Huize Holding Ltd. Q3 FY2024 earnings call

• Huize refined its product strategy in response to industry trends and capitalized on market opportunities.
• The company continued its international expansion efforts, with the establishment of the overseas brand Poni Insurtech in Singapore and expansion into the Vietnam market via the acquisition of Global Care.
• Leveraged AI to drive the digital upgrade of sales operations, including generating high-quality marketing materials, developing AI-powered knowledge bases and customer service tools, and introducing an AI sales assistant. These initiatives are expected to drive a 50% improvement in content production by year-end.
• The cumulative number of insurance clients served surpassed 10 million by the end of the third quarter.
• Maintained stable partnerships with 123 insurance companies and continued to introduce new tailored insurance offerings, such as partnering with CPIC P&C to launch Little Scholar accident and health insurance and with New China Life Insurance to launch the upgraded Bliss 2.0 lifetime annuity insurance.

In Q3 2024, Huize achieved strong financial results. Gross written premiums (GWP) facilitated across all platforms reached RMB 2.06 billion, setting a new quarterly record. Total revenue amounted to RMB 370 million, and net profit was RMB 18.7 million. Total first year premiums (FYP) on the platform were approximately RMB 1.35 billion, up 110% year-over-year. Renewal premiums reached approximately RMB 706 million, up 18% year-over-year. From a product mix perspective, FYP from savings products saw a 1.5-fold increase year-over-year, with whole life insurance FYP reaching approximately RMB 765 million, up 150% year-over-year. Short-term insurance GWP climbed 40% year-over-year to approximately RMB 129 million. Additionally, international business contribution to total revenue reached a new high of 19% in Q3 2024, up 8 percentage points compared to the previous quarter.

• For Q4 2024, the demand for savings products is expected to be less strong than in Q3 due to front-loaded demand in Q3 and the product transition process. The international business provides some offset, but overall Q4 is likely to be less strong than Q3.
• Guidance for 2025 FYP will be provided when Q4 2024 results are available.

• The product transition to the new regime of par products takes time, which may affect the demand for savings products in the short term.
• A decline in commission rates impacts the gross margin as the channel economics need to be adjusted to compensate for the decrease in commission rates.

Q: Congratulations on a very decent quarter, especially very strong GWP growth. What would be your outlook for the fourth quarter and also for the next year of 2025? The second question is mainly on expense-wise. First, I noticed that, actually, the gross margin has seen a little bit of pressure in the third quarter this year. Do you think that the impact of the expense rationalization in the broker channel has been fully reviewed? Or do you think that gross margin could be further pressured going on? Secondly, we noticed that the G&A expenses actually rose quite significantly and management actually attributed this to increase in rental and utility expenses. Would you mind elaborating more on this?

A: Thank you, Amy. Thanks for joining us again, as always. So with regards to your few questions, I will just address one by one. In terms of the first question on our full-year guidance for 2024, I think we would like to say that Q3 has been a very strong quarter, mainly due to a couple of reasons. And I think the most prevalent one has to do with the so-called – the adjustment of the interest rate in the China – Mainland China products relating to the savings products category. That has driven a lot of upfront demand by customers, or the overall market into the month of July and August and particularly in August. So, some of the demand has been front-loaded into Q3. And as a result, we think Q4, what we envisage is a somewhat lukewarm recovery in this particular product category on the savings side. But we do have an offsetting growth continuously in our offshore market, which is predominantly our Hong Kong segment is still seeing strong momentum in the months leading up to the current December month. So, there would be some offsetting effect on that part. But overall, we think that still given that our Mainland China business consists of the predominant share of our overall FYP and revenue as a result and therefore, we think that the Q4 quarter would likely be less strong as a quarter as compared to Q3. The other factor that we have to deal with right now is the overall product transition into the new regime of the par products, which is now being promoted mostly by the intermediaries, in particular to the brokerages like ourselves. And therefore, the change of the mind share and the mindset of the consumers from the traditional savings products into the par product, it still takes time to mature. We think that this probably is a process for the next 2 to 3 quarters. And therefore, we think that as a result as well, Q4 on the savings category, we do see that the demand will be definitely not as strong as we see in Q3. So at this point in time, we think that fourth quarter would be less strong as Q3. So, that’s the first question. The second question on gross margins. You have correctly noted that the gross margin has declined to around 27% in the third quarter, which is a slight drop from the levels in Q2. We do think that this level of gross margin has fully reflected the effect of the so-called expense rationalization on the brokerage channel or Bao Xian Fei. The regulatory effect also has to do with a decline in the overall commission rates. And therefore, as a result, because a lot of our business also is in partnerships with other distribution channel partners, right? And therefore, as a result of that, the channel economics need to be adjusted to compensate for the decline in commission rates – the headline commission rates or take rate. And therefore, the gross margin has been compressed a bit as a result of the cost structure or the economic structure for the value chain. We do see that this level should more or less be – we think that at least on the Mainland China business side should remain relatively steady going forward in the next few quarters as the full effect of the rationalization has been felt in Q2 and Q3. And on your third question on G&A expenses, we do note that on a quarter-on-quarter basis, it has trended down from Q2. And we do not expect that G&A expense to materially increase from this point onwards because we are highly focused on further optimization of our overall cost structure across our selling expenses, G&A and R&D, especially with the fixed cost base. We have a very strong and clear target to improve our cost-to-revenue ratio in this particular part of the cost structure of the company.

Q: I have one question for the management. And that's does the company have any plans or further plan on the health management industry because the commercial insurance companies are likely to have access to medical data of hospitals? And Huize has any further plan on the health management industry? And another one is about the 2025 FYP guidance. Do we have any guidance on the amount of 2025 FYP?

A: Thank you. Thank you, Ray, for joining the call. For the first question, I think the question was about whether we have plans to enter the health care services segment or the health care industry because we have a very strong focus on life and health insurance as a whole. We do have plans. Actually, we do have already established our own Internet health care platform, although the business model and business has been still at a start-up stage. I think our focus going forward will still continue to be coming up with the right customized products to tackle market pain points, especially on the consumer side because what we see that going forward is the trends that we are seeing in the health care industry, for example, the DRG reforms, which will lead to, we believe, a very strong necessity among consumers to upgrade their health care coverage with respect to pursuing commercial insurance to complement to what they have already on a social security level. So, we are setting our focus on the mid- to high-end medical health products going forward in the next 2 years to 3 years. Our plan is already – we have solid plans to come up with a customized product in the near future, probably in the next 2 quarters that would provide good coverage to our target customers in respect of these overall health care reforms that we are seeing in the industry. So, that’s the first question. Second question on guidance for full-year 2025. We do think that right now it’s a little bit early. We would be providing guidance to the market when we reach our Q4 results, which will be scheduled in a few months down the road.