Thank you for standing by for Fanhua's First Quarter 2023 Earnings Conference Call. [Operator instructions] I would now like to turn the meeting over to your host for today's conference, Ms. Oasis Qiu, Fanhua's Investor Relations Manager.

Good morning. Welcome to our first quarter 2023 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 provision of the US Private Securities Litigation Reform Act of 1995. The accuracy of this statement 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 this forward-looking information except as required under applicable law. Joining us today are our Chairman and Chief Executive Officer, Mr. Yinan Hu; Chief Financial Officer, Mr. Peng Ge; Chief Operating Officer, Mr. Lichong Liu. Mr. Hu will provide a review of our financial and operational highlights in the first quarter 2023. There will be a Q&A session after the prepared remarks. Now, I will turn the call over to Mr. Hu.

Good morning and good evening. Thank you for joining today's conference call. I will be repeating some of the highlights of our first quarter results reported last week in our earnings release. As we mentioned, with the positive macro and industrial environment over the first quarter of 2023, Fanhua achieved strong results over the period with solid growth across various key operating metrics. Total premiums up by 29% to RMB4.4 billion, significantly outpacing life insurance industry premium growth of 8.9%. New business premiums up by 51.4% to RMB851.9 million, significantly above the 15% growth rate achieved by the listed Chinese life insurers. Total revenues up by 20.6% year-on-year to RMB827.7 million, and operating income was up by 193.1% to RMB60.4 million, significantly exceeding our previous estimate. For this quarter, we have express service hours relative to our industry and key list to insurance peers we have made this comparison to demonstrate that we are executing on our well-defined strategy of driving sustainable growth in our business through professionalism, specialization, digitalization and open-platform. This strategy is starting to set us apart from our competitors as demonstrated by our first quarter results. Next, please allow me to go over three key operation highlight that are direct results from the execution of our strategy. Firstly, our strategic focus on quality growth produces significant increase in agent quality and productivity. Our number of 100k premium agents and Million-Dollar Round Table members professional agents grew 27% year-on-year. The productivity of this high performing agents also grew by 18% and 37% year-on-year, respectively. And together, they accounted for 42% of our sales over the period, up from 32% in the same period last year. Secondly, we are already seeing material contribution from our open-platform and our acquisitions over the past two quarters. As at the end…

[Operator Instructions] Our first question comes from the line of Yuyu [ph] Zhang from CICC. Please go ahead, Yuyu.

So the first question was related to the finished product demand [ph]. So previously, China insurance regulator has asked insurers to lower estimated returns for new products. So do you see those [indiscernible] products? And how do you expect the momentum of savings product sales? And the second question, we also see in the last year and the Q1, the average take rate of the [indiscernible] so strong gradually. We know it's mainly due to the changing product mix and reduced [indiscernible] commission. I think it's a really a negative impact on our brokerage income, while our FYP [ph] has a really good performance. So could you share some more color on how you see the future agenda of your take rate and what actions [indiscernible]. And last question is in terms of the open-platform strategy. In the previous conference call you said you plan to invest or acquire around 10 small or middle sized insurance agencies and [indiscernible]?

Thank you for the questions, Yuyu. This is CEO Mr. Yinan Hu. Mr. Hu, will like to invite Mr. Liu Lichong, our Chief Operating Officer to address the first question. And our CFO to answer your second question regarding the trend in our commission rate, and he himself will answer your third question regarding to the M&A progress.

So with the imminent downward adjustment in the guarantee returns from life insurance products in the new product pricing, we do see very strong demand for savings products, including annuity and whole life insurance products. However, in the second half, how will that change? We still believe that for the longer term, the demand will remain robust for savings products because of the three contributing factors. Firstly, we've seen the acceleration in ageing populations and lower risk appetite among consumers. And why the ageing population still have very strong demands for products that can cater to their needs in their retirement. And then secondly, we have seen the downward trend in interest rate in the long-term. So even though the [indiscernible] interest rate for new product pricing are [indiscernible] downward to 3%, that still provides a quite attractive returns. And thirdly, with the softening economy, we're seeing a kind of consumption downgrade and also investment product downgrade in terms because of the softening economy did not mainly attractive in that [indiscernible] choices, or why insurance do offers a safe as a kind of safe asset class. Thank you.

CFO would like to answer this question. First of all he would like to clarify on the definition of commission rates. And from insurance point of view we've actually seen that the commission rate will probably in the downward trend to be in line with the international practice as well as regulators requirements, or regulators wish to lower the costs -- financial costs for financial institutions in China. And then for Fanhua -- and because we sell a wide variety of products, so, product, the changes in product mix as well as the term that customers choose to pay their premiums will have impact on the overall commission rate. However, if on the basis of annualized equivalent -- annualized premium equivalent basis, our first year commission rates remains quite high. And -- but having said that, I would like to emphasize that the key operating matches that the company ought to focus on our first year premiums, net revenues and gross margin, as well as persistence ratio. I think this are the better operating matches to measure the company's financial health. As Mr. Liu mentioned that there will be some changes in savings products with the upcoming transition to the new product pricing, which means that the cost for insurance company will be lower. And for -- probably that will impact our sales capabilities in the short-term. However, in the longer term, we still believe that the demand for savings products will remain robust. And also, having said that, we still believe that for established -- for insurance intermediaries the key -- their key competitive advantage should be on the ability to offer a comprehensive service or comprehensive solutions to address customers diverse demands, instead of simply selling insurance products. As Mr. Liu mentioned that we are actually -- would like to offer -- further broaden our service offerings to include trust services, health care, and now [indiscernible] as well as education solutions to customers. And we believe this is -- are the key for us to further enhance our competitive advantages. Mr. Hu also mentioned that we target at growing our first year premiums and operating income by 50% year-over-year for 2023. I believe that if we can achieve this 50% full year target, we will also see a continued improvement in our gross margin, net profit margin as well as persistency ratio.

And this is Mr. Hu, CEO of the company. He would like to address your questions on our M&A strategy. Basically, the industry is evolving towards the [indiscernible] of high-quality growth, which means that higher business quality with lower costs. What's happening in the market right now is actually in favor of our M&A strategy. Or i.e. created a much more favorable environment for us to pursue acquisitions. So we will stick to our open-platform strategy and M&A strategy. There's no change to our acquisition target for this year. M&A is not purely business combination. I think the basis for our acquisitions, moving light on technology, our digital capabilities and AI technology applications. In the longer term, we believe that technology will be a key contributors to drive business growth for insurance intermediary. And just found -- I'm quite confident that Fanhua has stayed far ahead of our peers in terms of IT investments and technological capabilities in China, as well as in Asia. However, right now in China, and in other Asian markets that we observed, technological investment is not really enough. And that's the key reason that restricts the further growth of insurance intermediaries. However, we believe that the demand for technology is quite strong. While we are also seeing that a lot of licensed insurance intermediary companies as well as independent agents cannot really afford to invest in IT systems on their own. So, the core of our M&A to export our digital technological advantages and digital capabilities. So that we can allow more insurance intermediary companies to benefit from Fanhua's technological advantages and help them to double their sales capabilities by lowering the operating expenses and building momentum for sustainable growth. And for our future M&A targets, we are actually looking at technological empowerment to this acquired entities and we pursue quality in data -- quality instead of quantity. Thank you.

Thank you. Our next question comes from the line of Dan Wong from JPMorgan. Please ask your question, Dan?

So, the questions from JPMorgan's. He has three questions. The first question is regarding our agents productivity. And the first quarter, we see a strong improvement in agent productivity. But probably that's because of a low base last year. And he will wonder whether or not the high productivity of our agents will be sustainable in view of the fees competition in the market. And the second question is regarding the company's share buyback plan to progress. The company announced a share buyback plan in December last year, but now that was the company's M&A strategy, probably the company would like to reserve a more cash in to pay for the acquisition. How the company's capital deployment plan to [indiscernible] and what's the plan for share buybacks? And the third question is regarding regulation. The regulator has adopted quiet time regulations to supervise the insurance intermediary markets. But we believe that with a more stringent compliance framework and a more stricter supervision on business quality of the company that will help the company to improve sales volume as well as lower risk. So what's the opportunity there for the company? Again, the three question will be divided among the management, our CEO Mr. Lu answer your first question regarding agent productivity. And Mr. Ge will answer the second question regarding share buybacks and Mr. Hu himself will answer your third question regarding litigation [ph]. We are actually seeing that over the past few years the number of agents that have dropped significantly in the market. And on the contrary the productivity of agents per capita per activity actually have been increasing. I believe that there are two reasons. First of all, the demand -- the customers demand has transitioned from kind of relatively lower end products, i.e. critical illness products…

So Mr. Ge would like to answer your second question on share buyback. So, I believe that Fanhua is a quite responsible company to shareholders. I have recap on the use of capital no since IPO. We have spent around RMB1.7 billion on cash dividends since our IPO and spend around RMB700 million on share buyback, totaling RMB2.4 billion, which represented over 50% of our total operating cash flow, amounting to like RMB4 billion. So that shows our commitment to maximize shareholder returns. In the past 3 years since 2020, due to the COVID-19 and a softening economy, the industry has undergone substantial changes. Fanhua, however, has sticked to our strategy. And we have saw material contributions on execution of a strategy in the first quarter of 2023. In my view, I believe that our cash should be earmarked to build momentum for sustainable rapid growth in the future in the longer term. So including our initiatives, such as M&A. And because of what's happening in the past 3 years, our stock has been significantly undervalued. We believe that share buyback will be a much more efficient means to maximize shareholder returns compared to dividends. So that's why we announced a 20 million share buyback plan last December. And despite the restriction of the window [ph] period, and the restriction on the trading volume that company can buy, we have purchased about [indiscernible] ADS amounting to US$600,000. That's the progress that we've made in terms of our share buyback. I would like to add a comment on your first question. And this is also the strategy that we have that fit to over the past 15 years. We believe that no matter how its professional or how elite the sales agents are, if they only sells insurance products properly, it…

Thank you. I'm showing no further questions. I'll now turn the conference back to Ms. Oasis Qiu for closing remarks.

Thank you for participating in our conference call. If you have any further questions, please feel free to contact us. Thank you.

Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you.