Fanhua Reports First Quarter 2020 Unaudited Financial Results

Guangzhou, CHINA


GUANGZHOU, China, May 26, 2020 (GLOBE NEWSWIRE) -- Fanhua Inc., (Nasdaq: FANH), (the “Company” or “Fanhua”), a leading independent financial services provider in China, today announced its unaudited financial results for the first quarter ended March 31, 20201.

Financial Highlights for the First Quarter of 2020:

(In thousands, except per ADS)2019Q1
(RMB)
2020Q1
(RMB)
2020Q1
(US$)
Change %
Total net revenues971,654722,623 102,054 (25.6)
Operating income126,42360,044 8,480 (52.5)
Share of income (loss) of affiliates25,413(12,339)(1,743)- 
Net income attributable to the Company’s shareholders147,26845,793 6,467 (68.9)
Diluted net income per ADS2.620.85 0.12 (67.6)
Cash, cash equivalents and short- term investments (As of March, 31, 2019 and 2020)2,394,0091,843,238 260,315 (23.0)

Commenting on the financial results of first quarter of 2020, Mr. Chunlin Wang, chairman and chief executive officer of Fanhua, stated, “As the global economy was hit hard by the COVID-19 outbreak, the life insurance sector in China has also been severely affected, with a low single digit growth of 2.7% year-over-year in life insurance gross written premiums (“GWP”). Despite this challenging environment, Fanhua still managed to generate RMB2.4 billion GWP in our life insurance business segment, representing a growth of 9.3% year-over-year, outpacing industry growth. Of the RMB2.4 billion, first year premiums (“FYP”) achieved RMB499.3 million and renewal premiums were RMB1.9 billion while annualized premiums equivalent (“APE”) were RMB307.7 million.

“Affected by the pandemic, a large number of enterprises at home and abroad have suffered serious losses, with many struggling to survive. Against this market backdrop, we beat expectation with operating income of RMB60.0 million and recorded net operating cash flow of RMB134.6 million during the quarter. The results vindicated the snowballing effect of our profit model, and reflected the strength and resilience of our business model.

“We previously expected the Covid-19 outbreak would be nearly over in China by the end of March and that our business could start to recover rapidly in the second quarter of 2020. However, as the pandemic spread rampantly around the world, a full resumption of work and production in China has also been delayed. Business activities originally planned for April such as agent recruitment, trainings and product seminars could not be carried out offline as usual, which significantly impacted our results for the second quarter of 2020, especially for the sales of higher ticket savings-typed products as face-to-face meetings are important in customers’ decision-making process.

“Since the outbreak, Fanhua has responded with effective and vigorous countermeasures, including conducting our operational activities digitally by leveraging our strength in digital technologies and introducing several supportive policies for our employees and agents. We are pleased that these measures and policies have helped keep our employees and agents united and motivated. Since the beginning of May, our agents across China have gradually resumed all kinds of offline trainings, agent recruitment and sales activities.

“Based on our preliminary assessment, we remain optimistic that we will be able to outpace industry growth and achieve positive quarter-over-quarter growth in the second quarter of 2020, with APE to be no less than RMB350 million and operating income no less than RMB70 million. 

“As the insurance market is a crucial part for China’s plans to become a financial powerhouse, we believe that the underlying growth trend of the Chinese insurance market remains unchanged in the long run. In addition, risk awareness has been significantly enhanced among Chinese consumers during this unprecedented health crisis, which is expected to significantly drive the demand for insurance products. We believe we are well-positioned to benefit from such growth opportunities.

“Despite the uncertainties caused by the pandemic, we are confident that we will be able to remain profitable with stable operating cash flow. As such, management reiterates that we will maintain our regular dividend policy of $0.25 per ADS for the remainder of the year.”

Financial Results for the First quarter of 2020

Total net revenues were RMB722.6 million (US$102.1 million) for the first quarter of 2020, representing a decrease of 25.6% from RMB971.7 million for the corresponding period in 2019.

  • Net revenues for the life insurance business were RMB625.2 million (US$88.3 million) for the first quarter of 2020, representing a decrease of 27.2% from RMB859.2 million for the corresponding period in 2019. The decrease was mainly due to the decline of 42.5% in first year commission from RMB670.2 million to RMB385.2 million, offset by the growth of 27.0% in renewal commissions from RMB189.0 million to RMB240.0 million as a result of the accumulation of renewal business and high persistency ratio.  Revenues generated from our life insurance business accounted for 86.5% of our total net revenues in the first quarter of 2020.

  • Net revenues for the P&C insurance business were RMB25.0 million (US$3.5 million) for the first quarter of 2020, representing a decrease of 34.4% from RMB38.1 million for the corresponding period in 2019. Revenues for the P&C insurance business are mainly derived from commissions generated from Baowang (www.baoxian.com). The decrease was primarily due to the cessation by certain insurance companies in underwriting several popular accident insurance products distributed through Baowang (www.baoxian.com). Revenues generated from the P&C insurance business accounted for 3.5% of our total net revenues in the first quarter of 2020.

  • Net revenues for the claims adjusting business were RMB72.4 million (US$10.2 million) for the first quarter of 2020, representing a decrease of 2.7% from RMB74.4 million for the corresponding period in 2019. The decrease was mainly due to the decline in auto-insurance related claims adjusting business, offsetting the growth in our medical insurance-related claims adjusting business. Revenues generated from the claims adjusting business accounted for 10.0% of our total net revenues in the first quarter of 2020.

Total operating costs and expenses were RMB662.6 million (US$93.6 million) for the first quarter of 2020, representing a decrease of 21.6% from RMB845.2 million for the corresponding period in 2019.

  • Commission costs were RMB490.9 million (US$69.3 million) for the first quarter of 2020, representing a decrease of 26.6% from RMB668.7 million for the corresponding period in 2019. The decrease in commission cost was mainly in line with the decrease of life insurance business. 

    • Costs of the life insurance business were RMB427.4 million (US$60.4 million) for the first quarter of 2020, representing a decrease of 28.9% from RMB601.5 million for the corresponding period in 2019. The decrease was in line with the decline in net revenues generated from our life insurance business. Costs incurred by the life insurance business accounted for 87.1% of our total commission costs in the first quarter of 2020.

    • Costs of the P&C insurance business were RMB16.7 million (US$2.4 million) for the first quarter of 2020, representing a decrease of 32.1% from RMB24.6 million for the corresponding period in 2019. The costs of the P&C insurance business mainly represent commission costs we incurred for operating Baowang (www.baoxian.com). The decrease was in line with the decrease in net revenues generated from our P&C insurance business. Costs incurred by the P&C insurance business accounted for 3.4% of our total commission costs in the first quarter of 2020.

    • Costs of claims adjusting business were RMB46.8 million (US$6.6 million) for the first quarter of 2020, representing an increase of 9.9% from RMB42.6 million for the corresponding period in 2019. Costs incurred by the claims adjusting business accounted for 9.5% of our total commission costs in the first quarter of 2020. The increase was due to the growth in our medical insurance-related claims adjusting business, which has a relatively lower margin.

  • Selling expenses were RMB61.3 million (US$8.7 million) for the first quarter of 2020, representing a decrease of 5.1% from RMB64.6 million for the corresponding period in 2019.

  • General and administrative expenses were RMB110.4 million (US$15.6 million) for the first quarter of 2020, representing a decrease of 1.3% from RMB111.9 million for the corresponding period in 2019.

As a result of the preceding factors, we had an operating income of RMB60.0 million (US$8.5 million) for the first quarter of 2020, representing a decrease of 52.5% from RMB126.4 million for the corresponding period in 2019.

Operating margin was 8.3% for the first quarter of 2020, compared to 13.0% for the corresponding period in 2019.

Investment income was RMB8.9 million (US$1.3 million) for the first quarter of 2020, representing a decrease of 75.8% from RMB36.8 million for the corresponding period in 2019. The investment income in the first quarter of 2020 consisted of yields from short-term investments in financial products. The decrease in yields from short-term investments in financial products was mainly due to (i) changes in composition of our short-term investment portfolio, with increased allocation to wealth management products issued by banks which offer relatively lower yields as compared to other financial products in the portfolio; (ii) a year-over-year decrease in yields from wealth management products issued by banks; (iii) a decrease in cash available for investment in short-term investment products due to the share buyback program of 2019. Our investment income fluctuates from quarter to quarter because investment income is recognized when investments matured or disposed.   

Interest income was RMB2.9 million (US$0.4 million) for the first quarter of 2020, representing an increase of 590.9% from RMB0.4 million for the corresponding period in 2019. The increase in interest income in the first quarter of 2020 was mainly due to (i) the increase in bank deposits; and (ii) short-term loans amounted to RMB60.0 million with 10% annual interest rate.

Income tax expense was RMB18.7 million (US$2.6 million) for the first quarter of 2020, representing a decrease of 56.4% from RMB42.9 million for the corresponding period in 2019. The effective tax rate for the first quarter of 2020 was 25.3% compared with 26.0% for the corresponding period in 2019.  

Share of loss of affiliates was RMB12.3 million (US$1.7 million) for the first quarter of 2020, compared with share of income of affiliates of RMB25.4 million for the corresponding period in 2019, mainly attributable to a loss from CNFinance due to the increase in its provision for credit loss as a result of (i) the impact of the new current expected credit loss (“CECL”) model that took into account the deterioration in the economic outlook caused by the COVID-19 pandemic, and (ii) an increase in the amount of non-performing loans as a result of the inefficient legal proceedings due to the COVID-19 pandemic.

Net income was RMB42.8 million (US$6.0 million) for the first quarter of 2020, representing a decrease of 71.0% from RMB147.7 million for the corresponding period in 2019.

Net income attributable to the Company’s shareholders was RMB45.8 million (US$6.5 million) for the first quarter of 2020, representing a decrease of 68.9% from RMB147.3 million for the corresponding period in 2019. The decrease was mainly due to the decreases in operating income and investment income and share of loss of affiliates.

Net margin was 6.3% for the first quarter of 2020 as compared to 15.2% for the corresponding period in 2019.

Basic and diluted net income per ADS were RMB0.85 (US$0.12) and RMB0.85 (US$0.12) for the first quarter of 2020, respectively, representing decreases of 67.6% and 67.6% from RMB2.62 and RMB2.62 for the corresponding period in 2019.

As of March 31, 2020, the Company had RMB1,843.2 million (US$260.3 million) in cash, cash equivalents and short-term investments.

Key Operational Metrics for Fanhua’s Online Initiatives in the First Quarter of 2020:

  • Lan Zhanggui   - Our one-stop insurance service platform:

    • The number of registered users of Lan Zhanggui was 1.2 million as of March 31, 2020, representing an increase of 35.9% from 860,550 as of March 31, 2019;

    • The number of active users of Lan Zhanggui2 was 34,278 in the first quarter of 2020, as compared to 61,468 in the corresponding period of 2019. The number of active users of Lan Zhanggui who have sold at least one life insurance policy was 30,489 in the first quarter of 2020, as compared to 52,529 in the corresponding period of 2019;

    • Insurance premiums generated through Lan Zhanggui were RMB451.7 million (US$63.8 million) in the first quarter of 2020, among which life insurance premiums was RMB438.4 million (US$61.9 million) and non-life insurance premiums were RMB13.4 million (US$1.9 million), respectively, as compared to RMB887.5 million total insurance premiums generated through Lan Zhanggui which included RMB757.4 million life insurance premiums and RMB130.0 million non-life insurance premiums in the corresponding period of 2019.

  • eHuzhu - Our online mutual aid platform:

    • The number of paying members was 3.4 million as of March 31, 2020, as compared to 3.5 million as of March 31, 2019.

  • Baowang (www.baoxian.com) - Our online insurance platform:

    • The number of registered customer accounts was 2.8 million as of March 31, 2020, representing an increase of 21.7% from approximately 2.3 million as of March 31, 2019;

    • The number of active customer accounts3 was 142,004 in the first quarter of 2020, representing an increase of 71.4% from 82,869 in the corresponding period of 2019;

    • Insurance premiums generated on Baoxian.com was RMB69.3 million (US$9.8 million) in the first quarter of 2020 as compared to RMB90.2 million in the corresponding period of 2019.

Recent Developments

  • As of March 31, 2020, Fanhua had 650,065 sales agents and 1,668 professional claims adjusters, compared with 860,550 sales agents and 1,213 claims adjusters as of March 31, 2019. The decrease in the number of sales agents was mainly due to our efforts to clean up sales force and focus more on higher quality sales agents. The number of performing agents4 was 95,932, and the number of performing agents for selling life insurance products was approximately 33,152 in the first quarter of 2020. As of March 31, 2020, Fanhua’s distribution network consisted of 763 sales outlets in 21 provinces and 159 services outlets in 31 provinces, compared with 709 sales outlets in 21 provinces and 143 service outlets in 31 provinces as of March 31, 2019.

Business Outlook

Fanhua expects its operating income to be no less than RMB70.0 million for the second quarter of 2020. This forecast is based on the current market conditions and reflects Fanhua’s preliminary estimate, which is subject to change caused by various uncertainties, including those related to the ongoing COVID-19 pandemic.

Conference Call

The Company will host a conference call to discuss its first quarter 2020 financial results as per the following details.

Time: 9:00 PM Eastern Daylight Time on May 26, 2020
     or 9:00 AM Beijing/Hong Kong Time on May 27, 2020

Due to the outbreak of COVID-19, operator-assisted conference calls are not available at the moment. Please pre-register online in advance to join the conference call by navigating to the link provided below and dial-in 10 minutes before the call is scheduled to begin. Conference call details will be provided upon registration.

Conference Call Preregistration: http://apac.directeventreg.com/registration/event/2348224

Additionally, a live and archived webcast of the conference call will be available at Fanhua’s investor relations website https://edge.media-server.com/mmc/p/25m7duce

About Fanhua Inc.

Fanhua Inc. is a leading independent financial services provider. Through our online platforms and offline sales and service network, we offer a wide variety of financial products and services to individuals, including life and property and casualty insurance products. We also provide insurance claims adjusting services, such as damage assessments, surveys, authentications and loss estimations, as well as value-added services, such as emergency vehicle roadside assistance.

Our online platforms include: (1) Lan Zhanggui, an all-in-one platform which allows our agents to access and purchase a wide variety of insurance products, including life insurance, auto insurance, accident insurance, travel insurance and standard health insurance products from multiple insurance companies on their mobile devices; (2) Baowang (www.baoxian.com), an online entry portal for comparing and purchasing short term health, accident, travel and homeowner insurance products and (3) eHuzhu (www.ehuzhu.com), a non-profit online mutual aid platform in China.

As of March 31, 2020, our distribution and service network is consisted of 763 sales outlets covering 21 provinces and 159 service outlets covering 31 provinces.

For more information about Fanhua Inc., please visit http://ir.fanhuaholdings.com/.

Forward-looking Statements

This press release contains statements of a forward-looking nature. These statements, including the statements relating to the Company’s future financial and operating results, are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “will,” “expects,” “believes,” “anticipates,” “intends,” “estimates” and similar statements. Among other things, management's quotations and the Business Outlook section contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about Fanhua and the industry. Potential risks and uncertainties include, but are not limited to, those relating to its ability to attract and retain productive agents, especially entrepreneurial agents, its ability to maintain existing and develop new business relationships with insurance companies, its ability to execute its growth strategy, its ability to adapt to the evolving regulatory environment in the Chinese insurance industry, its ability to compete effectively against its competitors, quarterly variations in its operating results caused by factors beyond its control and macroeconomic conditions in China, future development of COVID-19 outbreak and their potential impact on the sales of insurance products. All information provided in this press release is as of the date hereof, and Fanhua undertakes no obligation to update any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although Fanhua believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. Further information regarding risks and uncertainties faced by Fanhua is included in Fanhua's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F.


FANHUA INC.
Unaudited Condensed Consolidated Balance Sheets
(In thousands)



 As of December 31, As of March 31, As of March 31, 
 20195 2020 2020 
 RMB RMB US$ 
ASSETS:      
Current assets:      
Cash and cash equivalents169,653 503,323 71,083 
Restricted cash95,952 123,037 17,376 
Short term investments1,612,351 1,339,915 189,232 
Accounts receivable, net682,171 490,520 69,275 
Insurance premium receivables5,067 660 93 
Other receivables61,570 117,629 16,612 
Other current assets54,987 46,143 6,517 
Total current assets  2,681,751   2,621,227   370,188 
       
Non-current assets:      
Property, plant, and equipment, net40,806 38,568 5,447 
Goodwill and intangible assets, net110,191 109,970 15,531 
Deferred tax assets7,327 10,188 1,439 
Investment in affiliates363,414 351,925 49,701 
Other non-current assets46,917 46,170 6,520 
Right of use assets190,437 192,338 27,163 
Total non-current assets  759,092   749,159   105,801 
Total assets  3,440,843   3,370,386   475,989 
       
Current liabilities:      
Accounts payable382,882 269,913 38,119 
Insurance premium payables7,901 25,980 3,669 
Other payables and accrued expenses220,290 210,638 29,748 
Accrued payroll101,664 79,233 11,190 
Income tax payable155,251 160,867 22,719 
Dividend payable 114,060 16,108 
Current operating lease liability79,986 80,557 11,377 
Total current liabilities  947,974   941,248   132,930 
       
Non-current liabilities:      
Refundable share rights deposits266,901 271,464 38,338 
Other tax liabilities70,350 67,219 9,493 
Deferred tax liabilities7,898 12,648 1,786 
Non-current operating lease liability103,252 104,875 14,811 
Total non-current liabilities  448,401   456,206   64,428 
Total liabilities  1,396,375   1,397,454   197,358 
       
       
Ordinary shares9,235 9,235 1,304 
Treasury stock(1,146)(1,146)(162)
Additional paid-in capital393 492 69 
Statutory reserves508,739 508,739 71,848 
Retained earnings1,479,494 1,403,704 198,241 
Accumulated other comprehensive loss(65,429)(58,298)(8,233)
Total shareholders’ equity1,931,286 1,862,726 263,067 
Non-controlling interests113,182 110,206 15,564 
Total equity2,044,468 1,972,932 278,631 
Total liabilities and equity3,440,843 3,370,386 475,989 

 



FANHUA INC.
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands, except for shares and per share data)

  For The Three Months Ended
 March 31,
 2019  2020  2020 
 RMB  RMB  US$ 
Net revenues:        
Agency897,304  650,211  91,827 
Life insurance business859,185  625,205   88,296  
P&C insurance business38,119  25,006   3,531 
Claims adjusting74,350  72,412  10,227 
Total net revenues971,654  722,623   102,054 
         
Operating costs and expenses:        
         
Agency(626,097) (444,097) (62,718)
Life  insurance Business(601,482) (427,419) (60,363)
P&C  insurance Business(24,615) (16,678) (2,355)
Claims adjusting(42,597) (46,816) (6,612)
Total operating costs(668,694) (490,913) (69,330)
Selling expenses(64,642) (61,255) (8,651)
General and administrative expenses(111,895) (110,411) (15,593)
Total operating costs and expenses(845,231) (662,579) (93,574)
Income from operations126,423  60,044   8,480  
Other income, net:        
Investment income36,825  8,860  1,251 
Interest income419  2,895  409 
Others, net1,449  2,014  285 
Income from operations before income taxes and share income of affiliates 165,116  73,813  10,425  
Income tax expense(42,863) (18,657) (2,635)
Share of income (loss) of affiliates25,413  (12,339) (1,743)
Net income147,666  42,817   6,047 
Less: net  income (loss) attributable to noncontrolling interests398  (2,976) (420)
Net income attributable to the Company’s shareholders147,268  45,793   6,467 



FANHUA INC.
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income-(Continued)
(In thousands, except for shares and per share data)

 For The Three Months Ended
 March 31,
 2019 2020 2020 
 RMB RMB US$ 
Net income per share:      
Basic0.13 0.04 0.01 
Diluted0.13 0.04 0.01 
Net income per ADS:   
Basic2.62 0.85 0.12 
Diluted2.62 0.85 0.12 
Shares used in calculating net income per share:
      
Basic1,122,290,708 1,073,891,784 1,073,891,784 
Diluted1,123,329,865 1,074,291,427 1,074,291,427 
       
 Net income147,666 42,817 6,047 
Other comprehensive income (loss), net of tax: Foreign currency translation adjustments(4,747)3,720 525 
Share of other comprehensive gain (loss) of affiliates(1,278)850 120 
Unrealized net gains on available-for-sale investments 2,561 362 
Comprehensive income141,641  49,948  7,054  
Less: Comprehensive income (loss) attributable to the noncontrolling interests398 (2,976)(420)
Comprehensive income attributable to the Company’s shareholders141,243 52,924 7,474 



FANHUA INC.
Unaudited Condensed Consolidated Statements of Cash Flow
(In thousands, except for shares and per share data)

 For The Three Months Ended
 March 31,
 2019  2020  2020 
 RMB  RMB  US$ 
OPERATING ACTIVITIES        
Net income147,666  42,817   6,047 
Adjustments to reconcile net income to net cash generated from operating activities:        
Investment income(32,899) (5,102) (721)
Share of (income) loss of affiliates(25,413) 12,339  1,743 
Other non-cash adjustments24,852  33,064  4,670 
Changes in operating assets and liabilities(67,394) 51,444  7,264 
Net cash generated from operating activities46,812  134,562   19,003 
Cash flows from investing activities:        
Purchase of short term investments(1,604,900) (2,780,732) (392,714)
Proceeds from disposal of short term investments1,824,222  3,060,832  432,272 
Cash paid for loan receivables to a third party  (60,000) (8,474)
Others(4,404) (2,189) (309)
Net cash generated from investing activities214,918   217,911   30,775  
Cash flows from financing activities        
Repurchase of shares from open market(82,381)    
Proceeds of cash consideration related to disposal of subsidiaries5,000     
Subscription of 650 million ADSs to Participants upon 521 Plan111,305     
Net cash generated from financing  activities...33,924     
Net increase in cash and cash equivalents, and restricted cash295,654  352,473  49,778 
Cash and cash equivalents and restricted cash at beginning of year848,166   265,605   37,511 
Effect of exchange rate changes on cash and cash equivalents(4,524) 8,282  1,170 
Cash and cash equivalents and restricted cash at end of year1,139,296   626,360   88,459  

For more information, please contact:
Investor Relations
Tel: +86 (20) 8388-3191
Email: qiusr@fanhuaholdings.com
Source: Fanhua Inc.


 

This announcement contains currency conversions of certain Renminbi (RMB) amounts into U.S. dollars (US$) at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB7.0808 to US$1.00, the effective noon buying rate as of March 31, 2020 in The City of New York for cable transfers of RMB as set forth in the H.10 weekly statistical release of the Federal Reserve Board.
  
Active users of Lan Zhanggui included users who sold at least one insurance policy through Lan Zhanggui (through either its mobile application or WeChat public account) during the specific period.
  
Active customer accounts are defined as customer accounts that made at least one purchase directly through www.baoxian.com, its mobile application, or WeChat public account during the specified period.
  
Performing agents are defined as agents who have sold at least one insurance policy during the specified period.
  
In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This standard requires entities to measure all expected credit losses of financial assets held at a reporting date based on historical experience, current conditions, and reasonable and supportable forecasts in order to record credit losses in a timelier manner. ASU 2016-13 also amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 adds to U.S. GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses.  The Company adopted the ASU No. 2016-13 on a modified-retrospective basis, the cumulative-effect adjustment reduce opening retained earnings balance by approximately RMB7.4million in the statement of financial position as of January 1, 2020.