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Fanhua Inc. (FANH) Q1 2019 Earnings Call Transcript

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Fanhua Inc. (NASDAQ: FANH)
Q1 2019 Earnings Call
May 23, 2019, 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 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. All lines have been placed on mute to prevent background noise. After the management's prepared remarks there will be a question-and-answer session. Please follow the instructions given at the time if you would like to ask a question.

For your information this conference call is now being broadcasted live over the internet. Webcast replay will be available within three hours after the conference is finished. Please visit Fanhua's IR website at ir.fanhuaholdings.com under the Events & Webcasts section. Today's conference is being recorded. If you have any objection, 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 Qiu -- Investor Relations Manager

Good morning. Welcome to our first quarter 2019 earnings 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 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 not limited to, those outlined in our filings with the SEC, including our Registration Statement on Form 20-F. We do not undertake any obligation to update these forward-looking information except as required under applicable law.

Joining us today are our Chief Executive Officer and Chairman, Mr. Chunlin Wang; Chief Financial Officer, Mr. Peng Ge; Board Secretary, Lily Lee. Mr. Wang will provide a review of financial and operational highlights in the first quarter 2019. He, Mr. Ge and Ms. Lee will then take your questions after the prepared remarks.

Now I will turn the call over to Mr. Wang.

Chunlin Wang -- Chief Executive Officer & Chairman

(Foreign Language)

Thank you for joining us on today's conference call. Here with me, we have our Chief Financial Officer, Mr. Peng Ge, and our Board Secretary, Ms. Lily Lee. We will begin today's call by give a brief analysis about recent market developments, followed by an overview of our first quarter 2019 financial and operation results. There will be a Q&A session after the report.

(Foreign Language)

Firstly an industry analysis in the first quarter 2019, in order to guide China's insurance industry to achieve a healthier and more orderly development, the insurance regulator has started clean up and ratification initiatives focusing on steering the life insurance industry back to its fundamental function of providing protection to the society since October 2017. The regulator has issued a series of strict rules and measures and has strengthened efforts to investigate and punish malpractices which have effectively curbed irregularities in the industry.

In 2019 the tightening regulatory supervision is expected to deepen. Therefore we expect that the industry's clean up and ratification may continue to bring pressure on the growth of the industry within a certain period of time. However it will definitely lay a solid foundation for the healthy and rapid development of the insurance industry in the long run and bring vitality to the development of those enterprises which kept compliance with laws and regulations.

(Foreign Language)

In the first quarter 2019 total personal insurance premiums in China reached RMB1.3 trillion, up 18%, year-over-year, while many life insurance companies saw a sharp decline in their first year regular life insurance premiums and a continued drop in sales head count. It is expected that the life insurance industry may continue to feel pressure to deliver growth and it's highly possible that the industry wise drop in turn see (ph) your regular life insurance premiums may continue into the second quarter of 2019.

(Foreign Language)

Secondly, financial and operating results of Fanhua in the first quarter 2019. In the first quarter of 2019 Fanhua's life insurance business registered a strong growth of 45.1% year-over-year to RMB2.2 billion in terms of total insurance premiums, of which first year premiums increased by 45.6% year-over-year to RMB809.1 million. Annualized insurance premiums equivalent increased by 20.9% year-over-year to RMB533 million.

Our renewal insurance premiums grew by 44.9% year-over-year to RMB1.37 billion respectively. Our operating profit reached RMB126.4, with a year-over-year increase of 40.2% in line with our prior expectations. Our net income per ADS grew by 31% year-over-year to RMB2.62.

(Foreign Language)

In the first quarter 2019, while many major insurers reported difficulties in agent recruitment Fanhua's sales head count continued a steady growth of 20,000 to 30,000 people per month. As of March 31, 2019, the number of registered sales agents in Fanhua has exceeded 860,000 among which the number of performing sales agents in the first quarter 2019 was over 123,000 including 53,309 sales agents who were selling life insurance policies.

(Foreign Language)

In the first quarter 2019, we were pleased to see improvements in our life insurance product mix. Annuity insurance products as a percentage of our total annualized life insurance premiums increased to 24% from a year ago, while house insurance accounted for 69.8%. Endowment insurance accounted for 2.9% and whole life insurance and term life insurance accounted for about 3.2%.

(Foreign Language)

In the first quarter 2019, there was a big change in the structure of our life insurance partnership. The proportion of sales in terms of APE generated by our top five life insurance company partners is as follows. Aeon accounted for 33.5%, Huaxia, 18.8%, Tian'an, 17.6%, Sinatay, 13.5% and Greatwall 4% and Evergrande for 2.7% (ph).

(Foreign Language)

Thirdly, development of our online platforms, in the first quarter 2019 our online platforms maintained a good growth momentum. Firstly the Lan Zhanggui the number of activated accounts hit 860,000 times as of March 31, 2019. In the first quarter of 2019, the number of active users was 61,468 and insurance premiums generated through Lan Zhanggui were RMB887.5 million, representing a growth of 40.6% from a year ago.

(Foreign Language)

Secondly, CNpad auto insurance app, the number of activated accounts has reached 568,367 times as of March 31, 2019 representing an increase of 35.9% year-over-year. Insurance premiums generated through CNpad auto insurance app were RMB423 million in the first quarter 2019.

(Foreign Language)

Thirdly Baoxian.com, the number of registered customer accounts on Baoxian.com was approximate 2.3 million as of March 31, 2019, up 42.2% from a year ago. In the first quarter 2019, the number of active customer accounts was 82,869, up 33.4% from a year ago. And Insurance premiums generated on Baoxian.com through direct sales was RMB90.2 million in the first quarter 2019 with an year-over-year increase of 63%.

(Foreign Language)

eHuzhu maintained a steady development strategy. As of March 31, 2019, the number of effective registered members were RMB3.5 million, representing an increase of 13.4% from a year ago. The number of claimants is 2,193 and accumulated amount of payout is RMB377 million.

(Foreign Language)

Thirdly, the Chetong.com number of effective registered grand service representatives on Chetong.net was more than 16,000 as of March 31, 2019 with accumulated orders of approximately RMB1.8 million.

(Foreign Language)

Fourthly, other major developments during the quarter, first is dividend payout, as previously announced by the board of directors, the company's annual dividend will be increased by 20% from $1 per ADS in 2018 to $1.2 per ADS in 2019, which will be paid on a quarterly basis. The dividend in 2019 first quarter is $0.3 per ADS and would be paid on or around June 20, 2019 to shareholders of record on June 6, 2019.

(Foreign Language)

Secondly the share buyback program in March 2019, the Board also raised amendment to repurchase up to RMB200 million of the company's ADS by December 31, 2019. From March 2019 to May 17, 2019 an aggregate of RMB1.4 million ADS have been repurchased for approximately $36.8million. Now to the company share buyback program implemented in 2018 and 2019 the company has repurchased a total of 2.8 million ADS or approximately $73.1 million. Management will continue to execute outstanding share buyback plan.

(Foreign Language)

Thirdly special committee, on May 21, 2019, the company received a report from the special committee concerning the results of the independent review as way to which (ph) the special committee of the Board of Directors has completed its review of certain allegations raised by short sellers. The special committee concluded that the short sellers' allegations that characterized the company as a fraudulent business designed to enrich insiders through a series related party and self-dealing transactions were unsubstantiated. The short sellers report proved to contain baseless speculation and misleading and inaccurate allegations.

(Foreign Language)

The conclusion indicated that the company has strictly kept compliance with SEC and NASDAQ rules and regulations on listing companies including the requirement for public transparent and through disclosure. Management is pleased with the result. Going forward management will put this behind and wholeheartedly focus on the company's development and operation to create more value for our shareholders in the long run.

(Foreign Language)

Fifthly, the business outlook in the second quarter 2019, we expect our annualized insurance premiums on regular life insurance products to maintain positive growth and our operating income to increase by no less than 20% in the second quarter 2019.

(Foreign Language)

Thank you. Now our management will open the floor for your questions.

Questions and Answers:

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) first question comes from the line of Yuan Xue from the CICC. Please ask your question.

Xue Yuan -- China International Capital Corporation Limited -- Analyst

(Foreign Language)

Oasis Qiu -- Investor Relations Manager

The question is from Xue Yuan from CICC. Congratulations to the management for improved sales and Yuan has one question, regarding the recent regulatory developments. The regulator requires insurance intermediary companies and insurance company to clean up not active sales agents. He's wondering what the impact will be on Fanhua.

Chunlin Wang -- Chief Executive Officer & Chairman

(Foreign Language)

First of all this regulation is targeted at the whole industry including insurance companies and insurance intermediary companies. And it is possible that it may bring some impact on the increase in total number of agents and in the short term. It will also bring some impact on business development to the whole industry as well as Fanhua. But we believe that in the medium and long term it will also create more favorable market environment for the development of more regulated company and companies that were (ph) strong strength.

Xue Yuan -- China International Capital Corporation Limited -- Analyst

(Foreign Language)

Operator

There are no further questions at this time. I would now like to hand the conference back to Ms. Oasis Qiu, please continue.

Oasis Qiu -- Investor Relations Manager

Thank you for participating in today's conference call. If you have any further questions please feel free to contact the company. Thank you.

Operator

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

Duration: 29 minutes

Call participants:

Oasis Qiu -- Investor Relations Manager

Chunlin Wang -- Chief Executive Officer & Chairman

Xue Yuan -- China International Capital Corporation Limited -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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