Huize Holding Limited
Q4 2020 Earnings Call Transcript

Published: 10 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Huize Holding Limited’s Fourth Quarter and Full Year 2020 Earnings Conference Call. Today’s conference call is being recorded, and a webcast replay will be available. Please visit Huize’s IR website ir.huize.com, under the Events and Webcasts section. Now, I’d like to hand the conference over to your speaker host today, Ms. Harriet Hu, Huize’s Investor Relations Director. Please go ahead, Harriet.

[Harriet Hu:]

Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the fourth quarter and full year of 2020. Our financial and operating results were released earlier today and are currently available on both our IR website and the Newswire.

[Cunjun Ma:]

[Harriet Hu:]

Hello, everyone, and thank you all for joining Huize’s Fourth quarter and Full Year 2020 Earnings Conference Call. 2020 marked an important milestone for Huize. We are officially listed on NASDAQ despite a challenging capital market condition, due to our Huize as 1 of the pioneers in China’s online insurance industry. In February, the pandemic was at its work in China. And it was not an easy task for us to complete our IPO. Therefore, I would like to express my gratitude to all shareholders and investors for your support and trust. Despite the uncertain macro conditions throughout the year, we delivered robust results due to our years of experience in the insurance industry, the competitive advantages of our online platform business model, unique focus on long-term insurance product distribution and our leading digital development capabilities. During the year, total GWP facilitated on our platform increased by 50% year-over-year to RMB 3 billion, while total operating revenue increased by 22.8% year-over-year to RMB 1.22 billion. Particularly in the fourth quarter, we capitalized on the recovery trends in the industry and overall economy, with both total GWP and total operating revenue increasing by more than 50% year-over-year, to reaching new quarterly highs. On the business strategy front, Huize pursued the long-term development of user value in place of short-term traffic monetization. Our differentiated long-term insurance product strategy enhanced our resilience during the market downturn and generate sustainable growth momentum. In 2020, long-term life and health GWP accounted for 93.4% of total GWP, increasing from 87.4% in 2019. Meanwhile, GWP for long-term health insurance increased by 50.6% year-over-year to RMB 2.14 billion. Over the past 3 consecutive quarters, persistency ratios for long-term life and health insurance in the 13 and 26 months have remained about 94%. We believe that Huize’s capabilities in online acquisition of high-quality clients as well as its higher client retention of both economic modes, which are difficult for our competitors to replicate.

[Ronald Tam:]

Thank you, Mr. Ma and Harriet, and hello, everyone. It’s Ron here. In summary, we are very excited to report yet another strong set of results for the fourth quarter, in which we have delivered record quarterly numbers again for both total GWP facilitated on our platform as well as total operating revenues, which has beaten our previous guidance given to the market.

[Operator:]

Your first question comes from the line of Michelle Ma of Citigroup.

[Michelle Ma:]

My first question was about the new critical illness product and the new definition of critical illness. And how the prices of new products compared to the old version? Is it still very competitive? And how are the overall sales in February? And the second question is about some new regulations, which will be implemented this year and the next year on February 1, May 1 and January 1 next year. What are the biggest challenges management see to be comply with these new regulations?

[Ronald Tam:]

Thank you, Michelle. It’s Ron here. Let me take the questions for the team. So the first question regarding the new critical illness product. I think it’s very early to say, given that we have just launched the new Darwin #5 literally today, so results are still yet to be seen. But we believe that the new product, obviously, we would like to say that given that this is another intuition of the product. And again, this time, we are working with Sinatay Life Insurance. We believe that the new products should be able to drive sales, probably in the second half of this year. And for any new product to be coming online, it would require a period of marketing and education for the insurance clients at large through our direct channels and also through our -- through the marketing channels. So I think it’s still very early days to tell. But we are obviously very confident that the new definition product would also be very well received by the market. So the strong numbers that we have previewed for Q1 is mainly coming from the old definition product, which we -- early in the prepared remarks. We commented that the slower demand coming from Q4 into Q1, especially given the deadline of January 31 for both of the products in the market, we see a significant demand in that month of January. So that’s really the answer to the first question. And to the second question regarding regulatory changes, I would say that given where we are in the industry as 1 of the leading operators, we are in very constant dialogue with the regulators. And in actual fact, we are 1 of the consultative members on the Board of the relevant regulatory bodies in terms of coming up the dropping of the relevant policies or the new regulatory measures. And so to that effect, I think that we are already anticipating such changes. And I think most of the regulatory changes focused on making sure that the sales process of insurance products are done in the compliant way. And for example, they’re now requiring that all conversation or all interactions with customers could be tracked and to be provided on to the client on an as required basis. And to that effect, we are very proud to say that we have already an online system that would be able to achieve this requirement so that clients can request for any records of conversations they have with our consultants. To the other point on the regulatory changes, for example, they are now requesting or setting some certain requirements for insurance companies itself to meet in order that they can provide insurance products online. For example, core solvency ratio, requirements, credit rating requirements for 4 consecutive quarters. And these requirements or these new measures will come into effect in the new year, next year. And I think that the regulators are given adequate time for the industry participants, both on the insurance company side as well as the insurance brokerages like ourselves, to adapt to the new changes. And for the insurance companies, I think that they were very likely to undertake matches to strengthen the capital basis, strengthen the balance sheet in advance for these new measures to come into effect. So overall, I think that the industry is hoping with the changes. And I think as 1 of the leading players in the market, we are very well positioned to manage these changes. That’s the answer to the second question.

[Operator:]

Your next question comes from the line of Joey Yang of CLSA.

[Joey Yang:]

So my first question is about the products. So we understood that the Darwin #5 officially launched today. And we also understood that with AI platform that sells out the products that are not customized. So could management help us understand the difference between the 2 types of products, which 1 could offer us a better profit margin? And is there a preference between the 2 types of products? So my second question is about the take rate in 4Q. We noticed that there was a slight decrease in 4Q compared with previous quarters. And at the same time, we also see that the structure of the premium -- the first year premium actually accounted for like 60% of the 4Q premium. So I was wondering what’s the driver of the decreasing take rate in 4Q? Is it because of selling of more short-term insurance products? And my last question is related to the off-line services centers, as Mr. Ma has mentioned, I would like to ask about the latest progress of this offline services development. And also about what’s the selling point or was our -- we obtain to attract the talented -- the talent employee to our offline servicing centers?

[Ronald Tam:]

Thank you, Joey. Thanks for following us and for your questions. Why don’t I take the questions on behalf of the team again. So the first question is really about the product mix of our GWP and whether we have any preference towards customized or co-developed products versus the standard product that we can take off the shelf like other brokers. I think the clear answer here is that, first of all, I think that we always come from the customers perspective. The first, which for is the best suitable product for their circumstances. And I think typically, when users come to our platform, they’re being attracted by the very good valuable money, critical illness product that we are codeveloping with our insurance company partners. And therefore, the answer to this question naturally would be that we have a slight preference towards the customized or co-developed products that we co-manufacture with like Sinatay and the likes of Huize Med Health, because oftentimes, these products represent the best value for money products currently available at any given point in time in the marketplace. And so naturally, customers will prefer to inquire about these products. And I think from our perspective, as a corporate, we do prefer co-developed products given that we will be able to cultivate and deepen our relationships with our upstream insurance partners, deepening engage with them would, therefore, lead to better economy of arrangements for us down the road. For example, Darwin #5 is the second time that we have worked with Sinatay, and therefore, we will be looking to receive better treatment from the insurance company partners. And I think also the way that we can demonstrate to the overall industry as to our high persistencies, we give a lot of comfort to our insurer partners to partner with us in future versions of the products. And so therefore, I think that’s the overall answer to your first question. And the second question regarding the take rate. I think the explanation to this is really the particular product mix as it pertains to first year premiums in the fourth quarter. I think in the fourth quarter, we have done 21% of our first year premium fee in annuities. And we also additionally achieved 16% of our first year premiums in whole life insurance. This is an entirely new product segment that we’ve entered in the fourth quarter. And so combined, that is 37% of the first year premiums in the quarter. And typically, as I think the market and investors have come to understand the annuities typically carry the lower commission rate for the first year premium compared to the likes of critical illness or long-term life. And therefore, it’s really the product mix being a bit slanted towards annuities in the fourth quarter. In the fourth quarter and the pre-Chinese New Year period in the industry, there is the so-called time and home which is denominated in China and both insurance companies push savings related insurance products during the time. And therefore, as a brokerage company in the core, we’re naturally also aligned with the market development that we set. And therefore, there’s a higher contribution from annuity and savings-related products in the fourth quarter, leading to a slightly lower overtake rate. So it’s a product mix factor coming into play. So for the third question regarding the plan for going offline, I think I can make a few remarks here, and maybe the team would like to add on to this. I think the plan for us is to really roll out the offline presence in this new year. Last year, we mentioned about this, but then due to COVID, we were pulling back the plans. But this year, given how we are seeing strong momentum for the last 2 quarters going into the new year. I think we’re much more confident in pushing this initiative. And then a few factors I’d like to point out here. One is that the offline presence will enable us to have better interaction and better engagement with our existing user base. We have 6.8 million users right now. And obviously, we have proprietary in-house data at these users. And if we can just achieve the top 10% of this user base. And then ranking those in terms of our data, we can really have a list of high-value customers to approach. And with these offline service centers, we are able to reach out to the customers. In the first phase, I think we were very focused on the first tier cities and for the first phase of the initiative. I think we’re looking at Shanghai and Shenzhen, and probably hiring less than 100 people to really speed this new initiative. And I think for the hiring side of things, we are looking to attract professional talent from the marketplace. I think the value proposition that creates and that can pull back to this -- these consultants would be that, one, they can leverage on our online business leads to be routed to the respective offline centers, and therefore, they can use this list, and make use of this list to capture new customers. And also they can leverage on our internal user database, which I just mentioned earlier, to cultivate repeat purchases or increasing life time values for the platform. And so we’re expecting these new consultants to be delivering higher-value products to our customers and more differentiated services as well.

[Operator:]

Your next question comes from the line of Brian Li of AMTD Group.

[Brian Li:]

I have noticed that you just had RMB 100 million on the account payable on your balance sheet. So could you please give more color on this item?

[Ronald Tam:]

Sure. Thanks, Brian, and thanks for joining the call today. I think the simple answer to this is the strong month of December that we have experienced as a business. And therefore, a lot of the business has generated this account payable balance at the end of the year. So it really had to do at the strong month of December from a business perspective.

[Operator:]

Your next question comes from the line of Jan Oli of Securities.

[Unidentified Analyst:]

So my first question is about the M&A, mentioned by Mr. Ma just now. This year -- this current year, your company are going to acquire 1 more M&A deals? And my question about what’s the potential target? So my second question is still about the offline service center. So what are the main functions of those offline service center?

[Ronald Tam:]

Okay. Thank you. It’s Ron here. Let me take the first question and maybe for the second question, . Okay. So first question about the M&A targets. I think we are prioritizing our investment targets, I think, in 3 major brackets. I think the first major bracket would be possibly some of the existing channel partners that we are working with for the past 3 years. I think some of those could be interesting collaborations from a capital perspective for us to better integrate into these distribution and marketing channels. So that’s 1 area. Second area is similar online or even offline brokerages. This will be very synergistic to our core business. For online, brokerage would be a horizontal expansion for us and to capture better market share. For offline will be a complementary business strategy for online business so that we can accelerate the treatment of an online to offline business model. So I think those 2 could be the key focus for us. And the third area could be other insure tech platforms. Platforms have innovative technologies in the business processes, whether it be the front end, and just AR customer service or the middle to back-end where they have very strong technologies in terms of customer service and online support, and also underwriting and claims product and so forth. So I think this will be the major M&A target areas for us to be looking at.

[Cunjun Ma:]

[Ronald Tam:]

Thank you. That’s Mr. Ma commenting on the second question, and I’d like to translate here for the team. So the second question relating to the key strategy for the offline centers plant that we just mentioned. I think we’re echoing the points that we have made earlier, I think we are really trying to leverage on the core online platform that Huize has did over the last 15 years to more efficiently serve differentiated high-value customers for existing use of Huize. Because given we have the internal data on all our customers, we are able to extract a segment of a high-value customers for us to initially focus at serving higher-value products to this products as well as customer segment. And given that we’re still in the initial testing phase or rolling out pace of this business plan, I think we would like the market to give us time, and we will be keeping the Investor Days updated in our subsequent calls as to the progress of this new offline business plan.

[Operator:]

Your next question comes from the line of C.C. Wang of Independence Investment.

[Unidentified Analyst:]

Hello, can you hear me?

[Ronald Tam:]

Yes.

[Unidentified Analyst:]

Okay. Thank you. We understand that Huize leverage itself to tap into new users and meeting customers. But since that with the brand itself as online insurance aggregator, it’s not well-known to end users till now. Do you have anything to enhance the brand agreement to our holding? So Huize has achieved a record high financial performance, and although there was a surge of price before the recent downturn. But I think that Huize still remain a low profile to overseas investors. For example, comparing to a U.S. company eliminate a similar insurance tech company that it has only CNY 60,000 revenue. Its market cap is already like CNY 50 billion. Does Huize have any plan to lease up investors awareness and exposure to adjust the cap estimation?

[Ronald Tam:]

Thank you. It’s Ron here. I’ll take these questions for the team. And for the first question on our overall brand recognition in the market, I think we have been around for 15 years. And I think that the proud thing that we like to say about our company is that we have built on very limited capital support over the years before the IPO, on a very stringent budget, we have been able to build up this platform to where it is today. And we have been very stringy on spending on our brand advertising or marketing in the consumer space. And therefore, I think that the business model that we have devised and the way that we can leverage on social media channels as our partners has really scaled the business to where it is today and has enabled us to achieve ultimately a listing in the U.S. market. I think this itself is a very big achievement. So we -- obviously, there’s still a lot of work to be done, and we recognize that we can do a lot more on the branding side. And in the new year of 2021, I think we are now earmarking more and more funds in terms of really building up a bigger brand presence in the consumer market as well as the capital markets. So that’s the answer to the first question. And for the second question, I think that the reason why, I guess, we have been a bit under the radar over the last year has a couple of external factors at the play as well. I think when we relisted, we were very much hit by the unfortunate timing of COVID-19 at this outbreak, and we were actually the first Chinese IPO to get done after COVID broke out in January of last year. And subsequently, various things has happened as well. For example, the scandals surrounding Luckin Coffee in the U.S. market has led to a confidence crisis in the over smaller capital on Chinese ADRs in the U.S. and then the ongoing U.S.-China trade frictions has also led to a slightly depressed market sentiment towards Chinese stocks. But then you have seen that in the last 1 to 2 months, you can see the liquidity of the stock of the company has improved significantly. And I think we have to thank the overall market for recognizing the work that we have been doing at the company and the financial performance has also been leading to more and more investors being on board with our story, I guess. And we have also been doing a lot of investor out which work over the last 6 to 8 months. And we are in constant investor dialogue with a very prominent and reputable institutional investors in the marketplace. So I think that the overall recognition in the capital markets have been improving, and we will be doing a lot more this coming year in terms of Investor Relations, investor outreach, hopefully, we can bring the stock to a higher level and also to create a much better liquidity for the investors.

[Operator:]

As there are no further questions at this time, I’d like to hand the conference back to our management for closing remarks.

[Ronald Tam:]

Okay. Thank you very much, everyone, for joining this call, and appreciate the strong participation, and we look forward to the next call for the second quarter -- first quarter of 2021. Thank you very much.

[Harriet Hu:]

Thank you for joining us today. Thank you.

[Ronald Tam:]

Thank you.

[Operator:]

Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may now all disconnect.