Ladies and gentlemen, thank you for standing by, and welcome to Huize Holding Limited First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Today's conference call is being recorded, and the webcast replay will be available. Please visit Huize IR website at ir.huize.com under the Events and Webcast section.

I would now like to hand the conference over to your speaker host today, Mr. Harriet Hu, Investor Relations Director. Please go ahead, Harriet..

Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the first quarter of 2024. Our financial and operating results were released earlier today and are currently available on both our IR website and the Newswire.

Before we continue, I would like to refer you to the safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained in our earnings release and filings with the SEC.

Joining us today are our Founder and CEO, Mr. Cunjun Ma; COO, Mr. Li Zhang, Co-CFO, Mr. Minghan Xiao; and Co-CFO, Mr. Ronald Tam. Mr. Ma will start the call by providing an overview of the company's performance and operational highlights for the first quarter of 2024. 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..

Hello, everyone, and thank you for joining with the first quarter 2024 earnings conference call. In the first quarter of 2024, China's economy continued its recovery and showed positive momentum.

The insurance industry also made progress towards high-quality development with original premium income increasing by 5.1% year-over-year to approximately RMB2.2 trillion.

Adeptly navigating the profound impact of the alignment of registered and actual expenses on the insurance market with our diversified product offerings, omnichannel distribution capabilities an international business footprint allowed us to deliver solid results, surpassing industry average.

In the first quarter, total gross written premium, or GWP, facilitated on our platform reached RMB1.7 billion, up 38% sequentially. Total revenue increased by 31.5% sequentially to RMB310 million. We achieved a net profit of RMB6.9 million marking our sixth consecutive quarter of profitability.

In terms of product mix, the increased volatility in domestic capital markets and the continued decline in interest rates during the quarter strengthened demand for insurance products with relatively stable returns.

Spotting this opportunity, we further enriched our offerings of savings insurance products, including participating and annuity products. As a result, total first-year premiums or FYP facilitated on our platform more than doubled sequentially to RMB816 million.

On a sequential basis, FYP of long-term life insurance products more than tripled to RMB438 million. FYP of annuity products increased by 47.9% to RMB157 million and FYP of long-term health insurance products increased by 12.2% to RMB96 million. We further strengthened our industry-leading position in the long-term insurance market.

GWP for long-term insurance accounted for 90.5% of total GWP, marking our 18th consecutive quarter with a ratio above 90%. Renewal premiums reached RMB816 million, up 4.1% sequentially.

As of the end of the first quarter, our cumulative number of insurance customers has grown to 9.6 million, representing an increase of 220,000 new insurance customers sequentially.

Among the long-term insurance customers from the first quarter, 66.4% were from higher-tier cities and their average age was 34.8 years old, benefiting from the success of our Hong Kong business expansion, contributing premium product sales, the average FYP ticket size of our savings insurance products reached a record high of approximately RMB69,000, representing a 17% increase from the previous quarter's high base.

As of the end of February, cumulative persistency ratios for long-term insurance in the 13th and 25th month remained at industry-high levels of more than 95%. As of the end of the first quarter, we have cooperated with 120 insure partners.

Amidst the implementation of alignment of registered and actual expenses and the continuous reduction of guaranteed returns on traditional life insurance was quickly adapted to customer demand and fit the market opportunity by introducing [indiscernible], a participating whole life insurance product underwritten by Generali China, which generated significant sales during the quarter.

In April, we partnered with Aviva-COFCO insurance to launch Fu Man Jia, a customer-participating whole life insurance product that offers customers a wide range of choices for future financial planning, combining the operational strength of Aviva-COFCO and our expertise in customer insights and product design.

These differentiated products have received significant attention from the market.

We also partnered with PICC life insurance to launch i Wu You - Low-Threshold Edition, a topline critical illness insurance product for sub-health individuals, at the same time, we launched Darwin Critical Care number 9, the latest customized critical illness insurance product in the Darwin Critical Care series to meet the evolving needs of younger customers.

In the first quarter, FYP facilitated by our independent financial advisers or IFA platform reached RMB127 million, a year-over-year growth of 69.9%. The number of high-performing IFRS to dos [ph] increased by 105% year-over-year.

In our direct-to-consumer or DTC segment, we successfully achieved more than 16,000 sales conversions in the first quarter through various promotions, marketing, content and customer engagement activities.

In addition, we expanded our presence in the Hong Kong market to satisfy the demand for premium insurance products and services of high-value customers. In the first quarter, overall momentum of mainline Chinese visitors, purchasing Hong Kong insurance products continued, contributing 7% of our total revenue.

Leveraging our comprehensive IFA platform, high-quality lead generation and strong sales conversion capabilities of the DTC segment and successful penetration into the Hong Kong market, we have further maximized our LTV potential of our customers as respected in our high repeat purchase rate for long-term insurance products of 40.4% in the first quarter.

Recognizing the uncertainties created by ongoing industry reforms, we maintained our focus on optimizing operational efficiency with total operating expenses decreasing by 24.9%, and our expense-to-revenue ratio improving by 10 percentage points when compared with the same period last year.

Today, our proprietary AI marketing assistant has been fully deployed and utilized by our consultants and agents as we consistently make its rate improvement to each algorithm and optimize its capabilities in empowering our consultants.

We also launched a new AI power tool providing business development support to further drive the digital transformation of the industry. This tool is currently available on PC and is undergoing internal tech team for external agents.

We are committed to expanding the functionality of our insurance AI products, which will uniquely be positioned us to meet customers' demand for personalized content and services, support distribution partners in improving productivity and address insurance carriers' needs for market insights and risk management.

But the insurance intermediary industry enters the era of alignment of registered and actual expenses. Huize will adapt to the new regulatory and operating environment while continuously improving its core competence and efficiency to maintain an industry-leading position.

Looking ahead towards strategic sources will remain on customer insurance product innovation for our targeted demographic subsegment, platform efficiency and productivity improvement, driven by our investments in proprietary AI capabilities.

International expansion and digitalization, we will continue to codevelop differentiated products with our insurer partners, optimize our organizational structure to enhance operating leverage, and Huize cost controls to ensure long-term sustainable profitability.

We will also expand our customized product offerings and distribution capabilities in Hong Kong, while actively pursuing opportunities in emerging markets of Southeast Asia.

Finally, we will accelerate the integration of our AI product through our entire insurance service team to empower our partners such as insurance carriers, IFAs and distribution channels. This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr.

Ron Tan, and he will provide an overview of our key financial highlights for the first quarter..

Thank you, Mr. Ma and Harriet, and good morning, everyone in Asia, and good evening for those in the U.S.

We're very pleased to report that the total GWP facilitated on our platform during the first quarter of 2024 has increased by 38% sequentially amid challenging industry landscape to over RMB1.7 billion as the overall market landscape and macro-economic recovery gradually improved.

This growth has been largely driven by our omnichannel distribution platform model and a diverse range of product offerings that are attracting new high-value customers and enhancing existing customer engagement as well as the increasing contribution of international revenue from a successful expansion into the Hong Kong market since the second half of last year.

We're also pleased to announce the sixth consecutive quarter of portability. Our sustainable profitability further ascertains the effective execution of our key business strategies, Firstly, we have maintained our strategic priority on long-term insurance products, which contributed to over 90% of our GWP in the first quarter.

Secondly, our open platform continued to empower the independent financial advisers or IFA with our omnichannel distribution network, diversified product matrix and advanced AI productivity tools. FYP generated by our IFA platform reached RMB127 million in the first quarter of 2024, which is up significantly by 70% year-over-year.

Thirdly, we further deepened our customer engagement in our direct-to-consumer segment. In the first quarter, the repeat purchase ratio for our long-term insurance products has increased by 4.5 percentage points year-over-year to 40.5%, which reflects our relentless efforts in exploring the long-term value or lifetime value of our customers.

Finally, we leverage our proprietary AI solutions to further streamline our operations and further enhance our operating leverage as evidenced by the further improvement in our expense ratio. As we look at our operational results, I want to highlight several key achievements that drove our strong performance in the first quarter.

One, FYP more than doubled sequentially to approximately RMB857 million. Two, the quality of our renewal business remains solid. And as of the end of February, our 13th and 25th month persistency ratios for long-term life and health insurance products remain at industry-high levels of over 95%.

And third, the average ticket size for our long-term savings products has increased by 58% year-over-year to reach RMB69,000 in the first quarter of 2024, which is a record high for our platform, demonstrating the progress that we have made in upselling our existing customer base and increasing contribution from premium product sales in Hong Kong market.

These highlights are just a few examples of a high-quality customer profile and success in capitalizing on the lifetime value potential of our customers. In the first quarter, we sustained our market-leading position in long-term insurance products.

FYP for long-term health products increased by 12% sequentially to approximately RMB100 million, while FYP for our savings products surged 1.6x sequentially to approximately RMB600 million. And we will continue to pursue a balanced mix between long-term health and savings product categories to satisfy evolving customer needs.

At the same time, we further diversified into customized P&C insurance products to create new revenue streams with FYP from this business increasing by 74 percentage points sequentially to approximately RMB151 million.

Apart from strengthening our market share in China, we remain committed to capitalizing on the long-term digitalization opportunities of Asia's insurance industry.

We further expanded our presence in Hong Kong through the expansion of our team in Hong Kong and the promotion of high-value products to capitalize on a robust MCD demand from higher LTV customers. Total international revenue contribution from Hong Kong increased to 7% in the first quarter of 2024.

We are also proactively identifying growth opportunities in markets with supported demographics in Southeast Asia to replicate a proven business model in China.

By developing new revenue streams and strengthening brand awareness and recognition internationally, we are confident that we'll be able to grow international revenue contribution to double digits this year.

Meanwhile, our omnichannel distribution platform capabilities and our proprietary AI products have help enhance our customer acquisition and engagement capabilities and streamline our operations to improve efficiency.

We have net added more than 220,000 new high-quality customers to the ecosystem in the first quarter, increasing the total customer count to over 9.6 million as of the end of March. In the first quarter, our total operating expenses continued to decrease falling by 25 percentage points year-over-year.

Our operating expense ratio further improved to 26.2% in the first quarter of 2024 from 36.2% a year earlier. And as at the end of March, our financial position remains solid with a combined balance of cash and cash equivalents of RMB281 million.

Moving forward, we'll continue to leverage our deep customer insights and our own proprietary AI model to enhance product innovation and create additional upselling opportunities.

We'll leverage on our omnichannel distribution platform, which product offerings and advanced technological tools to enhance customer acquisition and engagement by insurance agents and IFP partners.

We will remain a laser-like focus on driving further improvements to operating efficiency by optimizing resource allocation and deploying AI solutions to ensure profitability sustainably. We will also strengthen our overseas expansion efforts to explore opportunities in new markets.

In summary, we are optimistic about the outlook of 2024, and we currently maintain our outlook for a non-GAAP net profit of RMB 60 million [ph] for the full year.

We're 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 via our data-driven and AI power solutions. And with that, we will conclude our opening remarks and open up the call to questions.

Thank you, and over to you, operator..

[Operator Instructions]. Our first question comes from Zeyu Yao from CICC. Please go ahead..

So, my first question is related to the health insurance. So, we want your observations how has -- the recent demand of short-term and long-term health insurance products. What's the customer [indiscernible] such products.

Can we see a tendency of consumption downgrades? And how you see online health insurance future? And my second question is, as we see fee regulation is moving on, many insurance brokers from they face the challenges the group this strict regulation period. And they have taken actions to avoid a sharp decrease of their revenue and profits.

We just want to know in terms of the mainline business from short term maybe 2024, what's your cost strategy and from the view of long term, what measures will you take to ensure our sustainable growth?.

Okay. Thanks, Zeyu for your two questions. Let me address these two questions one by one. With regards to the first question on the demand for long-term or short-term health products. I think we are seeing similar trends in the first quarter in line with the broader market.

I think as we have seen in the broader market this category continues to be quite weak in terms of the recovery. Although we did disclose in our opening remarks that we have seen sequential growth in our long-term health product segment in the first quarter.

I think we have quoted actual numbers here, whereby our long-term health products have achieved FYP of $96 million in the first quarter, which increased sequentially by 12%. I think this is a demonstration of how we have been always at the forefront of product innovation to adapt to changing consumer behavior or budgets or preferences, if you will.

Obviously, in a macro downturn where by consumer demand for reimbursement type products or production-type products continue to be relatively weak as compared to savings products, which are the key focus for consumers right now.

So, I think going forward, in terms of health products, we will continue to be very focused on the innovation of products as we have also delivered recently, cooperating with a bigger brand insurer, for example, PICC. In April, we have launched the new Darwin product which is targeting some optimal health groups.

So further to expand the addressable market from what the industry has been kind of selling to previously over the past 3 years to 5 years, where, for example, critical illness products have been relatively well marketed and saturated and then the further production gap that customers or consumers require in the product market will be satisfied by way of more targeted customized products which will require innovation from us to [indiscernible] the insurance carrier partners.

We also see that there's a bifurcation in terms of product demand. We see that in the premium segment, in the middle to high-end segment demand continues to be there.

So, I think going forward we'll also like to focus on product innovation together with the insurance carrier partners on how to come up with a better product to suit this premium market where the FYP is in the middle of the low thousands 3,000 to 5,000 kind of range, short-term help us with guaranteed renewals features for medical reimbursement or inpatient type categories.

So, I think that will be the answer to your first question. With regards to the second question, which is really the topic of the day, the so-called [indiscernible] regulation impact on the brokers and agencies industry. I would like to say a few points here.

I think, first of all, as demonstrated in our Q1 results, we have been very resilient, if not quite particular in terms of adapting the changing environment, FYP has increased sequentially and year-over-year, which we do believe we have been far outperforming the broader or traditional insurance brokers or agents in China.

And that's really thanks to the omnichannel platform model that we have whereby we are more reliant on platform in terms of lead generation versus entrenched agency force-led type of business development for the more traditional players in the market. So, I think that is one key point I'd like to make.

Second point is that on the cost side, as you have asked, you have seen that we have continued to improve on our efficiencies as demonstrated by our continued improvements in expensive income ratios across the operating and selling expenses categories.

And that's really a demonstration of the ability for our platform, our business model to develop business growth with less head count and also the fact that we are technology enabled, the fact that we have AI products that really are contributing to the efficiency gains throughout the business processes.

So that is another point that I'd like to make with respect to encountering the regulatory pressures on the cost side. And finally, I think that the key differentiating factor that our company has always been demonstrating to the market is the product innovation capabilities.

And then the fact that big brands are trusting us in terms of the digital channels for distribution is a very strong case in point, over the past 1 year. So, we have been partnering with the big brands like Ping An Health, PICC, Generali China, Aviva-COFCO.

These are all names that will resonate with the current market conditions where I think the Chinese consumers overall are preferring higher quality or bigger brand names for peace of mind when it comes to financial products and in wealth management. So, I will just stop there in terms of answering your questions. And I hope that will be clear to you.

Thank you..

[Operator Instructions]. Our next question comes from Amy Chen from Citi. Please go ahead..

This is Amy. I have some questions. The first one is on net profit. Actually, congratulations on a consecutively profitable quarter. However, we do notice that the net profit in the first quarter this year, it's actually significantly lower compared to the same period last year.

May I know what the main reason behind this? And also, on the cost of revenue, we noted that this actually picked up around over 20%. And probably due to higher channel costs. Could you please elaborate on that front? And the second question is also on [indiscernible].

Could you please -- I'm wondering if you could provide more color with respect to how this has impacted your commission level on saving-type products as well as on protection-type products. Thank you..

Okay. Thanks, Amy, for joining us again. So yes, key questions from you with regards to margin compression. I would say that's really a direct result of the regulatory changes that will be one key part of that. But the other will also be due to the fact that as you currently pointed out, in the first quarter, channel costs have increased quite a bit.

I think it was a strategic move in the first quarter to capitalize on the expected strong demand in the market for the last available savings products under the previous regulatory regime. And so that also led to quite a fierce competition among different players in the market to convert policies from this.

So that has resulted in some surge in the channel cost. And also, there's another reason for that, which will be the relative smaller contribution from our DTC segment for Q1 distribution as compared to B2C and ATC and therefore, resulting in a higher cost of revenue as a percentage of revenues in the first quarter.

We do target to improve that over the course of the next few quarters as we continue to adapt to the changing environment. So that will be the first answer for your questions.

And on [indiscernible] on the regulatory impact on commissions, I would say we are now seeing the effect on the agencies and brokerage channels starting in the second half, first quarter to the second quarter. In general, I think I would say, savings products have broadly declined in the neighborhood of 30% to 40%.

And in terms of conversion rates for the first year. For protection products, we are seeing a somewhat more resilience or less of an impact because for protection products, we have always been more focused on the so-called online products, [indiscernible] products.

So, for this type of products, we're not seeing as much of a impact on commissions as compared to savings products. But obviously, right now, in the broader market, most of the distribution on both of the products that has been bought by customers are in the savings category.

So, the decline in the commission rate for savings products have a more market impact on overall commission levels versus protection in the same concept that we are looking at the numbers right now..

Our next question comes from Kenny Lim of [indiscernible]..

Hi, Ron. Thank you, very much. First, congratulation to management on achieving another profitable quarter. So basically, two questions for him. First, could you give us more color about your expansion plan in Southeast Asia.

And how is the progress so far? Do these segments start to contribute any revenue? And second, I wanted to ask whether there is an update on your shareholder return policy?.

All right. So, thank you, Kenny, for joining us for the first time, and I appreciate your coverage. So, first question on Southeast Asia. Yes, we -- to this point, we have -- in terms of Southeast Asia, we have been in active dialogue with multiple parties over the course of the past two quarters in terms of expanding into various markets.

And the list includes, obviously, Singapore and also other growth markets like Indonesia, Philippines and Vietnam. So, we are very focused on landing on our first overseas market outside of Hong Kong in the next two quarters. But right now, Southeast Asia is still not contributing international revenues to the overall group revenues.

But [indiscernible] Hong Kong is Southeast Asia then yes, 7% in the first quarter. We will look to improve that percentage to double digits this year from both organic growth in Hong Kong as well as a new market in Southeast Asia. And the Southeast Asia expansion would most likely be an initiative under a M&A kind of buy-and-build strategy.

But we also want rollout partnerships with local groups where we have also received some reverse inquiries in terms of performing joint ventures from local groups in respective countries where they see the large potential for digitalization of insurance distribution in the respective countries and markets, and we're seeing a very fruitful dialogue in those areas.

So that will be my answer to your Southeast Asia question. The second question on shareholder returns. I think we are we are planning to -- in the next 2 years to 3 years to return the capital to shareholders by way of dividends. So, we are planning ahead on setting up the right structure to enable this dividend distribution.

But for 2024, I think that would be unlikely. I think it's more probably in the next 2 years, 3 years kind of horizon that we will be looking to initiate our dividend policy. So that will be my answer to your questions, Kenny. Thank you..

Thank you very much. This concludes our Q&A session. Now I hand back to Harriet for closing remarks..

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

Thank you very much..

Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect..