3 has been a very strong quarter, mainly due to a couple of reasons. And I think the most prevalent one has to do with the so-called adjustment of the interest rate. in the China, mainland China products relating to the savings product category. That has driven a lot of upfront demand by customers or the overall market into the month of July and August, and particularly in August. So some of the demand has been front-loaded into Q3. And as a result, we think Q4, what we envisage is a somewhat lukewarm recovery in this particular product category on the savings side. But we do have an offsetting growth continuously in our offshore market, which is primarily our Hong Kong segment is still seeing strong momentum in the months leading up to the current December month. So there would be some offsetting effect on that part. But overall, we think that still given that our mainland China business consists of the predominant share of our over FYP and revenue as a result. And therefore, we think that the Q4 quarter would likely be less strong as a quarter as compared to Q3. And the other factor that we have to deal with right now is the overall product transition into the new regime of the power products, which is now being promoted mostly by the intermediaries, in particular, the brokerages like ourselves. And therefore, the change of the mindshare and the mindset of the consumers from the traditional savings product into the power product, it still takes time to mature. We think that this probably is a process for the next two to three quarters. And therefore, we think that as a result as well, Q4 on the savings category, we do see that the demand will be definitely not as strong as we've seen in Q3. So at this point in time, we think that the fourth quarter would be less strong as Q3. So that's the first question. The second question on gross margins, you have correctly noted that the gross margin has declined to around 27% in the third quarter, which is a slight drop from the levels in Q2. We do think that this level of gross margin has fully reflected the effect of the the so-called expense personalization on the brokerage channel or bouncing for you the the direction the regulatory effect also has to do with a decline in the overall commission rates and therefore as a result because a lot of our business also is in partnerships with other distribution channels partners right and therefore as a result of that the the channel economics needs to be adjusted to compensate for the decline in commission rates the headline commission rates or take And therefore, the gross margin has been compressed a bit as a result of the cost structure or the economic structure for the value chain. We do see that this level should more or less be, we think that at least on the mainland China business side, should remain relatively steady going forward in the next few quarters as the full effects of the rationalization has been felt in Q2 and Q3. And on your third question on G&A expenses, we do note that on a quarter-on-quarter basis, it has trended down from Q2, and we do not expect that G&A expense to materially increase from this point onwards because we are highly focused on further optimization of our overall cost structure across the selling expenses of G&A and R&D, especially with a fixed cost base. we have a very strong and clear target to improve our cost-to-revenue ratio in this particular part of the cost structure of the company.

Thank you very much. That's very clear.

Thank you, Amy.

Thank you. As a reminder, to ask a question, please press dial 11 again. Your next question comes from the line of Ray Guo from CICC. Please ask your question, Ray.

Hi, thank you. I have one question for the management. And does the company have any plan or further plan on the health management industry? Because the commercial insurance companies actually do have access to medical data for hospitals and hospitals. does Huize have any further plan on the health management industry? And another one is about the 2025 FYP guidance. Do we have any guidance on the amount of 2025 FYP? Thank you.

Thank you, Ray, for joining the call. For the first question, I think your question was about whether we have plans to enter the healthcare services segment or the healthcare industry because we have a very strong focus on life and health insurance as a whole. We do have plans. Actually, we do have already established our own internet healthcare platform, although the business model and business scale has been still at a startup stage. I think our focus going forward will still continue to be coming up with the right customized products to tackle market pain points, especially on the consumer side, because what we see that going forward is the trends that we are seeing in the healthcare industry For example, the DRG reforms, which will lead to, we believe, a very strong necessity among consumers to upgrade their healthcare coverage with respect to pursuing commercial insurance to complement to what they have already on a social security level. setting our focus on the mid- to high-end medical health product going forward in the next two to three years. We have solid plans to come up with a customized product in the near future, probably in the next two quarters, that will provide good coverage to our target customers in respect of these overall healthcare reforms that we are seeing in the industry. So that's the first question. A second question on guidance for full year 2025. We do think that right now is a little bit early. We're providing guidance to the market when we reach our Q4 results, which will be scheduled for a few months down the road. Thank you, Ray.

Do you have any follow-up question, Ray? all right thank you so as a reminder to ask a question please press star one one on your telephone keypad all right i'm showing no further questions and with that i'll turn the conference back to mr kenny low for closing comments

Thank you, operators. In closing, on behalf of Hoyt's management team, we would like to thank you for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us today. This concludes the call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.