Ladies and gentlemen, thank you for standing by. And welcome to Huize Holding Limited Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management prepare remarks, we will have a question-and-answer session. Today's conference call is being recorded and a webcast reply would be available. Please visit Huize’s IR website at ir.huize.com, under the Events and Webcast section. I’d now like to hand the conference over to your speaker host today, Ms. Harriet Hu, Huize’s Investor Relations Director. Please go ahead, Harriet.

Thank you, operator. Hello, everyone and welcome to our earnings conference call for the second quarter of 2023. Our financial and operating results were released earlier today and are currently available on both our IR website and the newswire. Before we continue, I would like to refer you to the Safe Harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained in our earnings press release and filings with the SEC. Joining us today are our Founder and CEO, Mr. Cunjun Ma; COO, Mr. Li Jiang; Co-CFO, Mr. Minghan Xiao; and the Co-CFO, Mr. Kwok Tam. Mr. Ma will start the call by providing an overview of the company’s performance and operational highlights for the second quarter of 2023. Mr. Tam will then provide details on the financial results for the period before we open up the call for questions. I will now turn the call over to Mr. Ma.

[Foreign Language] [Interpreted] Hello, everyone, and thank you for joining Huize’s second quarter 2023 earnings conference call. In the second quarter of 2023 macroeconomy continued to recover and the operating conditions in the insurance industry continued to improve. The life insurance industry's consumer confidence index reached 68.2 in the second quarter of 2023, which is higher than it was in the same period of 2021 and 2022. Riding on this positive market trend and combined with our competitive age in long-term insurance products, comprehensive online to offline integration and industry leading product innovation and customer acquisition capability. We reported another set of encouraging results today. In the second quarter, total gross written premiums or GWP facilitated on our platform reached RMB1.4 billion, up by a considerable 58% year-over-year. Our total operating revenue increased by 48.3% year-over-year to RMB370 million. We also achieved our first consecutive quarter of non-GAAP net profit with RMB19 million in the second quarter. In terms of product mix, first year premiums or is FYP facilitated on our platform increased by 85.2% year-over-year to approximately RMB900 million in the second quarter. Renewal premiums continue to grow steadily, increasing by 24% year-over-year to RMB480 million. During the quarter, amid the surge in demand for savings products, we leverage our diversified product offerings and solid omni-channel distribution capabilities to capture the market opportunity. As such, FYP of our long-term savings products increased by 136% year-over-year to RMB670 million in the second quarter. FYP of our long-term health product also increased by 10.4% year-over-year to RMB140 million. GWP contribution of our long-term insurance products was 93.6%, marking the 15th consecutive quarter about 90%. While achieving high quality business growth, our customers remain young with high potential and high stickiness, and we continue to capitalize the lifetime value of our existing…

Thank you, Mr. Ma and Harriet, and good evening, everyone, in Asia time zone. In the second quarter amidst further recovery in consumer confidence and total incomes, the insurance industry in China grew steadily. Sector-wide gross written premiums increased by 22% year-over-year to RMB900 billion during the quarter. At Huize we leverages on our O2O integrated insurance service ecosystem and our business will continue to significantly outpace the broader market. We have delivered a 58% year-over-year increase in total GWP facilities on our platform, which reached RMB1.4 billion in the second quarter. We have also added about 200,000 new customers to our ecosystem in the second quarter, bringing the total number to 8.9 million at the end of the June quarter. During the quarter, we recorded a non-GAAP net profit of RMB19 million, marking our third consecutive quarter of profitability and putting us on track to meet the upward revised full-year non-GAAP net profit guidance of RMB15 million that we have issued in the last quarter. This can be attributed to the successful execution of our key business strategies. First, we continued our strategic focus on long-term insurance products with GWP contribution from this product remaining above 90% for the 15th straight quarter. Second, we continued to target high-quality mass affluent customers and empower insurance agents to our omnichannel distribution platform with product offerings and sophisticated technologies. Our To-A, To-C business line remained solid with total FYP of RMB156 million in the second quarter, representing a year-over-year increase of over 2 times and a sequential increase of over 1 times. And third, we continue to place an emphasis of optimizing operational efficiency throughout our business, and this can be demonstrated by the improving operating leverage and profitability for the quarter. Some key highlights and takeaways from this quarter's operating results…

Ladies and gentlemen, we now begin the question-and-answer session. [Operator Instructions] And the first question from Coco Gong from MS. Please go ahead. Your line is open.

Hi, thanks. [Foreign Language] So, hi everyone. I'm Coco from Morgan Stanley. So congratulations to the management on the various results. So I have two questions, and the first one would be on the product transition and product performance potentially in the third quarter and first-half of next year because of the tracking interest rate interest rate hike on basically August 1. So we're wondering if the management sees any, sort of, potential product transition and how the performance will be in third quarter? And because of the high base this year, how is management thinking about going forward into next year first half? That's the first question. And the second would be, what Huize strategy in Greater Bay Area, given that the new products which launched with CPIC Life Hong Kong? And overall, what would be the outlook and strategy for this opportunity area?

All right. Thank you for the questions, Coco. It's Ron here. So regarding your first question on the outlook for Q3, I think indeed the 3.5% pricing products have came off the shelves effective from August 1. In Q3, we do have the month of July contributing to our Q3 results. So we can say that the July sales numbers are quite strong across the board. And I think as one of the leading participants in this industry, I think we also have benefited from good sales in July. In the fourth quarter, I think over the next two quarters, I think the overall industry is going through an adaptation phase with respect to the product structure. I think the mainstream opinions on this topic is highly topical right now. A lot of people are discussing what's the more mainstream product that will be coming to the market in the next two quarters. I think a lot of the insurance companies now have rolled out the 3.0% pricing product already. This will be the traditional type products, increasing sum assured with guaranteed 3% or close to 3% should I say. There's also an anticipation of rollout [Technical Difficulty] products with variable returns. We were slightly lower, 2.5% guarantee, but variable returns depending on the investment performance. So I think the whole industry is still going through this adaptation right now. It's a bit too early to tell. But we do think that the overall savings product category will continue to be well-received by the average insurance customer in China mainly, because of the continued anticipation of a declining rate environment leading to the relative attractiveness of these savings products we'll continue to have an appeal to customers versus other wealth management alternatives in China, for example, bank deposits and other…

Thank you for your question. We’ll now taking the next question and the next question is from Mindy Gao for CLSA. Please go ahead. Your line is open.

[Foreign Language] Thank you for taking my question. This is Mindy from CLSA. My first question is about the gross margin trend. So I wonder how do you see the trend of gross margin in the second-half and the rationale behind? So my second question is about your overseas expansion plan. So can you share with us more color about where there is overseas expansion plan? And when do you expect to see a more meaningful revenue contribution from this part of the business? Thank you.

Thank you, Mindy. It's Ron here. Two questions. The first question on our gross margin outlook. I think we have been demonstrating that we have achieved cost efficiencies throughout our business lines. And as a result, our gross margin for the second quarter has improved by almost 4 percentage points from same period last year. I think we continued to strive to maintain gross margins at the current level through three main areas. One is we continue to have a very disciplined cost control on the marketing spend, on our customer acquisition channel cost. We have actually been quite stringent on our direct acquisition budgets. We have been quite focused on harvesting our existing customer base as well in terms of repurchases. We have actually achieved more than 3% repurchase rate from our direct To-C business line in this quarter. So this demonstrates that we have been able to achieve premium growth from our existing customer base. And we balance that very carefully with new customer acquisition spend to attract new customers. Secondly, I think we continued to invest in the technology. And we have been also deploying more capital into AI efforts. I think we are expecting to yield efficiency enhancements again on many aspects of our business across the value chain. So that would be a second measure. And I think a combination of these measures and strategies will help us maintain our gross margins at the current level. So that will be the answer to your first question. So the second question on overseas expansion. I think Hong Kong is the first destination in terms of our international strategy or expansion. Hong Kong is a natural extension for our Mainland China business because Hong Kong we do have a very good opportunity in the overall MCV business in the Hong Kong market. This is a HKD40 billion market pre-COVID and we expect that to be around 80% or 100% recovery this year. So as a major player in the mainland Chinese insurance brokerage industry, with the brand recognition that we have with many of the Hong Kong local residents, who have a linkage of mainland China, we believe that our brand equity was able to help us achieve a decent market share in the Hong Kong local market as well. So we're targeting to become a top-tier broker in the Hong Kong market in the next three years and to achieve a meaningful market share, as well in the MCV business and also for the local Hong Kong market business. And I think on the back of the Hong Kong expansion, we are looking into potential investment opportunities in Southeast Asia. We are not currently in the feasibility study stage. We are in preparation for a potential rollout of our business across division. But right now we are still in the early phase of identifying opportunities and identifying potential joint venture partners in targeted countries in Southeast Asia.

Thank you for your question. [Operator Instructions] We’re now taking the next question and the next question from Michelle Ma from Citi. Please go ahead. Your line is open.

[Foreign Language] The first question is about our thoughts on AI Tech. So for smaller players, should we think about like first mover or early mover advantage or we should like follow the tech of those industry giants for AI tech's consideration? So I just want to have a sense of the management's thoughts on this issue? And the second thing is about the operating leverage. And we are seeing some deterioration in the operating leverage. But with I think a very promising net profit outlook for the whole year and for the second-half this year. So we'll return to a path to continue expansion or we should pay more attention to the cost control? And how about the revenue growth outlook in the second-half? Thank you. [Foreign Language]

Thank you, Michelle. I'll take your questions. So the first question on AI. I think the way that we look at AI is we don't really see as a first mover or second mover. I think the more pertinent question is for AI to really work for any particular company in the respective industry vertical, I think the key prerequisite is you have data in the platform. You have the right data in the platform to help you deploy AI technology to improve efficiency. So to that regarding what we have is we have over 17-years now of transaction data. And this encompasses pre-sales consultation conversations, because we have a real-time compliance monitoring system, as you well know. So we have a lot of daily conversations between our consultants and the end customers as data to be fed into AI training models. We also have a lot of underwriting data. We have also claims processing data. As you understand, we have Xiao Ma Li Pay, the Xiao Ma Claim Service. So therefore we actually have accumulated a lot of this data. So all this is actually helping us to effectively train any, kind of, AI algorithms internally, so that we can potentially derive game-changing AI technologies to be deployed in-house. So I think that to the extent would be the answer to your first question. I think we have the network advantage to deploy AI, because we hold proprietary data within our ecosystem, within our platform. And hopefully over the next six to 12 months, we will be able to release to the market or to announce to the market some milestone achievements in this regard. So in relation to your second question also, some expenses might have creeped up in the second quarter, but we still intend to maintain…

Thank you for your question. I will now hand the conference over to Ms. Harriet Hu for closing remarks.

Thank you, operator. One behalf of Huize's management team, we would like to thank you for your participation in today's call. And if you require any further information, please feel free to reach out to the IR team. And thank you all for joining us today. This concludes the call.

And this concludes the conference for today. Thank you for participating. You may all disconnect.