Thank you for standing by for Fanhua's Second Quarter 2023 Earnings Conference Call. [Operator instructions] For your information, this conference call is now broadcast alive over the Internet. Webcast replays will be available within 3 hours after the conference is finished, please visit Q - Fanhua's IR website at ir.fanhuaholding.com under the Event and Webcast section. Today’s conference is being recorded. I would now like to turn the meeting over to your host for today's conference, Ms. Oasis Qiu, Fanhua's Investor Relations Manager. Please go ahead.

Good morning. Welcome to our second 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 Co-Chairman and Chief Executive Officer, Mr. Yinan Hu; Co-Chairman and Chief Strategy Officer, Mr. Ben Lin, and Chief Financial Officer, Mr. Peng Ge. Mr. Hu will start a call by sharing his view on recent market trends and our strategy positioning, followed by Ben who will provide a review of our financial and operational highlights and discuss our business outlook going forward. There will be a Q&A session after the prepared remarks. Now, I will turn the call over to Mr. Hu. Ben will translate for Mr. Hu.

Good morning and good evening to everyone in the call. Thank you for joining today’s call. The Chinese economy is currently undergoing a major transformation. Old models of production disintegrating while new models of production are developing. This transition is also the root cause of challenges faced by the Chinese economy at present time. However, with its huge and growing market size, China's economy continues to exhibit strong resilience and great potentials. The fundamentals sustaining China's long-term outlook remains positive and will continue to provide a favorable business environment for all industries and for our company Fanhua. For China's Insurance market, the previously mass agent model is gradually phased out, and the new professional based model catering to customer demand have yet to take center stage. Currently, there are fewer than 1 million truly professional trained salespeople in the insurance industry. However, to meet the substantial demand of China's vast middle class population, an aging society for effective retirement and legacy planning, we estimate that there exists a shortfall of at least 2 million professional advisors in the market. In recent quarters, we have observed an increasing number of quality agents coming from a diverse range of sectors outside of the insurance industry to join our industry, they are in great need of an enabling platform that can support their ongoing development. This factor is yet to become a substantial driving force for the industry's next phase of growth. We believe that Fanhua's strategy of professionalism, specialization, digitalization and open platform fits perfectly well to this emerging trend. Our results over the past few quarters I think it's good evidence that our strategic implementation over the past two years is becoming effective and Fanhua has taken on a fresh new look. As such last week, we officially announced our new mission statement vision and core values, which are intended to solidify the roadmap to guide everyone at Fanhua to work together to propel the company towards achieving sustainable, high quality growth. Fanhua will uphold the highest ethical standards to promote our core values of integrity, professionalism, openness and innovation while striving to become a globally leading technology driven financial services platform dedicated to empowering the growth of independent financial advisors and fostering the sustainable value creation for our clients. This September, Fanhua will celebrate its 25th anniversary since our listing in 2007, the company has consistently delivered substantial returns to shareholders through buybacks and dividends. Looking ahead to the next 25 years, guided by a new mission and vision, we're confident that by continuing to push forward, our defined strategies will continue to create value for our shareholders.

Thank you, Chairman. I joined as many of you know, I joined Fanhua in July. I spent many years in the industry as a sell side insurance analyst and a number of years as an investor at a large US equity fund. My position at Fanhua is to be in charge of our overseas development and also our capital markets work. I hope to bring the years of experience I've had in analyzing the insurance market across the globe to help Fanhua achieve our objective of becoming a globally leading financial services platform. I will now take everyone through our second quarter results, which we are very, very pleased with. So firstly, in terms of revenue growth, we grew 61% over the quarter. And in terms of operating income, the numbers grew basically 177%, beating our prior guidance. In terms of our earnings growth, it came in at 192% in terms of adjusted EPS, in terms of our cash position, total cash and cash equivalents stood at RMB1.6 billion. All of this basically is an illustration that we are basically getting consistent results from the execution of our core strategy. Underpinning these numbers, let me go through in terms of our operational highlights. So if you look at the premiums, our premiums grew 55% year-on-year, which is significantly ahead of the industry growth of 23.7%. More importantly, in terms of life insurance first year premium, we grew 153% year-on-year, while the average of Chinese listed insurers was 89%. So obviously, without doubt, some of our growth in the second quarter came from very strong industry tailwinds, namely the pricing change that took place over the quarter. The most important indicator for us is really the improvement in advisor quality. So the number of MDRTs increased by 228%, while as the…

Hello, Maggie. We are ready to open the floor for questions.

[Operator Instructions] Our first question comes from Coco Gong of Morgan Stanley.

Hi, everyone. I'm from Morgan Stanley, Coco. Thanks for management to give me this opportunity to ask the very first question. First of all, congratulations to the company on very excellent results. The very first question from me would be about the expansion to Hong Kong and Southeast Asia markets. Maybe it's more towards then, because we want to understand what would be the specific plans that the company is thinking about, what goals is the company trying to achieve. Maybe you can share with us a little bit of a detail on that. The second would be what is the company seeing from the first line of agents on the economic recovery in China? That's sort of a question that a lot of investors are very curious about. That's all. Thank you.

Okay, so I'll just, if you don't mind, from now on, the Q &A session, I would like to respond in English. If I do have to pass the question on to some of my colleagues, I can help them translate. So I'll take the first question and Chairman Hu will take the second question on the Chinese economy. In terms of our overseas expansion plans, we are at the very early stages of crafting out our strategy. But we can tell you this, we have a very clear focus on what we want to do. It's going to be based on technology export and partnership. We're not looking to build frontline teams in big scale by entering Hong Kong or Singapore, et cetera. That's not what you should expect from us. Having looked at this industry for many, many years, I am a strong believer that the intermediary segment in Asia remains the only greenfield amongst the financial services industry across the region. And my view is that this is a very underserved segment in terms of technology. As you understand, there are some insurance companies like Zhong An or Ping An to export some of the insurer tech to Southeast Asia and the rest of the world. But those are basically mainly catered for insurance companies' needs. There's actually no broker company out there that is developing technology to empower offline and online sales for the traditional industry, for the traditional sales industry. And we see significant market potential in the region. As I mentioned earlier, if you look at Hong Kong, you have 850 brokers in Hong Kong. They're all very, very small. They don't have the capacity to invest in technology. While if you look at China, we are really leading the world now in terms of digital sales of almost everything. So in insurance, you are seeing a growing trend of agents using technology to create their own IT. They do basically lead generation through social media. They basically use their own expertise to create digital IT. And some of the recent trends we're seeing is that there's going to be a trend of using AI to drive a lot of those tasks. And so we think we are at a point where technology can drive consolidation of the brokerage market in Hong Kong and in Southeast Asia. And Fanhua is very well positioned to take advantage of that, given our expertise. We have 25 years of experience of selling P&C and life insurance products online and offline. And we have proven that in China we also have the financial resources to invest in this area. I mentioned earlier, each quarter we're basically spending about RMB20 odd million on technology. So we are very confident that this is the right path. And so please give us some time to find the right partner to pursue this path outside of China.

As Chairman who stated in his opening remarks, right, I mean China right now gone through a transition where old model of production again phased out, and new model of production are developing. So we can share with you four observations. So the staff community in China right now is a bit weak, and it's because the risk appetite for investors has declined. The other observation is in terms of consumption, obviously, consumers in China are cautious coming out of COVID. And there's obviously some evidence that there is a bit of consumption downgrade of daily products. The third point we can share with you is that social stability is still very evident, although the confidence level across industry is facing some challenges, but we are seeing signs that they are recovering. So in conclusion, look, every industry in China is going through a period of transition from old models of production to new models of sustainable production. We are all looking for new engines of growth. This will take one to two years to develop and become evident. What Mr. Wu can share with you all is that this new production process will also involve a lot of new tools, including artificial intelligence. We think that the adoption of new technology and tools will become very apparent over the next two years. So if you take insurance industry, for example, right? The last three years, everybody across the value chain in the insurance industry have been looking for a new way out. Looking for new models to develop sustainable growth. And what you've seen is that there's a growing trend of using technology to meet customer needs. It's becoming very visible that traditional mass agent model, that commission driven sales process needs to change. We see the adoption of artificial intelligence; we see the adoption of customer demand as the key tools to drive higher quality growth looking ahead. So what we are going through in the insurance industry we think really applies to other industries in China. Everybody's basically going from a pretty rough business model or operating model to a more higher quality, sustainable model. We have walked this path over the last three years and from all indications you can see that we are starting to get the results. So we are confident that if we can walk this path, a lot of industries and companies in China can also walk this path as well. So we remain pretty confident on the outlook of the Chinese economy over the long term.

[Operator Instructions] Our next question come from Xue Zhang from CICC.

I have two questions. And the first one is related to the product supply strategy and your sales momentum. We know that the 3.5% pricing traditional life products now is not allowed to sell, and in this case, many insurers and workers have made changes in their product strategy. So could you share some more details on your product strategy for the second half of this year and by far in August? How is the sales momentum of your savings and protection products in your observation? And the second one is about your Open Platform. Could you share or more tell on how you view the growth prospects of the Open Platform strategy, what opportunities and challenges we may face, and also what are the agencies most favorite functions and services in our platform? And what updates will you make in the future? Thanks.

Look, just to answer your question. Obviously, post and pricing change in July, the August sales figures across the industry is not looking too great. It will take time for the industry to adjust. But our view is that going from 3.5% to now, 3% guaranteed products. In this market environment, these products are still attractive. So this change from our point of view, it will not bring catastrophic change to the industry in terms of demand. The reality is that every year in China now you're seeing 20 million people entering the age 60 and above bracket. And over the next few years the projections are every year on an accumulate databases there will be 300 million people entering the age 60 and above category. And this category of elderly population in China, they will still have demand for low risk savings products. And so we're still pretty confident that we will go for a short term adjustment. But the medium to long term outlook in terms of demand for insurance product in China still remains very, very robust. So look, obviously we think these guaranteed return products will put pressure on insurers investment capability in the declining interest rate environment. And as a result, we foresee that we could see some product mix changes going forward as well. For example, we see annuity products as a very attractive product category. We see elderly health insurance as an untapped market. Although, we have a large amount of people in China entering 60 years or above category, this is still a pretty young age group given China's improving life expectancy. And it could be a good risk category for insurers to underwrite health insurance. And lastly, we think the industry will also move towards more customized and differentiated products. We think what will be standardized is really these investment products, but we also see the opportunity for insurers to offer differentiated products through services.

And maybe I'll just add to Mr. Hu's point that obviously there are some voices out there that the regulator should encourage insurers to also develop participating products in a low rate environment. But obviously, the industry concern is miss selling once you go through a period of selling guaranteed products. There's always concern about miss selling when you move towards non-guaranteed products. Our take is that the only way to reduce this risk is through professionalizing the salesforce. And this is an area that we are a very strong advocate of.

So in terms of how we work with our suppliers, our upstream, the manufacturers insurance companies, we are taking a more defensiated approach now. We want to work with suppliers who have strong solvency margin, good investment capability and service capability. And with those suppliers, our intent is to codevelop defensiated products and services to meet the demands of our clients. So in terms of the challenges facing by our Open Platform, the challenge is really also the opportunity for us. Right now the sales process over the last decade, the sales process in China has been driven by the mass agent model, and the focus on digital tools was not very prevalent. It's all about recruiting. And so that has led to a series of problems and challenges that's facing by the industry right now. But we think that these constraints are basically opportunities for us, right? So for a lot of the brokers, they're constrained by capital, in terms of capital investment into technology, they're also constrained by the fact that in a lot of the commission agreements they have with insurance companies. There is no specific mandate for them to invest in technology. But we think as the industry goes from mass agent to professional agency with a small number of insurers serving still the same size market or growing market there will be a need for automation of the sales process. And so we think the industry needs to invest in infrastructure to support digital and also artificial intelligent based selling. And that's an area where Fanhua we think we have the resources and the experience to do this. I mean, what we're doing in terms of Open Platform is obviously something that's quite new, not only in China, in my view, but across the region.…

Thank you. I see no further questions at this time. I will turn the call back to Oasis Qiu. Thank you.

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

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