Comprehensive Analysis of Huize Holding: A Financial Deep Dive
Presented by UOB Kay Hian, 12th December 2024
UOB Kay Hian provides an in-depth analysis of Huize Holding, a company operating as an insurance technology platform. This platform connects consumers, insurance carriers, and distribution partners digitally through data-driven and AI-powered solutions. Focused on long-term life and health products for the mass affluent market, Huize Holding is a key player in the insurance technology space.
Company Overview
Huize Holding, listed on the stock exchange as HUIZ US, reported a share price of US\$4.09 with a target price set at US\$7.00, indicating a promising upside of 71.1%. The company has been maintaining its BUY recommendation despite a previous target price of US\$7.50. The market capitalization stands at US\$40.6 million with 10.6 million shares issued. The company is categorized under the Financials sector according to the Global Industry Classification Standard (GICS).
Financial Performance and Key Metrics
For the third quarter of 2024, Huize Holding reported a significant turnaround in profitability with revenue growth of 26% year-over-year (yoy). The company’s gross written premium (GWP) achieved a new record high, jumping 66% yoy to Rmb2.1 billion. This growth was primarily driven by a doubling of the first-year premium (FYP) to Rmb1.35 billion, fueled by strong demand for long-term savings products. The blended commission rate, however, saw a decrease due to industry-wide rationalization, but the company’s omnichannel distribution network helped mitigate some of these impacts.
Revenue and Profitability
Huize’s total revenue for Q3 2024 reached Rmb369.7 million, marking a 30.7% quarter-on-quarter (qoq) growth. Brokerage income alone saw a 32.9% increase qoq. Despite robust revenue growth, Huize’s non-GAAP net profit was Rmb18.3 million in Q3 2024, a significant improvement from a net loss of Rmb13 million in Q2 2024. However, the non-GAAP profit for the first nine months of 2024 lagged behind expectations at Rmb9.7 million, compared to a previous guidance of Rmb60 million.
Operational Efficiency and Margin Analysis
The company experienced a gross margin compression of 7.5 percentage points yoy to 27.8% due to a 45% yoy increase in the cost of revenue. Despite this, Huize improved its operating efficiency, reducing the expense-to-revenue ratio by 4.9 percentage points yoy to 24.2%, partly due to the integration of AI solutions into operations. The management projects stability in channel costs, reflecting the rationalized expense impact.
International Expansion and Strategic Moves
Huize’s international business is on a promising growth trajectory, contributing 19% to its total revenue in Q3 2024. The acquisition of Global Care in Vietnam was completed, and further expansion plans into ASEAN countries are underway. The company has identified strategic partners in the Philippines and is in the process of acquiring an insurance broker license in Singapore. The target is to achieve a 30% revenue contribution from international markets by 2026.
Future Outlook and Recommendations
The outlook for GWP growth in Q4 2024 appears modest, as some demand was front-loaded into Q3 2024. Nonetheless, the company expects continued strong sales in Hong Kong, offsetting mainland China’s market weaknesses. Huize plans to focus on mid-to-high-end medical health products and will launch customized products in the near future. The recent change in the American Depositary Shares (ADS) ratio is also noteworthy, affecting the overall share structure.
Earnings Forecast and Valuation
UOB Kay Hian has adjusted its earnings forecast, trimming the 2024/25 non-GAAP net profit estimates to Rmb29.1 million and Rmb59.4 million, respectively. The target price has been revised to US\$7.00, reflecting these earnings adjustments. The valuation is based on a discounted cash flow (DCF) method, considering a weighted average cost of capital (WACC) of 20% and a terminal growth rate of 5%.
In summary, Huize Holding continues to demonstrate strong growth potential despite facing industry challenges. The company’s strategic focus on international expansion and innovative product offerings positions it well for future success. Investors are advised to maintain their BUY position, taking into consideration the company’s robust financial health and promising market trajectory.
