Date of Report: 30 September 2024
Broker: UOB Kay Hian
Company Overview
Huize Holding operates as an insurance technology platform that connects consumers, insurance carriers, and distribution partners through data-driven and AI-powered solutions. The company focuses on long-term life and health products catering to the mass affluent market.
Stock Information
- Share Price (as of report date): US$0.71
- Target Price: US$1.50
- Upside Potential: +111.2%
- 52-Week High/Low: US$1.36/US$0.57
- Bloomberg Ticker: HUIZ US
- Market Cap: US$35.1 million
- Major Shareholders:
- Cunjun Ma: 30.9%
- Crov Global Holding Limited: 15.7%
- Huidz Holding Limited: 13.2%
- Wande Weirong Limited: 9.8%
- CDF Capital Insurtech Limited: 8.2%
2Q24 Results Overview
- Total Revenue: Rmb283m, down 23.2% YoY
- Gross Written Premium (GWP): Rmb1,336.9m, down 3% YoY
- First Year Premium (FYP): Fell by 27.4% YoY
- Renewal Premium: Increased 42.8% YoY, reaching Rmb685.4m
- Non-GAAP Net Loss: Rmb13m
- Gross Profit: Rmb88.6m
- Operating Expenses: Rmb114.6m, up 41.1% QoQ
- Blended Commission Rate: Increased to 20.3%, up 2.7ppt QoQ
Key Financial Indicators
- EBITDA (2024F): Rmb52.7m
- Non-GAAP Net Profit (2024F): Rmb51.9m
- Net Cash/Share (FY24): Rmb0.35
- Price-to-Earnings Ratio (PE) (2024F): 4.9x
- Price-to-Book Ratio (P/B) (2024F): 0.6x
Key Challenges in 2Q24
Huize reported weak earnings in 2Q24 due to several factors:
- Sluggish FYP Growth: A decline in first-year premium revenue negatively impacted overall performance.
- Higher General & Administrative (G&A) Expenses: A 33.9% YoY increase in G&A expenses significantly affected net profitability. The increase was attributed to rising rental and utility expenses, as well as share-based compensation costs following an employee share option plan (ESOP) issuance.
- Revenue Impact from Commission Rate Decline: Brokerage income fell 23.6% YoY to Rmb271.8m, primarily due to a reduction in the blended commission rate.
Growth Outlook
- 3Q24 and Beyond: Management expects a recovery in FYP in 3Q24, driven by potential buying demand before expected life insurance interest rate cuts.
- Product Mix Evolution: Huize is focusing on enhancing its product portfolio, with savings-type insurance products remaining a core offering due to limited investment opportunities in China. The company has also emphasized its customised protection products, which offer higher commission rates.
- International Expansion: Huize’s international business, particularly in the ASEAN region, continues to grow. In 2Q24, international market contributions to total revenue increased to 11%. The company aims for 30% revenue contribution from international markets by 2026, and recently completed the acquisition of Global Care in Vietnam. Huize plans to expand into the Philippines and Indonesia within the next 12 months.
Strategic Focus Areas
- Product Innovation and Commission Growth: Huize is actively promoting savings and life insurance products ahead of interest rate cuts, which are expected to be discontinued soon. The company is also developing more customised product offerings with better commissions.
- International Expansion Strategy: After successfully entering the Vietnamese market, Huize targets additional ASEAN markets, with strategic partnerships being a key growth driver.
Valuation and Recommendation
- Target Price: US$1.50, based on a Discounted Cash Flow (DCF) valuation with a Weighted Average Cost of Capital (WACC) of 20% and a terminal growth rate of 5%.
- Valuation Metrics: The stock is trading at 0.57x 2024F Price-to-Book (P/B), which is 1.5 standard deviations below the five-year average, near its net cash position.
Risks to Growth
- Operational Risks: Higher-than-expected operating expenses, a drop in commission rates, and potential challenges in international expansion.
- Market Conditions: The insurance market may face a potential decline in demand, particularly in light of regulatory changes and economic challenges in China.
Conclusion
Despite near-term challenges, Huize Holding has solid plans to recover from the setbacks seen in 2Q24. The company is positioned to benefit from a strategic shift towards international markets and customised product offerings. The international expansion, especially in ASEAN countries, and the upcoming boost in insurance product sales ahead of interest rate changes, are key drivers for growth moving forward.
