Ladies and gentlemen, thank you for standing by, and welcome to Huize Holding Limited First Quarter 2024 Earnings Conference Call. 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 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, and international business footprint allowed us to deliver solid results, surpassing industry averages. 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 insurers. Amidst the implementation of alignment of registered and actual expenses and the continuous reduction of guaranteed returns on traditional life insurance, we quickly adapted to customer demand and fit the market opportunity by introducing 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 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 a low-threshold 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 adviser platform reached RMB127 million, a year-over-year growth of 69.9%. The number of high-performing independent financial consultants increased by 105% year-over-year. In our direct-to-consumer 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, the overall momentum of mainline Chinese visitors purchasing Hong Kong insurance products continued, contributing 7% of our total revenue. Leveraging our comprehensive independent financial adviser platform, high-quality lead generation, strong sales conversion capabilities in the segment, and successful penetration into the Hong Kong market, we have further maximized the lifetime value of our customers as evidenced by 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 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 improvements to each algorithm and optimize their capabilities in empowering our consultants. We also launched a new AI-powered 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 testing for external agents. We are committed to expanding the functionality of our insurance AI products, which will uniquely position us to meet customer demand for personalized content and services while supporting distribution partners in improving productivity and addressing insurance carriers' needs for market insights and risk management. As 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 competencies and efficiency to maintain an industry-leading position. Looking forward, our strategic focus will remain on customer insurance product innovation for our targeted demographic subsegment, improved platform efficiency and productivity driven by our investments in proprietary AI capabilities, international expansion, and digitalization. We will continue to co-develop differentiated products with our insurer partners, optimize our organizational structure to enhance operating leverage, and implement 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 in Southeast Asia. Finally, we will accelerate the integration of our AI products across our entire insurance service team to empower our partners such as insurance carriers and distribution channels. This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ronald Tam, who 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 a challenging industry landscape to over RMB1.7 billion, as the overall market landscape and macroeconomic 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 profitability. 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 independent financial advisers with our omnichannel distribution network, diversified product matrix, and advanced AI productivity tools. FYP generated by our independent financial adviser 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 of our customers. Finally, we leverage our proprietary AI solutions to further streamline our operations and 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. First, FYP more than doubled sequentially to approximately RMB857 million. Second, 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%. 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 we have made in upselling our existing customer base and increasing the contribution from premium product sales in the 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. 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 property and casualty 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 robust demand from higher lifetime value 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 Southeast Asia markets to replicate a proven business model in China. By developing new revenue streams and strengthening brand awareness and recognition internationally, we are confident we will be able to grow international revenue contribution to double digits this year. Meanwhile, our omnichannel distribution platform capabilities and our proprietary AI products have helped 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. As of the end of March, our financial position remains solid with a combined balance of cash and cash equivalents of RMB281 million. Moving forward, we will continue to leverage our deep customer insights and our proprietary AI model to enhance product innovation and create additional upselling opportunities. We'll leverage our omnichannel distribution platform with product offerings and advanced technological tools to enhance customer acquisition and engagement by insurance agents and independent financial partners. We will remain laser-focused on driving further improvements to operating efficiency by optimizing resource allocation and deploying AI solutions to ensure sustainable profitability. We will also strengthen our overseas expansion efforts to explore opportunities in new markets. In summary, we are optimistic about the outlook for 2024, and we currently maintain our outlook for a non-GAAP net profit of RMB 60 million 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-powered solutions. And with that, we will conclude our opening remarks and open up the call to questions. Thank you, and over to you, operator.

Our first question comes from Zeyu Yao from CICC. Please go ahead.

So, my first question is related to health insurance. We want your observations on how the recent demand for short-term and long-term health insurance products. What's the customer preference for such products? Can we see a tendency of consumption downgrades? And how do you see the future of online health insurance? And my second question is, as we see fee regulation is moving on, many insurance brokers from they face the challenges of this strict regulation period. 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 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 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 I quoted the actual numbers here, whereby our long-term health products achieved FYP of $96 million in the first quarter, which increased sequentially by 12%. This demonstrates how we have always been at the forefront of product innovation to adapt to changing consumer behavior or budgets, or preferences, if you will. Obviously, in a macro downturn, consumer demand for reimbursement-type products or protection-type products continues to be relatively weak 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 launched the new Darwin product which targets some optimal health groups. This will further expand the addressable market from what the industry has been selling to previously over the past three to five years, where, for example, critical illness products have been relatively well marketed and saturated. The further production gap that customers require in the product market will be satisfied by more targeted customized products which will require innovation from us to meet the insurance carrier partners. We also see that there's a bifurcation in product demand. We see that in the middle to premium segment, demand continues to be there. Going forward we'll also 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 low thousands, around 3,000 to 5,000. The short term helps with guaranteed renewals features for medical reimbursement or inpatient type categories. I think that will be the answer to your first question. As for the second question about the regulatory impact on brokers and agencies, I would like to make a few points. Firstly, as demonstrated in our Q1 results, we have been very resilient, if not particular, in terms of adapting to the changing environment. FYP has increased sequentially and year-over-year, which we do believe outperforms the broader or traditional insurance brokers or agents in China. That is really thanks to our omnichannel platform model, which is more reliant on platform lead generation versus entrenched agency force-led business development for traditional players in the market. So, that's one key point I'd like to make. Second point is that on the cost side, we have continued to improve our efficiencies, as demonstrated by our continued improvements in expense-income ratios across the operating and selling expenses categories. This illustrates our business model’s ability to develop growth with fewer overheads and the fact that we are technology-enabled with AI products contributing to efficiency gains throughout the business processes. That’s another point worth noting when countering the regulatory pressures on costs. Lastly, the key differentiating factor we have always demonstrated to the market is our product innovation capabilities and the trust big brands have in us for digital channels for distribution is a very strong point. Over the past year, we have partnered with major brands like Ping An Health, PICC, Generali China, and Aviva-COFCO. These are all names that resonate with current market conditions where Chinese consumers prefer higher quality or bigger brand names for peace of mind regarding financial products and wealth management. I’ll stop there regarding your questions and hope this is clear.

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. Congratulations on a consecutively profitable quarter. However, we do notice that the net profit in the first quarter this year is significantly lower compared to the same period last year. May I know what the main reason behind this? Also, regarding the cost of revenue, we noted that this actually picked up around over 20%. Could you please elaborate on that front? My second question is also regarding regulatory impacts. Could you provide more color on how this has impacted your commission levels on saving-type products as well as on protection-type products? Thank you.

Okay. Thanks, Amy, for joining us again. You raised key questions regarding margin compression. I would say that's really a direct result of the regulatory changes and also due to the fact that channel costs have increased significantly. 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. This led to fierce competition among different players to convert policies, which surged channel costs. Additionally, the smaller contribution from our direct-to-consumer segment for Q1 distribution compared to other segments resulted in a higher cost of revenue as a percentage of revenues. We aim to improve this over the next quarters as we adapt to the changing environment. Regarding the regulatory impact, we are starting to see effects on the agencies and brokerage channels from the first half to the second quarter. In general, we anticipate savings products to decline in the neighborhood of 30% to 40%. For protection products, we see greater resilience since we focus more on online products. Thus, we're not experiencing as much impact on commissions for protection products compared to savings products. However, in the broader market, most distribution still falls within the savings category, so the decline in commissions for savings products has a more significant impact on overall commission levels.

Our next question comes from Kenny Lim.

Hi, Ron. Thank you very much. First, congratulations to management on achieving another profitable quarter. I have two questions. Could you give us more color about your expansion plan in Southeast Asia? How is the progress so far? Do these segments start to contribute any revenue? Secondly, I wanted to ask whether there is an update on your shareholder return policy?

Thank you, Kenny, for joining us for the first time, and I appreciate your coverage. On Southeast Asia, we have been in active dialogue with multiple parties over the past two quarters to expand into various markets, including Singapore, Indonesia, the Philippines, and Vietnam. We are focused on landing our first overseas market outside of Hong Kong in the next two quarters. Currently, Southeast Asia is not yet contributing to international revenues, but our contribution from Hong Kong is 7% in the first quarter. We aim to improve that to double digits this year through organic growth in Hong Kong and new markets in Southeast Asia. The Southeast Asia expansion would likely pursue a buy-and-build strategy under M&A, but we also want to roll out partnerships with local groups as we have received inquiries for joint ventures from local parties who see potential for digitalization in insurance distribution. Regarding shareholder returns, we are planning to return capital to shareholders through dividends in the next two to three years. We are setting up the right structure to enable dividend distribution, but for 2024, it is unlikely. It is more probably in the two- to three-year horizon when we will look to initiate our dividend policy. Thank you for your questions.

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 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.