Huize Holding Ltd Q1 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to Huize's First Quarter 2025 Earnings Conference Call. This conference call is being recorded, and a webcast replay will be available on Huize's IR website at ir.huize.com under the Events and Webcasts section. I would like to hand the conference over to your speaker host today, Mr. Kenny Lo, Huize's Investor Relations Manager. Please go ahead, Kenny.

Thank you, operator. Hello, everyone, and welcome to our first quarter 2025 earnings conference call. Our financial and operational results were released earlier today and are currently available on both our IR website and global Newswire services. 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 Jiang; our CFO, Mr. Minghan Xiao; and Co-CFO, Mr. Ron Tam. Mr. Ma will start the call by providing an overview of the company's performance and operational highlights, followed by Mr. Tam, who will go over our financial results for the first quarter 2025. Then we will open up the call for questions. I will now turn the call over to Mr. Ma.

Hello, everyone, and thank you for joining Huize's first quarter 2025 earnings conference call. In 2025, against the backdrop of ongoing macroeconomic and geopolitical volatility, Huize upholds its customer-centric approach. Leveraging years of insights into customers' needs, we stayed ahead of market trends and are now working alongside leading insurers, continually expanding and refining our product offerings. At the same time, we are accelerating the integration of AI across our operations, driving remarkable productivity improvements and further optimizing our cost structure to lay a solid foundation for long-term value creation. In the first quarter, operating revenue exceeded RMB 280 million with gross written premiums and first-year premiums facilitated on our platform increasing 38% and 31% sequentially, reaching RMB 1.4 billion and RMB 730 million, respectively. Renewal premiums also grew 46% sequentially to approximately RMB 710 million. Huize remains committed to providing full life cycle insurance solutions for its high-value customers. By quarter end, our cumulative number of users surpassed 11 million with 390,000 new clients added during the quarter. The average age of long-term insurance customers was 35, with over 65% residing in high-tier cities where we have consistently achieved this percentage over the past few quarters. In terms of first-year premiums, the average ticket size for long-term products rose 58% to over RMB 5,400, underscoring the effectiveness of our sustainable customer strategy. As of the end of February, the 13th and 25-month persistency ratios for long-term insurance maintained industry-leading levels of over 95%. As of the end of March, we had strong partnerships with 143 insurance companies and continue to develop and launch differentiated customized products with insurer partners. With declining yields on traditional bank deposits and wealth management products, demand for wealth protection solutions has intensified. In response, we partnered with New China Life to launch Bliss No. 3, the savings products striving to achieve sustainable returns for customers. Additionally, we expanded our portfolio of customized participating products. Building on the Fu Man Jia series co-launched with Aviva-COFCO, we partnered with Cathay Lujiazui Life Insurance on Jin Man Yi Zu No.6, a participating incremental whole life insurance product. This was followed by the launch of Xing Hai Hui Xuan, a participating annuity product co-developed with Pramerica Fosun Life Insurance. These customized products were designed to cater to the industry-wide demand shift from fixed returns to floating returns, further solidifying our leadership in China's participating insurance segment. In view of our global expansion strategy, we introduced Xiao Tao Qi global, a children's critical illness product co-developed with Cigna & CMB Life Insurance that leverages overseas resources to offer global client settlement and overseas medical support. The rapid advancement of generative AI and AI agents is transforming traditional enterprise workflows and our AI strategy. We continue to enhance both the user experience and operational efficiency. We have deployed the Huize AI agent development platform internally with the goal of developing independent AI productivity. Leveraging open source AI models, we have implemented private domain deployment of large language models to ensure data security and regulatory compliance. At the same time, we are actively promoting the development of local AI agents to accelerate AI agent creation using visualization tools. This is driving the company-wide productivity revolution with AI agents acting as a new generation of digital employees. In the quarter, we have further optimized our cost structure and reduced operating expenses with total operating expenses falling by 29% sequentially. Our customer-centric approach leverages innovative technologies to deliver personalized insurance service experiences. During the quarter, we launched an AI-powered smart portal on Huize's app, offering 24/7 insurance agent support. Our AI services now cover key customer life cycle touchpoints, including policy inquiries and product matching, serving an average of over 15,000 users daily. We are also revolutionizing aftersales claims processing through Xiao Ma Claim's AI agents, achieving end-to-end automation of claims reporting, review, and payout. With AI now capable of handling our claims reporting, we are now working to expand this innovative feature to our app and mini programs. This innovation is expected to reduce processing time on Xiao Ma Flash Claim from 1 day to 1 hour upon full rollout. During the quarter, Xiao Ma Claim facilitated RMB 190 million in claims across 36,000 cases, providing customers with efficient and reliable insurance claim services. Our international brand, Poni Insurtech, continued to deliver strong growth momentum, underscoring the vast untapped potential of Southeast Asia. Our Vietnamese operation, Global Care, maintained solid traction and grew total policy count by 29% compared to the first quarter in 2024, with gross written premiums and revenues increasing by 35% and 34% year-over-year, respectively. We recently partnered with a leading logistics service provider in the region to expand our distribution network, further growing our team of independent financial advisers and enhancing the reach and conversion capabilities of the platform. On the product side, Global Care launched 5-year and 10-year critical illness insurance products in collaboration with PBI Insurance, enriching our product portfolio to better meet customers' diverse protection needs. Poni Insurtech continues to drive the transformation of the Vietnamese insurance market through innovation and marks a crucial milestone of our international expansion. We are making steady progress in expanding into Singapore and other overseas markets and are on track to achieve our goal of reaching 30% of total revenue contribution from international markets by 2026. Global macro and geopolitical conditions remain volatile. Yet insurance demand in China and across Asia stays resilient with digital adoption accelerating. Drawing on deep customer insights, AI-driven product innovation, and strong momentum in Vietnam and other Southeast Asian markets, Huize delivered another quarter of solid growth and operating agility. Looking ahead, we will widen our range of savings and have products for high-value clients, embedding our self-hosted large language model platform across the service chain to lift efficiency and experience. Internationally, Poni Insurtech will further tap into Singapore and other priority markets, keeping us on track for overseas revenue targets. Grounded in product innovation, customer experience, and AI enablement, Huize will continue to create win-win value for insurers and customers while delivering sustainable long-term returns for shareholders. This concludes my prepared remarks for today. I will now turn the call to our CFO, Mr. Ron Tam, who will provide an overview of our key financial highlights for the first quarter.

Thank you, Mr. Ma and Kenny, good evening, everyone in Asia, and good morning to those in the U.S. It's Ron here. Despite a challenging macroeconomic and geopolitical environment, we have delivered yet another quarter of resilient performance during which the first quarter for both total gross written premiums (GWP) and first-year premiums facilitated on our platform increased by 37.8% and 30.9% sequentially, reaching RMB 1.4 billion and RMB 730 million, respectively. Total operating revenue remained at RMB 284 million. Our financial position remains very robust with a combined balance of cash liquidity of around RMB 202 million or USD equivalent $28 million as of the end of the March quarter. This resilient performance was driven by our efficient omnichannel distribution network, our focused efforts to continue to acquire high-quality customers from the market, and the deployment of advanced proprietary AI solutions. Crucially, we have made significant progress in executing on our international expansion strategy, which is a key growth driver for long-term sustainable growth for the company. Our strategic focus has remained on long-term insurance products, which continue to account for over 90% of total GWP facilitated on the platform. Leveraging our robust omnichannel distribution network and advanced AI solutions, we are significantly strengthening customer acquisition and engagement, adding approximately 390,000 new customers during the first quarter of 2025. This brings our total customer base count to 11 million as of the end of the first quarter. In addition, the repeat purchase ratio for our long-term insurance products stood at a very high level of 38%, demonstrating our ability to continue to unlock the lifetime value of a high-quality customer base through effective upselling and cross-selling. We've also seen reasonable reductions in all three kinds of operating expenses ranging from 15% to 48% quarter-over-quarter, improving our expense to income ratio by 11.5 percentage points quarter-over-quarter to 29% in the first quarter of 2025. In addition, total operating expenses have fallen by 29% compared to the fourth quarter of 2024. The reduction reflects decisive actions in continued workplace optimization and broad deployment of AI-driven automation, which has sharply reduced manual workload and boosted efficiency throughout the business flow. These results demonstrate the strength of our intelligent cost control framework in delivering real cost savings and productivity gains in the business. A clear illustration of our AI-driven productivity gains is the use of localized AI avatars in marketing. These avatars can replicate a human voice and appearance in under a minute, producing highly engaging insurance content that is virtually indistinguishable from a live presenter. Integrated with our content management platform, the system now automates script generation, video editing, and distribution, creating a seamless end-to-end workflow. As a result, we are scaling our social media presence with richer, more compelling content while materially reducing production time and costs. Our international growth engine, Poni Insurtech, delivered yet another solid quarter and remains central to our long-term strategy. Building on the success of our proprietary AI toolset in China, we are now looking to deploy these solutions across our overseas operations to streamline workflows and deliver a more personalized customer journey. Vietnam continues to provide a robust proof of concept for our Southeast Asia playbook, and we are making steady progress towards entering Singapore this year. These initiatives will further diversify our revenue mix and establish additional scalable growth drivers for the group. In closing, we believe that we are well positioned to capture the opportunities emerging from China's rapidly evolving insurance landscape and the broader Asian market. Domestically, robust demand for long-term protection underpins a healthy, sustainable growth trajectory across the value chain. Internationally, Poni Insurtech allows us to replicate and apply a China-proven model and proprietary AI capabilities to high-growth Southeast Asian markets, particularly among the young rapidly expanding middle class. By combining advanced data analytics, end-to-end AI enablement, and disciplined market penetration, we aim to cement Huize's status as Asia's premier insurtech platform, seamlessly connecting consumers, carriers, and distribution partners and delivering durable value to all stakeholders. And with that, we now open up the call to questions. Thank you very much, and over to you, operator.

Our first question comes from Amy Chen from Citi.

This is Amy from Citi. I have a couple of questions. The first one would be regarding selling expenses. We noted that the first-year premium facilitated in the first quarter saw around 15% year-over-year decline. However, selling expenses were up by 7%. What's the gap here? And the second question is on sales momentum in the second quarter and your outlook for the rest of 2025. The industry is expecting another round of pricing rate cut in the third quarter. Has this somehow boosted customer demand so far?

Thank you, Amy. It's a pleasure to have you again on the call. So I know that you have three questions regarding the year-on-year decline on first-year premiums versus an increase in some expenses. To address the question on the first-year premium decline, I would note that in June '24, in the first quarter, there was a pricing cut effect during the quarter, which has also led to rush sales during that quarter. So I think effectively, we are comparing the first quarter of 2025 versus a relatively high base for the first quarter of last year. So I think that has to do with the high base effect for 2024, albeit that in the first quarter of this year, we have further driven our revenue growth from both domestic and international markets. Regarding the gap between the first-year premium downturn and the channel cost increase, I would note that the international business in terms of gross margins is relatively lower than the domestic business. Therefore, I think that has been reflected in what you noted in terms of the gross margin decline in the first quarter of 2025. On your second question regarding the outlook for the rest of the year, we do think that Q1 for 2025 is probably the rock bottom for this year. In Q2, we are seeing decent momentum. The international market is still in a high growth phase, and for the domestic China market, we are also seeing a revival of growth given that the transition to the par products has been completed over the last two quarters and channels have adjusted to the new product regime. In Q2, we expect to see growth across different products. However, you know that there is an expectation for a further pricing rate cut on August 31, which is now widely rumored and expected to be put in place. We do anticipate that there will be an effect on rush sales in the third quarter, particularly in the months of July and August, which we have seen similar situations in the last year and in the past few years as well. However, we note that the pricing rate at this time is relatively muted compared to previous episodes. Given that we're already seeing a sort of 2% handle kind of return level, the incentive for consumers to purchase would probably have a diluted effect compared to what we have seen in past years. We expect that Q3 will be strong, with August being the peak for domestic sales of savings products. I hope that answered your question, Amy.

Next question comes from the line of Kenny Lim of UOB Kay Hian.

I'm Kenny from UOB. And I have two questions. The first one, how do we expect the enforcement of the regulatory rule across the agency channels to affect your business? And how does it change the overall industry competitive landscape? And my second question is about the latest international revenue contribution in the first quarter. What is the later progress of your business expansion plan in Singapore and the Philippines as well?

Thank you, Kenny. To address your first question about the regulatory rule change impacting commissions for various channels. Given that we have lived through this regulatory change in the last 12 months now, we expect similar measures to be implemented upon the tied agency channel. If such a measure is implemented in the second half of this year, we expect that the impact on our business will be positive because it will level the playing field among the different channels, including banks, brokers, and tied agencies. We expect there will be a continued exodus of agents from the agency model into independent third-party platforms such as ours. Therefore, we will likely capture an additional influx of productive agents if such a measure is implemented on the agency channel. Across our competitors, we can expect similar observations. Overall, the market would continue to gravitate towards a more independent third-party broker-agency distribution model. Currently, in China, the third-party intermediaries still account for less than 10% of overall premium distribution. In comparison, we see that this distribution is as high as 30% to 50% in more mature and developed markets such as Japan or Hong Kong. In the long term, we do see that the intermediation of premium distribution will continue to favor platforms like ours. I would note that independent financial advisers or independent agents are increasingly favoring platforms that provide access to a wide variety of products from different providers like us. We have over 100 products on our platform that we can facilitate for agents to serve customers. Moreover, in the digital age, agents require digital tools to serve customers, ensuring a very efficient digital purchase journey. This may be a challenge for incumbents, giving us a clear advantage. Regarding your second question on international market expansion, we are on track with our expansion into Singapore. We aim to provide a further material update in our next earnings call. Our target is to be in operational status by the third quarter of this year. We're working closely with regulators to finalize arrangements and ensure that our recruitment of necessary personnel is in place. As for the Philippines, we are still progressing; however, we are prioritizing Singapore as our business development market, which means we will likely see progress in the Philippines in the second half of this year. Thank you, Kenny.

Thank you for the questions. With that, I would like to hand the call back to Kenny for closing remarks.

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

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.