Ladies and gentlemen, thank you for standing by. And welcome to Huize Holding Limited Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management prepare remarks, we will have a question-and-answer session. Today's conference call is being recorded and a webcast reply would 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, operator. Hello, everyone and welcome to our earnings conference call for the second quarter of 2023. 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 press 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 the Co-CFO, Mr. Kwok Tam. Mr. Ma will start the call by providing an overview of the company’s performance and operational highlights for the second quarter 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] [Interpreted] Hello, everyone, and thank you for joining Huize’s second quarter 2023 earnings conference call. In the second quarter of 2023 macroeconomy continued to recover and the operating conditions in the insurance industry continued to improve.

The life insurance industry's consumer confidence index reached 68.2 in the second quarter of 2023, which is higher than it was in the same period of 2021 and 2022.

Riding on this positive market trend and combined with our competitive age in long-term insurance products, comprehensive online to offline integration and industry leading product innovation and customer acquisition capability. We reported another set of encouraging results today.

In the second quarter, total gross written premiums or GWP facilitated on our platform reached RMB1.4 billion, up by a considerable 58% year-over-year. Our total operating revenue increased by 48.3% year-over-year to RMB370 million. We also achieved our first consecutive quarter of non-GAAP net profit with RMB19 million in the second quarter.

In terms of product mix, first year premiums or is FYP facilitated on our platform increased by 85.2% year-over-year to approximately RMB900 million in the second quarter. Renewal premiums continue to grow steadily, increasing by 24% year-over-year to RMB480 million.

During the quarter, amid the surge in demand for savings products, we leverage our diversified product offerings and solid omni-channel distribution capabilities to capture the market opportunity. As such, FYP of our long-term savings products increased by 136% year-over-year to RMB670 million in the second quarter.

FYP of our long-term health product also increased by 10.4% year-over-year to RMB140 million. GWP contribution of our long-term insurance products was 93.6%, marking the 15th consecutive quarter about 90%.

While achieving high quality business growth, our customers remain young with high potential and high stickiness, and we continue to capitalize the lifetime value of our existing customers. At the end of the second quarter, our cumulative number of insurance clients reached 8.9 million.

During the quarter, about 66% of our long-term insurance customers were from higher tier cities, with an average age of 34.4 years old.

In terms of FYP, the average ticket size of long-term insurance products was approximately RMB5,400, up by 56.4% year-over-year, while the average ticket size of savings products was approximately RMB63,000, up by 43.2% year-over-year.

As of the end of May, our accumulated persistence ratios for long-term insurance in the 13th and 25th month remains at industry high levels more than 95%. As of the end of the second quarter, we have collaborated with 110 insurer partners.

During the period, we continued to optimize our product offerings from leading insurance companies, striving to develop more customized and reliable products for our users, apart from our strategic partnership with Ping An Health Insurance and Ping An Property and Casualty Insurance to co-develop Chang Xiang An and a customized long-term medical insurance product and Xiao Xin An No.3, a customized accident insurance products for children, respectively.

We also strengthened our strategic cooperation with various subsidiaries of China Pacific Insurance Group. In June, we signed a new strategic partnership agreement with China Pacific Property Insurance and jointly launched Xiao Xin An No.3, which is a comprehensive accident insurance product customized to meet the protection needs of the elderly.

In August, we signed a strategic partnership agreement with China Pacific Life Insurance Hong Kong, and announced the co-launch of Jin Man Yi Zu Multi-Currency, which is an increasing whole life insurance product targeting Hong Kong customers.

This is an innovative product in the market, promoting the concept of underwriting Hong Kong and retirement in the mainline, representing a milestone in a development of cross-boundary insurance services in the Greater Bay Area.

In the second quarter we continued to deepen the online to offline integration of our insurance service ecosystem, which continues to yield encouraging results.

At present, we have opened branches with regulatory approvals, sales qualifications in 18 provinces and cities across the country with a full coverage in major Tier 1 localities, including the Beijing, Tianjin [COVID] (ph) region, the Yangtze River Delta and the Pearl River Delta.

In the To-A segment, we kept exploring new technology and we have empowered independent agents with sophisticated intelligent tools. During the period we launched reLink a proprietary user management system that helps agents manage users more efficiently and effectively, enabling them to scale up businesses and customer bases with ease.

Going forward, we will make further improvements to the reLink system, upgrading it from manual lead management to AI-assisted lead management. In the second quarter, FYP facilitated by the To-A business reached RMB160 million, up by 270% year-over-year, and 110% sequentially.

In the first-half of 2023, the FYP facilitated by the To-A business amounted to RMB230 million, surpassing the FYP facilitated in the whole year of 2022.

In the Q3 segment, we remain committed to our customer-centric approach and continue to fine-tune our operations to better recognize client needs and risk and provide targeted product and service margin for various customer segments.

In the second quarter, we launched a series of brand promotions and customer engagement activities, including company anniversary celebrations and various value-added healthcare services, targeting existing and new users, high lifetime value users and parent group users.

We successfully reached more than 60,000 users through these efforts and achieved more than 20,000 sales conversions. We also continue to provide users with professional and efficient claims assistance services.

In the first-half of 2023, the total number of insurance claim cases assisted by Huize reached 37,000, with the total claim settlement amount of approximately RMB290 million. We further expanded the scope of our Xiao Ma Claim services and offering claim settlement services to a wider range of users in need.

Going forward, we strive to create a win-win dynamic for insurance companies and insurance customers, demonstrating the value added of insurance intermediaries and driving the high quality and sustainable development of the industry.

For insurance customers, we will continue to enhance our product and service offerings and strengthen our user engagement and online to offline integration.

With further optimized operational assistance, sales process and localized deployments plan, we believe Huize will be able to provide more flexibility to users to choose between online and offline one-stop insurance services.

For insurance companies, we will continue to explore new industry dynamics and new growth drivers to help bring down operating cost and improve operational efficiencies for our insurance partners and empowering them to build a high-quality customer base and deliver top-notch insurance services. 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 second quarter..

Thank you, Mr. Ma and Harriet, and good evening, everyone, in Asia time zone. In the second quarter amidst further recovery in consumer confidence and total incomes, the insurance industry in China grew steadily. Sector-wide gross written premiums increased by 22% year-over-year to RMB900 billion during the quarter.

At Huize we leverages on our O2O integrated insurance service ecosystem and our business will continue to significantly outpace the broader market. We have delivered a 58% year-over-year increase in total GWP facilities on our platform, which reached RMB1.4 billion in the second quarter.

We have also added about 200,000 new customers to our ecosystem in the second quarter, bringing the total number to 8.9 million at the end of the June quarter.

During the quarter, we recorded a non-GAAP net profit of RMB19 million, marking our third consecutive quarter of profitability and putting us on track to meet the upward revised full-year non-GAAP net profit guidance of RMB15 million that we have issued in the last quarter.

This can be attributed to the successful execution of our key business strategies. First, we continued our strategic focus on long-term insurance products with GWP contribution from this product remaining above 90% for the 15th straight quarter.

Second, we continued to target high-quality mass affluent customers and empower insurance agents to our omnichannel distribution platform with product offerings and sophisticated technologies.

Our To-A, To-C business line remained solid with total FYP of RMB156 million in the second quarter, representing a year-over-year increase of over 2 times and a sequential increase of over 1 times.

And third, we continue to place an emphasis of optimizing operational efficiency throughout our business, and this can be demonstrated by the improving operating leverage and profitability for the quarter. Some key highlights and takeaways from this quarter's operating results include the following.

Total gross written premiums increased by 58% year-over-year, reaching RMB1.4 billion, and this growth was mainly driven by an 85.2% year-over-year increase in first year premiums, or FYP, as well as a 24% year-over-year increase in renewal premiums. Our persistency ratios for long-term life and health insurance remain at an industry-high level.

As of May, the 13th and 25th month persistency ratios are maintained at above 95% respectively. The average ticket size for our long-term savings insurance products increased by 44% year-over-year to about RMB63,000.

These positive metrics reflect our high-quality customer profile and our relentless efforts to enhance upselling opportunities and tapping to the lifetime value potential of our customer base.

In the second quarter, we solidified our market-leading position in long-term savings products, in particular the increase in sum assured whole life and retirement annuities product categories. The FYP of a long-term savings product surged by 1.4 times year-over-year to RMB665 million.

The FYP of our long-term health products also increased by 10.4% year-over-year to RMB139 million in the second quarter. Looking ahead, we anticipate to achieve a more balanced product mix between the long-term health and savings categories in that patient with the evolving customer needs.

The robust growth in FYP helped drive a 48% year-over-year increase in our total operating revenue, which reached RMB368 million in the second quarter. We remain focused on tightening marketing channel costs and optimizing our operations to improve our margins and efficiencies.

As a result, our operating costs in the second quarter increased at a slower pace than revenue, rising 40% year-over-year to RMB244 million, and this has led to a healthy improvement in our gross margin to 34% compared to 30% in the second quarter of last year.

In Q2, our total operating expenses continued to decrease, falling by 1.8% year-over-year, resulting in a expense to revenue ratio improvement to 32% in the second quarter from 48% over the same period of last year. Our GAAP and non-GAAP net profit figures were approximately RMB14 million and RMB19 million in the second quarter respectively.

At the end of the second quarter, we continue to maintain ample liquidity as demonstrated by our combined balance of cash and cash equivalents of RMB248 million. We have continued to repurchase shares from the open market under our existing share repurchase mandate.

And as of the end of the June quarter, we have repurchased an aggregate of approximately 1 million ADSs, demonstrating our continued confidence in the business prospects and our long-term growth prospects.

Moving forward, leveraging our continued investments in generative AI technologies will further improve operational efficiencies across our business value chain, strengthening the integration of our O2O ecosystem and reaching our product and service offerings across all scenarios and empowering our agent and insurance partners with technology enhancements.

This effort should help us gain market share and solidify our position as a top-tier digital insurance product and service platform and ultimately striving to enhance shareholder value and achieve sustainable business resilience. Now turning to our outlook for the year.

While we remain cautiously optimistic regarding the macro and insurance industry outlook in China, in light of the better-than-expected results in the first half and our strong execution in acquiring high-quality customers from the market, improving cost efficiencies and enhancing customer engagement, we once again revised our outlook guidance upwards and currently expect to achieve a non-GAAP net profit of not less than RMB60 million in 2023.

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

Ladies and gentlemen, we now begin the question-and-answer session. [Operator Instructions] And the first question from Coco Gong from MS. Please go ahead. Your line is open..

Hi, thanks. [Foreign Language] So, hi everyone. I'm Coco from Morgan Stanley. So congratulations to the management on the various results.

So I have two questions, and the first one would be on the product transition and product performance potentially in the third quarter and first-half of next year because of the tracking interest rate interest rate hike on basically August 1.

So we're wondering if the management sees any, sort of, potential product transition and how the performance will be in third quarter? And because of the high base this year, how is management thinking about going forward into next year first half? That's the first question.

And the second would be, what Huize strategy in Greater Bay Area, given that the new products which launched with CPIC Life Hong Kong? And overall, what would be the outlook and strategy for this opportunity area?.

All right. Thank you for the questions, Coco. It's Ron here. So regarding your first question on the outlook for Q3, I think indeed the 3.5% pricing products have came off the shelves effective from August 1. In Q3, we do have the month of July contributing to our Q3 results. So we can say that the July sales numbers are quite strong across the board.

And I think as one of the leading participants in this industry, I think we also have benefited from good sales in July. In the fourth quarter, I think over the next two quarters, I think the overall industry is going through an adaptation phase with respect to the product structure.

I think the mainstream opinions on this topic is highly topical right now. A lot of people are discussing what's the more mainstream product that will be coming to the market in the next two quarters. I think a lot of the insurance companies now have rolled out the 3.0% pricing product already.

This will be the traditional type products, increasing sum assured with guaranteed 3% or close to 3% should I say. There's also an anticipation of rollout [Technical Difficulty] products with variable returns. We were slightly lower, 2.5% guarantee, but variable returns depending on the investment performance.

So I think the whole industry is still going through this adaptation right now. It's a bit too early to tell.

But we do think that the overall savings product category will continue to be well-received by the average insurance customer in China mainly, because of the continued anticipation of a declining rate environment leading to the relative attractiveness of these savings products we'll continue to have an appeal to customers versus other wealth management alternatives in China, for example, bank deposits and other wealth managing products in the market.

So our anticipation is that the savings product category will continue to perform well, but then -- over the medium term and long-term. But then in the short-term, there would be a slight lukewarm market demand for such products, particularly on the back of the strong sales in the second quarter and the month of July itself.

So that will be the outlook for the product perspective. And the second question on the Greater Bay Area business plans for ourselves. I think overall, we have been in the industry for 17-years already, and we have the benefit of geographically being located in the center or the heart of GBA in Shanghai, Shenzhen.

So we sit right in the center of the whole GBA region. So if we open up the borders of Hong Kong this year, we are now capitalizing on this new opportunity on potential cross-border activities.

And this latest product launch that we have achieved with CPIC Hong Kong Life is a good testament of our continued innovation to provide the right products for the customers in our respective markets.

And this month of first foray into the Hong Kong market with this product targeting Hong Kong customers and also new immigrants into Hong Kong from China, these 2 sets of customers are prime target customers for this product.

And we do believe that would be the long-term trends of retirement demand from the Hong Kong residents in the Greater Bay Region. We believe that this product will address this market niche very precisely, and we do have a very strong anticipation for the sales of this new product with CPIC Hong Kong..

Thank you for your question. We’ll now taking the next question and the next question is from Mindy Gao for CLSA. Please go ahead. Your line is open..

[Foreign Language] Thank you for taking my question. This is Mindy from CLSA. My first question is about the gross margin trend. So I wonder how do you see the trend of gross margin in the second-half and the rationale behind? So my second question is about your overseas expansion plan.

So can you share with us more color about where there is overseas expansion plan? And when do you expect to see a more meaningful revenue contribution from this part of the business? Thank you..

Thank you, Mindy. It's Ron here. Two questions. The first question on our gross margin outlook. I think we have been demonstrating that we have achieved cost efficiencies throughout our business lines. And as a result, our gross margin for the second quarter has improved by almost 4 percentage points from same period last year.

I think we continued to strive to maintain gross margins at the current level through three main areas. One is we continue to have a very disciplined cost control on the marketing spend, on our customer acquisition channel cost. We have actually been quite stringent on our direct acquisition budgets.

We have been quite focused on harvesting our existing customer base as well in terms of repurchases. We have actually achieved more than 3% repurchase rate from our direct To-C business line in this quarter. So this demonstrates that we have been able to achieve premium growth from our existing customer base.

And we balance that very carefully with new customer acquisition spend to attract new customers. Secondly, I think we continued to invest in the technology. And we have been also deploying more capital into AI efforts. I think we are expecting to yield efficiency enhancements again on many aspects of our business across the value chain.

So that would be a second measure. And I think a combination of these measures and strategies will help us maintain our gross margins at the current level. So that will be the answer to your first question. So the second question on overseas expansion. I think Hong Kong is the first destination in terms of our international strategy or expansion.

Hong Kong is a natural extension for our Mainland China business because Hong Kong we do have a very good opportunity in the overall MCV business in the Hong Kong market. This is a HKD40 billion market pre-COVID and we expect that to be around 80% or 100% recovery this year.

So as a major player in the mainland Chinese insurance brokerage industry, with the brand recognition that we have with many of the Hong Kong local residents, who have a linkage of mainland China, we believe that our brand equity was able to help us achieve a decent market share in the Hong Kong local market as well.

So we're targeting to become a top-tier broker in the Hong Kong market in the next three years and to achieve a meaningful market share, as well in the MCV business and also for the local Hong Kong market business. And I think on the back of the Hong Kong expansion, we are looking into potential investment opportunities in Southeast Asia.

We are not currently in the feasibility study stage. We are in preparation for a potential rollout of our business across division. But right now we are still in the early phase of identifying opportunities and identifying potential joint venture partners in targeted countries in Southeast Asia..

Thank you for your question. [Operator Instructions] We’re now taking the next question and the next question from Michelle Ma from Citi. Please go ahead. Your line is open..

[Foreign Language] The first question is about our thoughts on AI Tech.

So for smaller players, should we think about like first mover or early mover advantage or we should like follow the tech of those industry giants for AI tech's consideration? So I just want to have a sense of the management's thoughts on this issue? And the second thing is about the operating leverage.

And we are seeing some deterioration in the operating leverage. But with I think a very promising net profit outlook for the whole year and for the second-half this year. So we'll return to a path to continue expansion or we should pay more attention to the cost control? And how about the revenue growth outlook in the second-half? Thank you.

[Foreign Language].

Thank you, Michelle. I'll take your questions. So the first question on AI. I think the way that we look at AI is we don't really see as a first mover or second mover. I think the more pertinent question is for AI to really work for any particular company in the respective industry vertical, I think the key prerequisite is you have data in the platform.

You have the right data in the platform to help you deploy AI technology to improve efficiency. So to that regarding what we have is we have over 17-years now of transaction data. And this encompasses pre-sales consultation conversations, because we have a real-time compliance monitoring system, as you well know.

So we have a lot of daily conversations between our consultants and the end customers as data to be fed into AI training models. We also have a lot of underwriting data. We have also claims processing data. As you understand, we have Xiao Ma Li Pay, the Xiao Ma Claim Service. So therefore we actually have accumulated a lot of this data.

So all this is actually helping us to effectively train any, kind of, AI algorithms internally, so that we can potentially derive game-changing AI technologies to be deployed in-house. So I think that to the extent would be the answer to your first question.

I think we have the network advantage to deploy AI, because we hold proprietary data within our ecosystem, within our platform. And hopefully over the next six to 12 months, we will be able to release to the market or to announce to the market some milestone achievements in this regard.

So in relation to your second question also, some expenses might have creeped up in the second quarter, but we still intend to maintain cost discipline very, very rigidly to the extent that the macro economy in China, as everyone is well aware, it's still, were to be challenging, although overall it's in a recovery mode.

I think most industry participants remain cautious on the outlook.

We do think that the overall business dynamics with respect to Huize continue to be very solid and resilient and sustainable as we have proven over the last few years now, time from COVID where everything needs to be happening online, and we have a natural advantage being an online native platform.

And over the last one year or so, when Chinese economy has been negatively impacted by restrictions relating to COVID, leading to much dampening in consumer confidence and demand. We have been able to ride through the cyclical challenges and have emerged since the fourth quarter of last year being profitable for three consecutive quarters.

So I think the overall trajectory is in terms of medium to long-term as an insurance intermediary as a leading player in this space, we have very positive outlook in the long-term in terms of the market share of a digital brokerage like ourselves, with the increasing separation between record the distribution and the product manufacturing in China.

The single-digit percentage market share of our insurance brokerage should go up to more of a high double-digit -- mid-double-digits as we have seen in the past economies. So I think that will be the overall outlook on that front. The second-half of this year, we are constructive. I think there will be some product transitions in this period.

Everyone is anticipating that. But at the end of the day, I think it depends on what the customers in the market would demand. And I think that savings product will continue to be the mainstream product in the insurance industry, and we still hold a advantage in customizing the better and newer products with our insurance companies.

And we already have a backlog of new products to be launched in the Q3 and Q4 when the time is right, which will be sort of for the average customer in the new environment. Thank you..

Thank you for your question. I will now hand the conference over to Ms. Harriet Hu for closing remarks..

Thank you, operator. One behalf of 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 the IR team. And thank you all for joining us today. This concludes the call..

And this concludes the conference for today. Thank you for participating. You may all disconnect..