Fanhua(FANH) - 2023 Q3 - Quarterly Report

FANHUA Q2 2023 Earnings Release Financial & Operational Highlights FANHUA achieved strong Q2 2023 results with total net revenues up 61.1% to RMB 1,132.6 million and operating income up 177.3% to RMB 86.0 million, driven by strategic execution and a surge in savings product sales ahead of regulatory changes, with plans for international expansion Q2 2023 Key Financial Metrics (YoY) | Metric | Q2 2022 (RMB M) | Q2 2023 (RMB M) | Change % | | :--- | :--- | :--- | :--- | | Total net revenues | 703.1 | 1,132.6 | 61.1% | | Operating income | 31.0 | 86.0 | 177.3% | | Net income attributable to shareholders | 32.1 | 76.5 | 138.2% | | Adjusted EBITDA | 35.7 | 104.1 | 191.6% | | Diluted net income per ADS (RMB/ADS) | 0.60 | 1.42 | 136.7% | Q2 2023 Key Operating Metrics (YoY) | Metric | Q2 2022 (RMB M) | Q2 2023 (RMB M) | Change % | | :--- | :--- | :--- | :--- | | Total life gross written premiums (GWP) | 2,778.1 | 4,340.0 | 56.2% | | - First year premium (FYP) | 615.7 | 1,558.1 | 153.1% | | FYP per life insurance performing agent (RMB/Agent) | 47,671 | 122,436 | 156.8% | - Growth was driven by a combination of a well-defined strategy and a regulatory-mandated pricing rate change for traditional life insurance products, which spurred sales of certain savings products[3] - The company is exploring opportunities to expand its strategy to markets beyond mainland China, including Hong Kong and Southeast Asia, leveraging its strong financial position with over RMB 1.6 billion in cash reserves[7] Business & Strategic Developments FANHUA's open platform and acquisitions boosted life insurance FYP, while the company continued share repurchases, acquired minority interests in Censhi, and issued strong full-year 2023 guidance for 50% YoY growth in life insurance FYP and adjusted EBITDA - The open platform generated RMB 546.1 million in first-year premiums, accounting for 35.0% of the total life insurance FYP in Q2 2023[9] - Acquisitions made within the past 12 months generated 26.2% of life insurance FYP and 25.3% of net revenues for the life insurance business[9] - As of June 30, 2023, the company had repurchased approximately US$3.6 million worth of its ADSs under its US$20 million share repurchase program[10] - The company entered into agreements to acquire 10% of minority interests in Ningbo Censhi Insurance Agency Co., Ltd., with rights to increase its shareholding to 60%[11] - 2023 Full-Year Guidance: The company expects to achieve 50% year-over-year growth in both life insurance first-year premiums and adjusted EBITDA[12] Detailed Financial Analysis This section provides a detailed breakdown of FANHUA's financial performance, covering revenue, gross profit, operating expenses, net income, non-GAAP measures, and financial position for Q2 2023 Revenues Total net revenues increased 61.1% YoY to RMB 1,132.6 million, primarily driven by a 70.2% surge in the agency business, particularly life insurance, with modest growth in claims adjusting Q2 2023 Net Revenues by Segment (RMB in millions) | Segment | Q2 2022 (RMB M) | Q2 2023 (RMB M) | YoY Change % | | :--- | :--- | :--- | :--- | | Total Net Revenues | 703.1 | 1,132.6 | 61.1% | | Agency Business | 603.4 | 1,027.2 | 70.2% | | - Life Insurance | 570.7 | 980.1 | 71.7% | | - Non-life Insurance | 32.7 | 47.1 | 43.6% | | Claims Adjusting Business | 99.7 | 105.5 | 5.8% | - The increase in life insurance revenue was attributed to strong sales of higher-interest rate savings products ahead of a pricing rate change, effective strategy implementation, and RMB 247.8 million in revenue from acquisitions completed in Q1 2023[14] Gross Profit Total gross profit increased 31.3% YoY to RMB 323.1 million, primarily from life insurance, though its gross margin declined from 35.5% to 27.9% due to a newly acquired lower-margin agency Q2 2023 Gross Profit & Margin by Segment | Segment | Gross Profit (RMB M) | YoY Change % | Gross Margin Q2 2023 | Gross Margin Q2 2022 | | :--- | :--- | :--- | :--- | :--- | | Life Insurance | 273.2 | 34.8% | 27.9% | 35.5% | | Non-life Insurance | 12.2 | 28.4% | 25.9% | 28.9% | | Claims Adjusting | 37.7 | 11.2% | 35.8% | 34.0% | Operating Expenses & Income Operating income surged 177.3% YoY to RMB 86.0 million, expanding the operating margin to 7.6%, despite increased G&A expenses from acquisitions, due to a 3.7% decrease in selling expenses from cost optimization - Selling expenses decreased by 3.7% to RMB 64.3 million due to personnel optimization and fewer sales outlets, partially offset by share-based compensation expenses[21] - General and administrative expenses increased by 16.6% to RMB 172.8 million, mainly due to RMB 23.2 million in expenses from acquisitions completed in Q1 2023[22] Q2 2023 Operating Income & Margin | Metric | Q2 2022 (RMB M) | Q2 2023 (RMB M) | YoY Change % | | :--- | :--- | :--- | :--- | | Operating Income | 31.0 | 86.0 | 177.3% | | Operating Margin | 4.4% | 7.6% | +3.2pp | Net Income & Earnings Per Share (EPS) Net income attributable to shareholders significantly increased 138.2% YoY to RMB 76.5 million, resulting in a 136.7% rise in diluted net income per ADS to RMB 1.42 Q2 2023 Net Income Metrics (RMB in millions) | Metric | Q2 2022 (RMB M) | Q2 2023 (RMB M) | YoY Change % | | :--- | :--- | :--- | :--- | | Investment Income | 2.2 | 12.3 | 459.1% | | Net Income | 28.7 | 82.9 | 188.9% | | Net Income Attributable to Shareholders | 32.1 | 76.5 | 138.2% | Q2 2023 Earnings Per ADS | Metric | Q2 2022 (RMB/ADS) | Q2 2023 (RMB/ADS) | YoY Change % | | :--- | :--- | :--- | :--- | | Basic Net Income per ADS | 0.60 | 1.42 | 136.7% | | Diluted Net Income per ADS | 0.60 | 1.42 | 136.7% | Non-GAAP Measures (Adjusted EBITDA) Adjusted EBITDA grew 191.6% YoY to RMB 104.1 million, with the margin improving to 9.2% from 5.1%, reflecting enhanced operational efficiency Q2 2023 Adjusted EBITDA Performance | Metric | Q2 2022 (RMB M) | Q2 2023 (RMB M) | YoY Change % | | :--- | :--- | :--- | :--- | | Adjusted EBITDA | 35.7 | 104.1 | 191.6% | | Adjusted EBITDA Margin | 5.1% | 9.2% | +4.1pp | | Diluted Adjusted EBITDA per ADS (RMB/ADS) | 0.66 | 1.93 | 192.4% | Financial Position & Distribution Network As of June 30, 2023, FANHUA maintained a strong liquidity position with RMB 1,611.6 million in cash and investments, while optimizing its distribution network by reducing sales outlets to 606 for profitability focus - The company had RMB 1,611.6 million (US$222.2 million) in cash, cash equivalents, and short-term investments as of June 30, 2023[27] - The distribution network was streamlined, with the number of sales outlets decreasing from 712 to 606 year-over-year, reflecting a focus on profitable branches[27] Financial Statements This section presents the unaudited condensed consolidated balance sheets, statements of income, and statements of cash flow for the reported periods Unaudited Condensed Consolidated Balance Sheets As of June 30, 2023, the balance sheet reported total assets of RMB 4,154.1 million, total liabilities of RMB 1,906.8 million, and total equity of RMB 2,247.3 million, reflecting a significant increase in assets from year-end 2022 Key Balance Sheet Items (RMB in millions) | Item | Dec 31, 2022 (RMB M) | June 30, 2023 (RMB M) | | :--- | :--- | :--- | | Total Assets | 3,089.5 | 4,154.1 | | Total Liabilities | 1,358.2 | 1,906.8 | | Total Equity | 1,731.3 | 2,247.3 | Unaudited Condensed Consolidated Statements of Income The income statement for the three months ended June 30, 2023, details the components leading from total net revenues of RMB 1,132.6 million to a net income attributable to shareholders of RMB 76.5 million - This section provides the detailed unaudited consolidated statements of income and comprehensive income for the three and six months ended June 30, 2023 and 2022[41][43] Unaudited Condensed Consolidated Statements of Cash Flow For the six months ended June 30, 2023, cash flow analysis shows RMB 33.6 million provided by operating activities, RMB 164.8 million used in investing activities, and RMB 137.9 million provided by financing activities - This section provides the detailed unaudited consolidated statements of cash flow for the three and six months ended June 30, 2023 and 2022[46][47] Non-GAAP Financial Measures Reconciliation This section details the reconciliation of GAAP Net Income to non-GAAP Adjusted EBITDA, showing how Q2 2023 Net Income of RMB 82.9 million was adjusted to arrive at an Adjusted EBITDA of RMB 104.1 million - The company provides non-GAAP measures like Adjusted EBITDA to supplement GAAP results, believing they are useful for assessing operating performance. These measures exclude items like income tax, interest, depreciation, amortization, and share-based compensation[35] Q2 2023 Reconciliation of Net Income to Adjusted EBITDA (RMB in millions) | Line Item | Amount (RMB M) | | :--- | :--- | | Net income | 82.933 | | (+) Income tax expense | 20.202 | | (-) Share of income of affiliates | (0.209) | | (-) Investment income | (12.325) | | (-) Interest income | (3.770) | | (+) Financial cost | 2.723 | | (+) Depreciation | 4.241 | | (+) Amortization of intangible assets | 4.864 | | (+) Compensation expenses (stock option) | 5.064 | | Adjusted EBITDA | 104.141 | Other Information This section provides logistical details for the Q2 2023 earnings conference call, a corporate overview of FANHUA as a leading independent financial service provider in China, and the standard safe harbor statement regarding forward-looking statements - A conference call to discuss the results was scheduled for 9:00 p.m. Eastern Daylight Time on August 30, 2023[30] - FANHUA is a leading independent financial service provider in China, focusing on insurance-oriented family asset allocation services and operating the online platform Baowang (www.baoxian.com)[31](index=31&type=chunk) - The press release contains forward-looking statements made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995, which involve known and unknown risks and uncertainties[32]