Fanhua(FANH) - 2023 Q4 - Annual Report

Company Overview & Highlights FANHUA's Q3 2023 saw significant financial and operational growth, driven by strategic initiatives and improved agent efficiency Third Quarter 2023 Financial Highlights FANHUA achieved significant Q3 2023 financial growth, with net income attributable to shareholders up 382.6% and diluted net earnings per ADS up 381.8% Q3 2023 Financial Highlights | Metric (RMB in thousands) | 2022Q3 (RMB) | 2023Q3 (RMB) | 2023Q3 (US$) | Change % | | :------------------------ | :----------- | :----------- | :----------- | :------- | | Total Net Revenues | 624,746 | 634,620 | 86,982 | 1.6 | | Operating Income | 32,165 | 33,196 | 4,549 | 3.2 | | Net Income Attributable to Shareholders | 35,371 | 170,699 | 23,396 | 382.6 | | Diluted Net Income per ADS | 0.66 | 3.18 | 0.44 | 381.8 | | Period-end Cash, Cash Equivalents, Short-term Investments | 917,901 | 1,498,417 | 205,375 | 63.2 | Q3 2023 Key Operating Metrics | Metric (RMB in thousands) | 2022Q3 (RMB) | 2023Q3 (RMB) | Change % | | :------------------------ | :----------- | :----------- | :------- | | Life Insurance Gross Written Premiums (GWP) | 2,789,859 | 3,437,045 | 23.2 | | - First Year Premiums (FYP) | 529,720 | 584,437 | 10.3 | | - Renewal Premiums | 2,260,139 | 2,852,608 | 26.2 | | Number of Active Life Insurance Agents | 7,598 | 5,117 | (32.7) | | FYP per Active Life Insurance Agent | 59,113 | 81,081 | 37.2 | Management Commentary & Strategic Initiatives Management noted industry challenges but highlighted strategic progress in open platforms, overseas expansion, M&A integration, and investment income CEO's Industry Outlook & Company Vision - CEO Hu Yinan noted that the life insurance industry faces pressure from pricing interest rate changes, but the company's strategic initiatives show significant progress and operational resilience[3] - The company anticipates an industry shift from product and expense-driven to technology and service-driven, favoring innovative service and technology-capable companies and increasing industry concentration[6] CSO's Q3 Strategic Developments - CSO Lin Bin highlighted several significant Q3 developments: * First Open Platform Day with Tencent Cloud, signing two independent brokers as digital tenants * Established two non-wholly owned subsidiaries with Asia Insurance Co. Ltd., holding 60% equity, marking expansion beyond mainland China * Completed most IT integration for Zhongrong Huijin (ZRHJ), expecting annual IT cost savings of no less than RMB 5 million by 2024 * Unrealized fair value change gain from equity investment due to Cheche Group Inc.'s Nasdaq listing, significantly boosting net income from the company's 2.8% stake[7][8][9][10] - Future strategic focus remains on driving open platform and digital tenant growth, exploring value-added integration opportunities, and achieving organic growth by enhancing distribution team quality[11] Business Outlook and Guidance The company projects a 50% year-over-year increase in life insurance first-year premiums and adjusted EBITDA for 2023 - The company expects life insurance first-year premiums to increase by 50% year-over-year in 2023[15] - The company expects adjusted EBITDA to increase by 50% year-over-year in 2023[15] Share Repurchase Program As of September 30, 2023, the company repurchased 495,459 ADSs totaling approximately $3.9 million - As of September 30, 2023, the company repurchased 495,459 ADSs[14] - The average repurchase price was approximately $7.9 per ADS, totaling approximately $3.9 million[14] Detailed Financial Performance Analysis This section provides an in-depth analysis of the company's Q3 2023 revenues, gross profit, operating expenses, and net income Revenues Total net revenues increased by 1.6% year-over-year to RMB 634.6 million in Q3 2023, with varied performance across business segments Q3 2023 Total Net Revenues | Metric (RMB in thousands) | 2022Q3 (RMB) | 2023Q3 (RMB) | 2023Q3 (US$) | Change % | | :------------------------ | :----------- | :----------- | :----------- | :------- | | Total Net Revenues | 624,746 | 634,620 | 86,982 | 1.6 | Agency Business Revenues Agency Business Net Revenues | Metric | 2022Q3 (RMB in millions) | 2023Q3 (RMB in millions) | 2023Q3 (US$ in millions) | Change | | :----- | :----------------------- | :----------------------- | :----------------------- | :------------- | | Agency Business Net Revenues | 522.7 million | 524.1 million | 71.8 million | Relatively stable | | Total Premiums (GWP) | - | 3,525.1 million | - | 22.8% YoY | | First Year Premiums (FYP) | - | 672.5 million | - | 10.1% YoY | | Renewal Premiums | - | 2,852.6 million | - | 26.2% YoY | - Life insurance business net revenues remained relatively stable at RMB 483.8 million compared to the prior year, primarily due to a slowdown in August and September after a July surge in new business sales driven by pricing interest rate changes, and the net impact from newly acquired entities[17] - Life insurance business net revenues accounted for 76.2% of total net revenues, slightly lower than 76.9% in Q3 2022[19] - Non-life insurance business net revenues decreased by 4.3% year-over-year to RMB 40.3 million, representing 6.4% of total net revenues[19] Claims Adjusting Business Revenues Claims Adjusting Business Net Revenues | Metric | 2022Q3 (RMB in millions) | 2023Q3 (RMB in millions) | 2023Q3 (US$ in millions) | Change % | | :----- | :----------------------- | :----------------------- | :----------------------- | :------- | | Claims Adjusting Business Net Revenues | 102.0 million | 110.5 million | 15.1 million | 8.3 | - The growth in claims adjusting business revenue was primarily driven by post-pandemic business recovery[20] - Claims adjusting business net revenues accounted for 17.4% of total net revenues, up from 16.3% in Q3 2022[20] Gross Profit Total gross profit increased by 1.7% year-over-year to RMB 235.2 million in Q3 2023, with mixed segment performance Q3 2023 Total Gross Profit | Metric | 2022Q3 (RMB in millions) | 2023Q3 (RMB in millions) | 2023Q3 (US$ in millions) | Change % | | :----- | :----------------------- | :----------------------- | :----------------------- | :------- | | Total Gross Profit | 231.3 million | 235.2 million | 32.2 million | 1.7 | Gross Profit by Business Segment Gross Profit and Margin by Business Segment | Business Segment | 2022Q3 Gross Profit (RMB in millions) | 2023Q3 Gross Profit (RMB in millions) | 2023Q3 Gross Profit (US$ in millions) | 2022Q3 Gross Margin | 2023Q3 Gross Margin | Change % (Gross Profit) | | :--------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------ | :------------------ | :---------------------- | | Life Insurance Business | 181.7 million | 182.0 million | 24.9 million | 37.8% | 37.6% | 0.2 | | Non-life Insurance Business | 16.8 million | 12.8 million | 1.8 million | 40.0% | 31.8% | (23.8) | | Claims Adjusting Business | 32.8 million | 40.4 million | 5.5 million | 32.1% | 36.6% | 23.2 | - The decrease in non-life insurance gross margin was primarily due to changes in product mix[21] Operating Expenses Selling expenses decreased by 14.6% in Q3 2023 due to optimization, while management expenses rose 10.1% from acquired businesses Q3 2023 Operating Expenses | Expense Type | 2022Q3 (RMB in millions) | 2023Q3 (RMB in millions) | 2023Q3 (US$ in millions) | Change % | | :----------- | :----------------------- | :----------------------- | :----------------------- | :------- | | Selling Expenses | 69.3 million | 59.2 million | 8.1 million | (14.6) | | General and Administrative Expenses | 129.8 million | 142.9 million | 19.6 million | 10.1 | - The decrease in selling expenses was primarily due to personnel optimization and a reduction in sales outlets, partially offset by increased sales training activities and RMB 5 million in share-based compensation expenses related to the MDRT equity incentive plan[25] - The increase in general and administrative expenses was primarily due to approximately RMB 19.6 million in expenses from acquired businesses consolidated since Q1 2023, partially offset by personnel optimization and branch reductions[26] Operating Income & Margin Operating income increased by 3.2% year-over-year to RMB 33.2 million in Q3 2023, with a slight margin improvement Q3 2023 Operating Income and Margin | Metric | 2022Q3 (RMB in millions) | 2023Q3 (RMB in millions) | 2023Q3 (US$ in millions) | Change % | | :----- | :----------------------- | :----------------------- | :----------------------- | :------- | | Operating Income | 32.2 million | 33.2 million | 4.5 million | 3.2 | | Operating Margin | 5.1% | 5.2% | - | 0.1 pp | Other Income & Expenses Q3 2023 saw a RMB 164.3 million unrealized gain from equity investment, impacting income tax and effective tax rate - Due to Cheche Group's listing in September 2023, the company's 2.8% equity stake generated an unrealized gain of RMB 164.3 million ($22.5 million) from fair value change in equity investment[27] Q3 2023 Investment Income and Income Tax | Metric | 2022Q3 (RMB in millions) | 2023Q3 (RMB in millions) | 2023Q3 (US$ in millions) | Change % | | :----- | :----------------------- | :----------------------- | :----------------------- | :------- | | Investment Income | 2.8 million | 1.9 million | 0.3 million | (31.9) | | Income Tax Expense | 8.6 million | 16.1 million | 2.2 million | 87.2 | | Effective Tax Rate | 20.2% | 9.1% | - | (11.1) pp | - The decrease in effective tax rate was primarily due to the recognition of RMB 164.3 million in non-taxable unrealized gain from equity investment[28] Net Income & EPS Net income and net income attributable to shareholders significantly increased by over 380% in Q3 2023, driven by equity investment gains Q3 2023 Net Income and Net Income per ADS | Metric | 2022Q3 (RMB in millions) | 2023Q3 (RMB in millions) | 2023Q3 (US$ in millions) | Change % | | :----- | :----------------------- | :----------------------- | :----------------------- | :------- | | Net Income | 33.2 million | 160.8 million | 22.0 million | 384.3 | | Net Income Attributable to Company Shareholders | 35.4 million | 170.7 million | 23.4 million | 382.6 | | Net Profit Margin | 5.7% | 26.9% | - | 21.2 pp | | Basic Net Income per ADS | 0.66 | 3.18 | 0.44 | 381.8 | | Diluted Net Income per ADS | 0.66 | 3.18 | 0.44 | 381.8 | Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased by 32.0% to RMB 24.9 million in Q3 2023, primarily due to a credit loss provision Q3 2023 Adjusted EBITDA | Metric | 2022Q3 (RMB in millions) | 2023Q3 (RMB in millions) | 2023Q3 (US$ in millions) | Change % | | :----- | :----------------------- | :----------------------- | :----------------------- | :------- | | Adjusted EBITDA | 36.6 million | 24.9 million | 3.4 million | (32.0) | | Adjusted EBITDA Margin | 5.9% | 3.9% | - | (2.0) pp | | Basic Adjusted EBITDA per ADS | 0.68 | 0.46 | 0.06 | (32.4) | | Diluted Adjusted EBITDA per ADS | 0.68 | 0.46 | 0.06 | (32.4) | - Adjusted EBITDA下降主要由于2023年第三季度计提了RMB 18.5 million的其他应收款预期信用损失准备[30] Financial Position and Cash Flow This section details the company's balance sheet and cash flow activities as of and for Q3 2023 Balance Sheet As of September 30, 2023, total assets reached RMB 4.005 billion, an approximate 29.6% increase from year-end 2022 Key Balance Sheet Data (As of September 30) | Metric (RMB in thousands) | 2022年12月31日 | 2023年9月30日 | | :------------------------ | :------------- | :------------- | | Cash and Cash Equivalents | 567,525 | 554,897 | | Short-term Investments | 347,754 | 943,520 | | Total Current Assets | 2,293,574 | 2,446,928 | | Net Contract Assets - Non-current | 385,834 | 643,571 | | Goodwill and Net Intangible Assets | 109,997 | 476,672 | | Total Assets | 3,089,516 | 4,005,455 | | Total Current Liabilities | 951,976 | 1,000,889 | | Total Non-current Liabilities | 406,209 | 596,222 | | Total Liabilities | 1,358,185 | 1,597,111 | | Equity Attributable to Company Shareholders | 1,623,403 | 2,139,968 | | Total Equity | 1,731,331 | 2,408,344 | Cash Flow Statement Q3 2023 operating cash flow was RMB 12.8 million, with investing and financing activities reflecting strategic movements Q3 2023 Cash Flow (RMB in thousands) | Cash Flow Type (RMB in thousands) | 2022Q3 | 2023Q3 | | :-------------------------------- | :----- | :----- | | Net Cash from Operating Activities | 19,788 | 12,826 | | Net Cash from Investing Activities | (151,120) | (33,991) | | Net Cash from Financing Activities | — | (7,114) | | Period-end Cash, Cash Equivalents, and Restricted Cash | 462,837 | 633,006 | - Cash outflows from investing activities primarily included RMB 815.3 million for purchasing short-term investments and RMB 125 million for purchasing long-term investments, partially offset by RMB 909.2 million from the disposal of short-term investments[56] - Cash outflows from financing activities primarily included RMB 2.89 million for repayment of bank and other borrowings, RMB 2.3 million for interest payments, and RMB 1.93 million for common stock repurchases[56] Operational Metrics & Network This section reviews key operational metrics and the company's distribution network performance in Q3 2023 Key Operating Metrics Q3 2023 saw life insurance GWP up 23.2% and FYP per active agent up 37.2%, despite a decrease in active agents Q3 2023 Key Operating Metrics | Metric (RMB in thousands) | 2022Q3 (RMB) | 2023Q3 (RMB) | Change % | | :------------------------ | :----------- | :----------- | :------- | | Life Insurance Gross Written Premiums (GWP) | 2,789,859 | 3,437,045 | 23.2 | | - First Year Premiums (FYP) | 529,720 | 584,437 | 10.3 | | - Renewal Premiums | 2,260,139 | 2,852,608 | 26.2 | | Number of Active Life Insurance Agents | 7,598 | 5,117 | (32.7) | | FYP per Active Life Insurance Agent | 59,113 | 81,081 | 37.2 | - The number of open platform professional users reached 791 as of September 30, 2023, contributing RMB 165.6 million in first-year premiums in Q3, accounting for 28.3% of life insurance first-year premiums[13] - Entities acquired within the past 12 months contributed 21.6% of life insurance first-year premiums and 21.3% of life insurance business net revenues[13] Distribution Network FANHUA's distribution network, excluding new acquisitions, saw a reduction in sales outlets, reflecting a focus on profitable branches Distribution Network Overview (As of September 30) | Metric | 2022年9月30日 | 2023年9月30日 | Change | | :----- | :------------- | :------------- | :----- | | Number of Sales Outlets | 697 | 592 | Decrease | | Number of Service Outlets | 100 | 81 | Decrease | | Number of In-house Claims Adjusters | 2,221 | 2,215 | Stable | - The reduction in sales outlets reflects the company's strategy to focus on developing profitable branches and closing unprofitable ones[31] Additional Information This section provides background on FANHUA Inc., forward-looking statements, non-GAAP financial measures, and contact details About FANHUA Inc. FANHUA Inc. is a leading independent Chinese financial services provider, focusing on insurance-oriented family asset allocation and a one-stop intermediary platform - FANHUA Inc. is a leading independent financial services provider in China, focusing on providing insurance-oriented family asset allocation services and a one-stop sales agency and independent insurance intermediary platform[35] - The company's strategic focus is on long-term life insurance products, offering a wide range of insurance products, claims services, and value-added services[35] - The company operates an online insurance platform, Baowang (www.baoxian.com), providing customers with a one-stop insurance shopping experience[35] Forward-looking Statements This press release contains forward-looking statements subject to known and unknown risks and uncertainties, with no obligation to update them unless legally required - Forward-looking statements in this press release are protected by the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995[36] - Forward-looking statements involve known and unknown risks and uncertainties, including attracting and retaining agents, maintaining business relationships with insurance companies, executing growth strategies, adapting to regulatory changes, effective competition, and macroeconomic conditions[36] - The company undertakes no obligation to update any forward-looking statements unless required by law[36] Non-GAAP Financial Measures The company provides adjusted EBITDA and related non-GAAP metrics as supplementary performance measures, not as substitutes for GAAP information - The company provides adjusted EBITDA, adjusted EBITDA margin, and basic and diluted adjusted EBITDA per ADS as supplementary non-GAAP financial measures[39] - Adjusted EBITDA is defined as net income excluding income tax expense, share of loss from equity method investments, investment income, interest income, finance costs, depreciation, amortization of intangible assets, share-based compensation expenses, and fair value change of equity investments[39] - These non-GAAP financial measures may not be comparable to similar measures used by other companies and should not be considered in isolation or as a substitute for GAAP financial information[39] Conference Call Details The company held a conference call on November 20/21, 2023, to discuss Q3 2023 financial results, with webcast links provided - The conference call was held on November 20, 2023, at 8:00 PM U.S. Eastern Time (9:00 AM Beijing/Hong Kong Time on November 21, 2023)[32] - Pre-registration links for the conference call and archived webcast links were provided[34] Investor Relations Contact Investors can contact FANHUA Inc.'s Investor Relations department via phone or email for further information - Investor Relations contact phone: +86 (20) 8388-3191[63] - Investor Relations contact email: qiusr@fanhgroup.com[63] Unaudited Condensed Consolidated Financial Statements This section presents the company's unaudited condensed consolidated financial statements for Q3 2023 Unaudited Condensed Consolidated Balance Sheets This section presents the unaudited condensed consolidated balance sheets as of December 31, 2022, and September 30, 2023 Unaudited Condensed Consolidated Balance Sheets (As of September 30, 2023) | Metric (RMB in thousands) | 2022年12月31日 | 2023年9月30日 | | :------------------------ | :------------- | :------------- | | ASSETS: | | | | Total Current Assets | 2,293,574 | 2,446,928 | | Total Non-current Assets | 795,942 | 1,558,527 | | TOTAL ASSETS | 3,089,516 | 4,005,455 | | LIABILITIES: | | | | Total Current Liabilities | 951,976 | 1,000,889 | | Total Non-current Liabilities | 406,209 | 596,222 | | TOTAL LIABILITIES | 1,358,185 | 1,597,111 | | EQUITY: | | | | Equity Attributable to Company Shareholders | 1,623,403 | 2,139,968 | | Non-controlling Interests | 107,928 | 268,376 | | TOTAL EQUITY | 1,731,331 | 2,408,344 | Unaudited Condensed Consolidated Statements of Income and Comprehensive Income This section presents the unaudited condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2023 Unaudited Condensed Consolidated Statements of Income and Comprehensive Income (For the Three Months Ended September 30, 2023) | Metric (RMB in thousands) | 2022年 | 2023年 | | :------------------------ | :----- | :----- | | Total Net Revenues | 624,746 | 634,620 | | Total Operating Costs and Expenses | (592,581) | (601,424) | | Operating Income | 32,165 | 33,196 | | Investment Income | 2,770 | 1,925 | | Fair Value Change of Equity Investments | — | 164,326 | | Income Tax Expense | (8,562) | (16,113) | | Net Income | 33,202 | 160,771 | | Net Income Attributable to Company Shareholders | 35,371 | 170,699 | | Basic Net Income per ADS | 0.66 | 3.18 | | Diluted Net Income per ADS | 0.66 | 3.18 | Unaudited Condensed Consolidated Statements of Cash Flow This section presents the unaudited condensed consolidated statements of cash flow for the three and nine months ended September 30, 2023 Unaudited Condensed Consolidated Statements of Cash Flow (For the Three Months Ended September 30, 2023) | Cash Flow Type (RMB in thousands) | 2022年 | 2023年 | | :-------------------------------- | :----- | :----- | | Net Cash from Operating Activities | 19,788 | 12,826 | | Net Cash from Investing Activities | (151,120) | (33,991) | | Net Cash from Financing Activities | — | (7,114) | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | (131,332) | (28,279) | | Period-end Cash, Cash Equivalents, and Restricted Cash | 462,837 | 633,006 | Reconciliations of Net Income to Adjusted EBITDA and Adjusted EBITDA Margin This section provides reconciliations of net income to adjusted EBITDA and its margin, detailing adjustments from GAAP net income to non-GAAP adjusted EBITDA Reconciliation of Net Income to Adjusted EBITDA (For the Three Months Ended September 30, 2023) | Metric (RMB in thousands) | 2022年 | 2023年 | | :------------------------ | :----- | :----- | | Net Income | 33,202 | 160,771 | | Income Tax Expense | 8,562 | 16,113 | | Share of Loss from Equity Method Investments | 621 | 223 | | Investment Income | (2,770) | (1,925) | | Interest Income | (7,938) | (3,374) | | Finance Costs | — | 2,666 | | Depreciation | 4,796 | 3,912 | | Amortization of Intangible Assets | — | 4,864 | | Share-based Compensation Expenses | 162 | 6,006 | | Fair Value Change of Equity Investments | — | (164,326) | | Adjusted EBITDA | 36,635 | 24,930 | | Total Net Revenues | 624,746 | 634,620 | | Adjusted EBITDA Margin | 5.9% | 3.9% | | Basic Adjusted EBITDA per ADS | 0.68 | 0.46 | | Diluted Adjusted EBITDA per ADS | 0.68 | 0.46 |