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Fanhua Inc. (FANH) Q1 2021 Earnings Call Transcript

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Fanhua Inc. (NASDAQ:FANH)
Q1 2021 Earnings Call
May 28, 2021, 9:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by for Fanhua’s First Quarter 2021 Earnings Conference Call. [Operator Instructions] For your information, this conference is now being broadcast live over the Internet. Webcast replay will be available within three hours after the conference is finished. Please visit the Fanhua’s IR website at ir.fanhuaholdings.com on the events and webcasts section. Today’s conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the meeting over to your host for today’s conference, Ms. Oasis Qiu, Fanhua’s Investor Relations Manager.

Oasis QiuInvestor Relations Officer

Good morning. Welcome to our first quarter of 2021 and this conference call. The earnings results were released earlier today and are available on our IR website, as well as on Newswire.

Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to, those outlined in our filings with the SEC, including our registration statement and Form 20-F. We do not undertake any obligation to update this forward-looking information except as required under applicable law.

Joining us today are our Chief Executive Officer, Mr. Chunlin Wang; Chief Financial Officer, Mr. Peng Ge; and Board Secretary, Allen Lueth. Mr. Wang will provide a review of our financial and operational highlights in the first quarter of 2021. There will be a Q&A session after the prepared remarks.

Now, I’d turn the call over to Mr. Wang.

Chunlin WangChief Executive Officer & Chairman

[Foreign Speech]

For the first quarter 2021, we once again beat estimate with solid results. For the first quarter of 2021, we’ve facilitated RMB3.1 billion total gross premiums, up 27.9% year-over-year, of which first quarter — first year premiums grew by 57% year-over-year to RMB892.7 million. Business quality remains strong with 13-month persistency ratio at over 91%. As a result of the stellar growth in life insurance business, our net revenues reached RMB1.1 billion, representing a growth of 51.5% year-over-year, and operating income reached RMB140.4 million, up 133.8% from a year ago. Net income attributable to shareholders were RMB138.4 million, up 202.2% year-over-year.

[Foreign Speech]

Secondly, industry outlook analysis. China’s life insurance industry remains gloomy as it undergoes deep reform and transformation, which posed both challenges and opportunities. There has been a fundamental change in customer demand. In the past six years since the life insurance pricing liberation, with a rapid growth in the number of sales agents in China and the emergence of the Internet channel, the penetration rate of health insurance products in China have been relatively high. The popularity of government-backed medical insurance in recent years has also absorbed large portion of demand for health insurance products and eroded upside potential for commercial long-term health insurance in China.

[Foreign Speech]

On the other hand, we still see a huge potential in the market segment of investment and savings type insurance products. China’s middle class population now stands at 400 million. As investment and savings insurance products constitute an indispensable component in middle class family asset allocation, with the continued expansion of the middle class population, there will be explosive demand for this type of insurance product. The biggest opportunity lies in how one can stimulate and meet this implicit demand.

[Foreign Speech]

Secondly, there has been fundamental change to insurance agents organization. The traditional organization in pyramid structure can no longer meet customers’ evolving demand, which leads to sharp contraction in traditional insurance sales organization, and shortage of qualified talent in recent years. The professionalization of insurance sales organization has become an imperative.

[Foreign Speech]

Digital capacity — capability is now a prerequisite to compete and thrive in the long term. Digital transformation reaches every aspect of business operation, from customer demand insight to targeted marketing, customer experience optimization, operating efficiency improvements and operating cost savings.

[Foreign Speech]

Thirdly, with Fanhua’s professionalization, digitalization and open platform strategy, we’re well positioned to capture market opportunities. We’re making steady progress in rolling out our very strategic initiatives as scheduled.

[Foreign Speech]

Firstly, professionalization strategy. As of today, we have approved the establishment of nine Yuntong branches. Yuntong, which is literally translated as Cloud Phoenixtree, is a high-end brand that we have established specifically for our professional elite branches. We expect two of these branches will be ready for operation by July.

[Foreign Speech]

Digitalization strategy. Our digital marketing center has so far recruited around 100 service representatives, which will be dedicated to providing intelligent services to our customers and facilitating in telemarketing transactions. In addition, we started to roll out Fanhua enterprise WeChat application, and launched Fanhua RONS [Phonetic] digital assistant application on a trial basis in Hebei province, which we believe will provide more efficient way for our agents to engage with their prospective customers.

[Foreign Speech]

Thirdly, our open platform strategy, leveraging on our well-proven advantages in technology and bargaining power with insurance companies, we will continue to open our platform to all qualified market participants. As of today, we have established partnership with 16 channel partners. As we are in the process of facilitating system connection and testing business process, approximately RMB1.5 million was facilitated through the channel partners in the first quarter.

[Foreign Speech]

Fourthly, for the outlook in the second quarter and 2021. For the second quarter of 2021, amid persistent headwinds and a difficult year-on-year comparison due to 2020 Q2 post-COVID-19 boost, China’s life insurance industry is widely expected to experience negative growth in new business. Against this backdrop, we expect our total GWP facilitated to be approximately be approximately RMB2.6 billion, representing a year-over-year growth of 6.7%. After considering incremental expenditures required for implementing the new strategy, we expect our operating income will be no less than RMB50 million. For the second half of 2021, we will continue to step up investment in executing on our new strategy, while ensuring the achievement of no less than RMB300 million operating income for the full year of 2021.

[Foreign Speech]

This concludes my presentation. Now the floor will open for your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And your first question today comes from the line of Qingqing Mao from CICC. Please go ahead.

Qingqing MaoCICC — Analyst

[Foreign Speech]

Thanks for management — Thanks, management. First of all, congrats for the exciting results. We have seen some negative effects caused by the reach of critical illness definition among peers. How about Fanhua? When do you think this effect would fade away?

Chunlin WangChief Executive Officer & Chairman

[Foreign Speech]

The transition from the old critical illness definition framework — from the old one to the new one is a big event for the industry overall, and also has caused a huge impact. And before the suspension of the old critical illness product in February 1, there has been strong sales in critical illness products in January.

[Foreign Speech]

There has been a particular characteristic in the Chinese life insurance market, which is that every time before the suspension of a product, there will be a strong sales, followed by a slowdown for a period of time. So this time it is no exception. And in addition to that, we believe that the penetration rate for critical illness products is relatively high in China. As of today, there has been 300 million outstanding critical illness policies in China. Apart from that, recently, the government has rolled out some short-term medical insurance products, which is more affordable. And this type of product has also become quite popular among consumers, which, in certain ways, absorbed some of the demand for critical illness products.

[Foreign Speech]

In order to, for the critical illness products to fully recover, I think it will require a lot of innovation and customization of products in order to boost customer demand and create opportunities for upselling. But we believe that critical illness may not be the main driver for the growth of the life insurance industry in the longer term.

[Foreign Speech]

We believe that product innovation and customization will be the main trend in the future. In April, actually, we cooperated with Aegon to customize — custom design a product, a critical illness product, which is called Huabai No.1 [Phonetic]. And as of today, we have sold RMB20 million in terms of new — first year premiums, which is much higher than the total premiums sold by Sinatay in the same period, according to our visit to Sinatay recently.

[Foreign Speech]

For the longer term, no matter for Fanhua or the overall insurance intermediary market, in order to obtain rapid growth, it’s important to focus on savings and investment type of products. This is also the key product that we will focus on in terms of building up our off-line sales capability and digital capability.

[Foreign Speech]

Right now there are 400 million middle class population in China, and this population has strong demand — potential demand for savings type of products. So it’s our job to stimulate this implicit demand. Thank you.

Operator

[Operator Instructions] I see that we have no further questions on the line today. I would now like to hand the call back to management for closing remarks.

Oasis QiuInvestor Relations Officer

Thank you for participating in today’s call. If there is any further question, please feel free to contact us. Thank you.

Operator

[Operator Closing Remarks]

Duration: 27 minutes

Call participants:

Oasis QiuInvestor Relations Officer

Chunlin WangChief Executive Officer & Chairman

Qingqing MaoCICC — Analyst

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