Earnings Call: Q2 2021

Sep 9, 2021

For standing by, and welcome to the Huiza Holdings Limited First Half and Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, we will have a question and answer session. Today's conference call is being recorded and a webcast replay will be available. Please visit Moise IR website at ir.hueice.com under the Events and Webcasts section. I'd now like to hand the conference over to your speaker, host for today's conference, Ms. Harriet Foo, Toys R's Investor Relations Director. Please go ahead, ma'am. Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the first half and second quarter of 2021. 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. Sun Jin Ma COO, Mr. Li Yang Co CFO, Mr. Minhan Xiao and Co CFO, Mr. Ronald Ken. Mr. Ma will start the call by providing an overview of the company's performance and operational highlights for the first half and second quarter of 2021. Mr. Chen 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 half and Q2 2021 earnings conference call. We achieved record results in the first half, which is particularly commendable given the challenging environment we currently face. Total gross written premiums facilitated on our platform increased by 72.7 percent year over year to RMB2.06 billion, well above the industry average growth in the first half. And total operating revenue nearly doubled to RMB950 1,000,000. In the Q2, most life insurance companies reported year over year declines in GWP due to seasonality from jumpstart sales at the beginning of the year and the statutory definition change of critical illness. Nonetheless, we have demonstrated strong resilience in our operations during this traditionally slow season, with total GWP amounting to RMB670 1,000,000 in the 2nd quarter, sustaining a double digit growth year over year. Apart from the robust growth in total GDP and operating revenue, our cumulative number of insurance clients and insured clients reached $7,200,000 $60,300,000 respectively. I would like to further emphasize the differentiation of our user profile and how this could benefit our business. In the first half, about 72% of long term insurance customers were from higher tier cities with an average age of 33 years old. In terms of 1st year premium, the average ticket size of our long term insurance product has maintained at a relatively high level of RMB4332 in the first half, while the average ticket size of our savings insurance products has reached RMB28,439 in the first half. Moreover, in the first half, our persistency ratios for long term life and health insurance in the 13th 25th months have maintained at about 95%. We believe these indicators highlight the strong thickness and high lifetime value of Huizi's customers. In the first half, DWP for long term life and health insurance products accounted for 95.3% of our total DWP. DWP. This not only demonstrates our competitive edge in both sales and service capabilities among China's online insurance platform, but also proves our prominent position in long term insurance products after years of operation. Our strategic focus on distributing long term insurance products can help extend the reach to customers through virus services and the multi dimensional user data and increased precision of our user profile will be strategically important for us to optimize our customized products, improve our service capabilities and build our ecosystem. At the same time, we have further expanded the depth and breadth of our product coverage with the diversified product portfolio, including protection, savings insurance and retirement planning products, covering the entire customer lifecycle, thereby tapping the value of existing markets and exploring the growth potential from new markets. It's worth mentioning that our savings insurance, including annuity and long term life insurance, contributed to 23.6% of 1st year premium in the first half, increasing from 17.1% over the same period last year. Product innovation is one of Huizi's core competencies. In the first half, we continue to make progress on new product design and innovation. As a result, GWP for co developed insurance products accounted for 55.1% of total G rupee, increasing significantly by 14.3 percentage points from the same period last year. In April, the CBIC issued a guidance that emphasized the personalization, differentiation and customization of insurance products. This signals that the customization of insurance products will be a major trend moving forward, and we believe that insurtech capability is the key to drive product customization. For example, we have recently partnered with Sun Life's Everbright Life Insurance to launch Everbright Smart Choice, a retirement annuity product. When developing this product, we identified numerous pain points in the market and resolved them 1 by 1 through our long accumulated user data and the machine learning algorithm. At the same time, we used AI technology to estimate the combination of premium rates and terms and conditions of the product that best be of client's interest, thereby creating a comprehensive and innovative product that stands out in the market. Finally, our online marketing strategy has significantly reduced the promotion cost of our products, enhancing our price competitiveness over other mainstream offline products. On top of product customization, we are also committed to enhancing our service capabilities. We believe that insurance industry has moved to a quality and sustainable growth space and the traditional business model of relying on numerous insurance agents has reached an inflection point. Further, future competition in the industry will focus on solving problems and creating value for customers. Since the beginning of the year, we have been exploring and building a value added service system to provide users with online consultation, early cancer screening and other health management services. In July, we partnered with Sunpro to launch immune cell cryopreservation as a value added service to meet demand for high end and diversified healthcare services of millennial customers. We believe such services throughout the duration of the policy will not only increase the core competitiveness of our platform in the marketplace, but also help us to create longer term engagements with our users and maximize their lifetime value. Digitalization and technology are the core strengths for the development of the Hui Ze 3.0 era. We believe that embedding technologies such as data analytics and AI into key business processes will help improve the operating efficiency and risk management capability of our platform. Our calculations show that AI proposal application has many possible to save up to 83% of our consultants' time and the average time needed to complete a transaction has been halved. Our technology has also been critical to our platform's regulatory compliance with our AI driven quality assurance system enabling us to achieve full coverage of consultant conversation inspection through NLP technology. This has significantly improved our quality assurance efficiency by over 80 times and accumulated over 200,000,000 lines of conversation data. Finally, I would like to share with you an important milestone in our O2O integration strategy. We have entered into a MoU with Shein's Life and General to acquire a controlling interest in the company. We believe Xian's life and general has accumulated deep customer insight in the mass affluent life and health insurance market, Leveraging its robust sales team of professional industry veterans, extensive coverage and experience of serving clients. Chen's Life and General greatly complements our last mile offline presence, allowing us to provide products and services both online and offline, which will further improve the market presence of our customers' products and enhance the brand awareness of Huizhou. We intend to utilize our digital capabilities to empower chains like Angenor, accelerating the establishment of our open insurance product and service platform, covering sales management, product offerings and backend support with the aim to significantly enhance the efficiency of traditional insurance operations. We look forward to the business expansion and realizing revenue growth synergies beneficial integration. This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ronald Han, who will provide an overview of our key financial highlights for the first half and second quarter. Thank you, Mr. Ma and Harriet, and hi, everyone. We are very pleased to report a set of record first half operating and financial results in terms of both total growth within premiums or GWP facilitated on our platform as well as total operating revenues. In the first half of twenty twenty one, total GWP amounted to RMB2.1 billion, representing a very strong growth of 70 0.7% year over year. 1st year premiums or FYP accounted for RMB1.2 billion or 57.9 percent of total GWP, which has doubled from the same period of last year. Renewal premiums accounted for RMB868 1,000,000 or 42.1 percent of total GWP, representing a year on year increase of 45.4% in the first half. And as of the half year mark, we have already achieved over 2 thirds of the total GWP for the entire year of 2020 and almost 80% of total revenue for last year. In the Q1 of the year, we recall that we have capitalized on tremendous market demand for critical illness products by consumers by taking upon a more aggressive approach on marketing spend and customer acquisition strategies, which has resulted in a very strong 2.2x growth in FYP in Q1 as well as the acquisition of many high quality users onto our platform. With average FYP per policy of over RMB 4000. For the 2nd quarter, as we have expected it to be a relatively slower quarter due to seasonality as a result of the Jumpstart sales campaign in Q1 and also expected softness in the critical illness product segment after the absorption of pent up demand in the Q1. We are therefore strategically focused on the marketing and distribution of savings insurance products, including our customized endowment life insurance and annuity products, which we have co developed with our insurance carrier partners. As a result of our strategy, we have maintained a healthy growth in total GWP of 12% year over year to RMB668 1,000,000 in the 2nd quarter. This was driven by the robust year on year growth in renewal premiums of 32%, which again is a testament to the high quality of the users that our platform is able to attract and acquire through our marketing channels, as evidenced by the consistently high 13 month 25 month persistency ratios of over 95% that we have achieved during the Q2. As for FYP, although in the Q2, we saw a modest 5% decrease year over year, mainly on the back of a slow pickup in critical illness market demand, we were still able to drive through very strong growth in the distribution of savings insurance products, which has accounted for 38.2 percent of total FYP distributed in the 2nd quarter. Another highlight with respect to the Savings Insurance Product segment is that 31% of the FYP in Savings Insurance was contributed by repeat purchases from existing users on the platform, which again speaks to the high quality of a 7,000,000 plus user base. And in particular, the high LTV or lifetime value potential of our users, given the high average ticket size of over RMB28000 that we have achieved in distributing our savings insurance products. We are continuing to see very strong momentum in our savings insurance product segments going into the 3rd quarter, which again will greatly complement to our overall FYP and top line growth for the rest of the year and also becoming an increasingly important contributor to our general diversification in our revenue and overall product portfolio. Now turning to the financial line items. Total operating revenue for the Q2 was RMB218.6 million, which is a slight decrease of 7% year over year. The decrease was primarily due to the 5% decrease in FYP facilitated, as we mentioned earlier, which totaled RMB303 1,000,000 for the quarter, but offset by the strong 32% increase in renewal premiums, which amounted to RMB364.8 million in the 2nd quarter. Operating costs for the quarter increased by 8% year over year to RMB152 1,000,000, which is primarily due to increased customer acquisition and channel costs. Selling expenses for the quarter increased by 62% year over year to RMB77,900,000 mainly attributable to increased salaries and employment benefits due to the increase in sales and marketing headcount as well as an increase in advertising and marketing expenses, which is offset by a decrease in share based compensation expenses. Selling expenses as a percentage of total operating revenue for the first half, however, has decreased from 20.9% last year to 16.2% this year, representing a 4.7 percentage point improvement year over year. G and A expenses for the quarter decreased by 7% year over year to RMB43.5 million, primarily due to a decrease in share based compensation expenses. The G and A expense to revenue ratio also decreased to 9.9% in the first half of this year from 17% in the same period of last year, resulting in a 7.1 percentage point improvement, which is a reflection of the overall operating efficiency and leverage that we have demonstrated. During the quarter, we have continued to invest heavily in our technology upgrades for our core platform And R and D expenses for the quarter grew by 104.3 percent year over year to RMB25.7 million, which was mainly driven by an increase in technology investment and the related number of R and D personnel increase. Overall for the quarter, we have recorded a GAAP net loss of RMB77 1,000,000. We continue to maintain a robust liquidity and a strong financial position. As of quarter end, we had a combined balance of cash and cash equivalents of approximately US67 $1,000,000 And coming to our official guidance, we currently expect total operating revenue for the full year of 2021 to be approximately RMB1.7 billion, which represents approximately a 40% growth rate year over year. This forecast reflects the company's current and preliminary views on the market and operational conditions, which are subject to change caused by various uncertainties, including those related to the ongoing COVID-nineteen pandemic globally and also any recurring rates of infections in China. With that, that concludes our prepared remarks for today's call. We'll now turn the call over to Ladies and gentlemen, when asking the question, please state your question in Chinese first and then repeat your question in English We have the first question from the line of Michelle Ma from Citi. Please ask your question. Space. So just wondering what's the impact on our 2B channel? And the second question is about our future strategy. So we have obviously a large amount of cash on balance. So do will we have any like new initiatives regarding future business strategy, especially we mentioned before that we want to strengthen our 2C channel previously. So it's still going forward. Thank you. Okay. Thank you, Michelle. It's Ron here. Let me take your questions. So the first question regarding regulations, I think the market has obviously been quite concerned overall, not just in our industry, but also across various sectors on the recent wave of government regulations coming out to the market. So I think in particular with relating to the insurance industry or the Internet insurance industry, particularly where we are participating in. The recent number 87 documents, the content of which is actually not any new regulations per se. It's more of a reemphasis on the implementation timetable for the underlying regulations that was actually released in December of last year and was coming into effect of this February of this year. So overall, of course, I think Quaser has a long established platform with 15 years of track record. We are very, embracive of this new regulatory regime and development because it's definitely good for the overall long term sustainable growth of the industry as a whole. And as one of the more leading and compliant platforms in the industry, I think that we see ourselves as a beneficiary of the regulatory developments. So particularly pertaining to the points relating to the regulations, I think that the regulators are more focused on misselling activities by platforms, forced bundled sales of insurance products, non compliant operations during the business processes and so forth. So I think given that we have been adapting to the changes since last year or late last year, we have already taken in a complete and comprehensive review of our operations so that we have established the relevant rules and policies with respect to our own self operated activities as well as the other channels that we cooperate with to make sure that all the content that are marketing materials that will be delivered to the marketplace, which will be consumed or read by the users to be compliant from a regulatory standpoint. And also I think that on a reselling or product pricing perspective because that we have always been more focused on the higher than long term health products. We are less involved with the short term medical or reimbursement kind of insurance products, where I think most of them is selling risk may fall into. So I think that overall as a conclusion, I think that we are very well coped as a platform to manage through these regulatory changes as we don't see any particular material impact on the business as a whole. So going on to your second question on the cash balance and our potential use of this cash resources, I think that we have obviously just announced the Shens Life and General acquisition and overall that will be a very important element to accelerate our online to offline integration strategy as our CEO mentioned in his prepared remarks and also to make sure that we have be able to deepen our engagement with our customers and to able to generate more lifetime value through the additional offline coverage or in person interactions with these customers. So M and A will definitely one of the potential areas where we can deploy our cash resources. Secondly, I think that we're also very focused on implementing and executing on our new open platform strategy, which we are still in the very early stage and which will require additional capital with respect to increasing our investment in the core platform and technology and that is reflected in our continued investment in R and D since we have Lipidistant as an IPI IPO. And thirdly, I think that we'll also be increasing investments in our branding and marketing to further improve our 2C business and to be able to generate more traffic to the platform on an organic basis. I hope that answers the questions, Michelle. Thank you. Thank you. We have the next question from the line of Edwin Liu from CLSA. Please ask your question. So it's good to see that the safety insurance has accounted for a larger portion of the FYP. So I just want to understand more about the details of the savings insured. In particular, if we are to calculate take rate with the denominator as FYP, what would be the take rate level for the savings insurance? And also, if we calculate the cost of revenue percentage of the brokerage income for the savings insurance, what would be the level, especially if we compare to other type of products like the long term health insurance? Thank you. Okay. Hi, Edwin. Thank you for joining the call again. So on your question on our latest development on the saving insurance products, I think that, first of all, I think it's very encouraging to see that we are making headwinds head rates into scaling up this portion of the portfolio, not only because of the weakness or softness in critical illness, as we all know in the market, but also as a long term strategy for us to extract further LTV from my existing users. And also we have touched upon the relatively high proportion of repeat purchases of savings insurance products from existing users. So I think that that is a very good reflection of our overall business strategy and it's working out fine. With respect to the take rate or commission rate, I think that I think to put it simply, take an example for our latest endowment life insurance product. I think you're looking at roughly around 10 to 20 percentage points commission rate a bit lower than your typical customized long term critical illness products. But I think you need to bear in mind also that the average ticket size for these products is quite a lot higher than critical illness products. So I think we've been telling the market and disclosing to the market that on average the CI products we distribute carries around a 4,000 ish kind of RMB ticket size on average. But now we're seeing that the average savings insurance products are going at around RMB28000. So I think despite the relatively lower take rate, if you will, but the overall economics accretion to our P and L or to our revenue line is actually quite promising. So I think that would be the answer to your commission rate or take rate question. In terms of cost, I think that if you look at our Q2 results versus our Q1 on a quarter on quarter basis, you can actually see that there's a 5 percentage point improvement on our gross margin. So I think that also is partly due to the reasons I stated above. We have the next question from the line of Alan Feng from Morgan Stanley. Please ask your question. I have two quick questions for management today. So first, should we continue to expect an increase of mix for savings products in the upcoming quarters given that the a lot about a lot about the O2O synergies between Life in General Agency and your core business. Could you maybe just elaborate and give us a few examples? Thank you. Okay. Thank you, Alan. Thanks for joining the call again. So two questions here. I think the first question on the proportion or contribution from our savings insurance products going forward in the second half this year. I think you're very correct to point out that it's very likely that we'll see an increasing proportion of contribution from savings products in the Q3 and Q4 due to the overall market sentiment around the CI products. And also I think the consumers right now as a whole is definitely more geared towards consuming life insurance or annuities products. So I think you can also see that we have recently just launched the new retirement annuity product with Sun Life Everbright. So I think that's a very good example of how we are constantly adapting to market changes and also leveraging on our product development expertise to co develop work with our insurance carrier partners. I think that the endowment life insurance product that we have co develop with Hong Kong Life has been doing very well in the 2nd and third quarter. And we are already seeing I think we can also disclose on this call that we are also seeing already a sequential growth, quite strong growth in this area. So I think we can expect that there will be a meaningful increase in the contribution from savings in the 3rd Q4. However, I think that the critical products should come back to life, if you will, towards the end of this year. We are also gearing up towards launching a new product in this phase, probably towards the back end of this quarter or next quarter. And I think with the new product launch, we should also be able to drive improved sales in this area, given that we have a more innovative and probably more market friendly product design features, so that we can encourage ourselves, our own consultants, also our channel partners to market and distribute this new product. With respect to the potential integration revenue synergies with the offline agencies at Shem's life in general that we have targeted, I think that there are a few things that we can probably look forward to. I think the most important thing is that we are able to leverage on the offline presence to serve our customers on the offline context. So not just that we can see them face to face, we can further deepen the engagement with them to understand more about their needs and the family's needs and therefore to have a more insightful customer profile which will feed back to our own consultants for cross selling and upselling opportunities. The other thing that we can also divide synergies from is because the comprehensive suite of products that we have on the Playtech platform, we are also be able to provide to this offline partner on an immediately on an overnight basis so that we can empower them with a full suite of products. As you probably understand, typically in China, for these regional agencies, they suffer from a rapid lack of product supply from the mainstream insurance companies and also they probably receive less favorable commissions of treatment from the insurance carriers. So by plugging into the Huizhou system, obviously, we can impart them on the product supply. We can also empower them on our digital platform and digital tools to increase the efficiency of the offline agents, therefore to improve productivity further on a per agent per month basis. So I think that will be the overall concept they are looking at with respect to this acquisition. Hope that's clear. Thank you, sir. Can we go ahead and move to Yes, please. Thank you. We have the next question from the line of Preet Singh Bhat from CIBC. Please ask My first question is about the savings products. We can see an increase in the proportion of savings products. What percentage of selling products are from existing customers? The second question is, have we seen the drop of CEC due to the headwind posted to online education industry in the second quarter? Thanks. Okay. Thank you. Thanks for joining the call. Two questions here. First question was about the savings product. How much of the FYP is coming from existing users? So I think we have actually touched upon this earlier. We see that in the Q2 around 31% of our savings product is coming from repeat purchases on our existing users on our platform who have purchased a policy with us before. So that's the answer to the first question. And the second question on the traffic cost trend, vis a vis the overall headwinds facing the education or the ad tech sector. I think that what we have seen here at Quaser is that we do not see perhaps we have a very different marketing strategy than maybe our peers and the target customers that the EdTech sector look at is probably not exactly the users that we're targeting. So we do not see a material or obvious impact on where we see cost of acquisition on our platform. Thank you. Thank you, sir. At this time, I would like to hand the call back to the speakers for any closing remarks. Thank you. Hi. Thank you. Thank you, operator. Thank you, everyone. So we would like to thank you all for joining the call today. And if you require any further information, so please feel free to reach out to us. Thank you for joining us today. Thank you. Thank you, sir. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.