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CNinsure Inc. (NASDAQ:CISG)

Q1 2014 Results Earnings Conference Call

May 21, 2014 9:00 p.m. ET

Executives

Oasis Qiu – IR Officer

Chunlin Wang – CEO

Peng Ge – CFO

Analysts

Christy He - Morgan Stanley

Operator

Thank you for standing by for CNinsure's first quarter 2014 earnings conference call. (Operator Instructions) For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within three hours after the conference is finished. Please visit CNinsure's IR website at ir.cninsure.net, under the Events and Webcasts section. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host for today's conference, Ms. Oasis Qiu, CNinsure's Investor Relations Officer.

Oasis Qiu

Good morning. Welcome to our first quarter 2014 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 provisions of the U.S. Private Securities Litigation Reform Act of 1995. The accuracy of these statements 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 are not limited to those outlined in our filings with the Securities and Exchange Commission, 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 is our Chief Executive Officer, Mr. Chunlin Wang, and Chief Financial Officer, Mr. Peng Ge. They will walk you through our first quarter 2014 financial and operating performance and discuss the progress of some of our key strategy initiatives. They would take your questions after the prepared remarks. Now I will turn the call over to Mr. Wang.

Chunlin Wang

[Interpreted]

Hello, everyone. Thank you for joining us on the call. On today's Agenda, I will give you an update on the operational and financial highlights for the first quarter 2014 and share with your our business outlook. Our CFO Mr. Peng Ge and I will take questions after this.

Building on the slight growth momentum in the fourth quarter of last year, we achieved both top line and bottom line growth in the first quarter of 2014. Total net revenues for the first quarter grew 16.2% from the year ago quarter beating our guidance again. Expense ratio dropped to 23.7%, a record low for the past ten quarters. That shall be attributable to our organization integration that enabled more effective expense control. As a result our operating income was up 721%, net income attributable to shareholders up 112.6% and our adjusted EBITDA also recorded a notable growth year-over-year by 23.6%.

From a segment perspective, our traditional business segments maintained stable growth momentum while new growth drivers continued their stellar growth into the first quarter making significant contribution to the company's growth.

Looking at our traditional business segments. Firstly, insurance agency business accounting for 75.4% of our total net revenues reported 2.4% year-on-year growth in revenue and improvement in profitability. Driven by 12.1% premium growth over the first quarter 2013, our P&C insurance agency business recorded 7% revenue growth year-over-year due to a decrease in P&C market commission rates in the first quarter of 2014 as revenue grew at a slower pace compared to the volume growth but we were encouraged to see improvement in gross margin both year-over-year and quarter-over-quarter.

Impacted by a drop in the sales of new policies, net revenues of our life insurance agency business was down 20.6% over the first quarter last year but saw a rebound of 4.9% from previous quarter. This drop in new business volume was mainly attributable to the decrease in the sales of [investment] (ph) and participating products. While the sales volume of the protection (indiscernible) was up nearly 25% year-over-year further refining our business mix. And on the recurring business front, our persistency ratio which remained at the highest level among our competitors was translated into stable growth of our recurring commissions, positively contributing to the improvement in the gross margin of our life insurance agency business, both year-over-year and quarter-over-quarter.

And secondly, claims adjusting business, it maintained a stellar growth momentum in the first quarter with net revenues up 21.7% from the year ago quarter, further strengthening our leading position. The growth was mainly driven by a 40.5% growth in non-auto related P&C insurance claims adjusting business, which was attributable to the significant increase in claims adjusting cases, new (indiscernible) and settled during the quarter. Besides, auto-related claims insurance claims adjustment business also maintained a stable growth of 12.3% in net revenues.

Turning to the new growth drivers, our insurance brokerage business segment primarily engaged in offering commercial insurance plans, such as liability insurance, private insurance and enterprise property insurance and risk assessment and management advisory services and reinsurance services to corporate clients across all sectors, including the [petroleum] (ph), transportation and construction industry. By leveraging our brand recognition and strong (indiscernible) insurance company, we have focused on building out our operating platforms and expanding market channels to grow our customer base.

Meanwhile, we were dedicated to product innovation to fulfill our customers' needs by teaming with insurance companies in product design. Innovative products co-designed by us include foreign insurance, domestic (indiscernible) insurance, science and technology insurance, telecom insurance and accident insurance for high net worth individuals. In the fourth quarter of 2013, our insurance brokerage business generated over RMB10 million net revenues each month and a strong growth momentum continued into the first quarter of 2014.

Net revenues were RMB51.1 million in the first quarter of 2014, representing a growth of over 15 times year-over-year and 80% quarter-over-quarter, of which the traditional brokerage business grew over ten times while the reinsurance business that we just started last year also contributed over RMB5 million to our net revenues. Our insurance brokerage business has become a significant contributor to our net revenues accounting for 11% of our total net revenues in the first quarter as compared to 5.6% in the first quarter of 2013, demonstrating a sustainable growth momentum.

Secondly, our wealth management product referral business on the other hand has also grown solidly by over 40% from RMB195 million in the first quarter of 2013 to approximately RMB280 million in the first quarter of 2014 in terms of the value of the wealth management product sold under our recommendation. Thirdly, contributions from CNpad continue to grow in the first quarter to RMB199 million insurance premium, accounting for 14.6% of the total insurance premiums generated by our insurance agency business as compared to 8.3% in the fourth quarter of 2013. With an increase in sales across various business segments in the first quarter demonstrates that our strategy is working and we continue to benefit from the efforts that we made in the past three years.

Turning to the progress of some strategic initiatives that we have taken. During the first quarter we continue to focus on pushing forward the application of Internet technology to our business. Firstly, regarding the development of our mobile sales support system. In addition to adding more products on to the platform and optimizing user experience, we have also made exciting progress in getting more product [supplies] (ph) on board. In particular, we initiated project to develop EDI connections with PICC, Property and Casualty Insurance Company, demonstrating their support for our mobile sales support system by one of our major insurance partners, which includes our efforts to further improve and promote the use of the system by more sales agents and channels.

In order to speed up the introduction of our mobile sales support system to more users, in March 2014 we decided to change our marketing strategy from bundling software and hardware sales to offering free download of applications to sales agents and channels. We have got ready technically and plan to rollout the application to the market step-by-step beginning on June 1, 2014. Our goal is to establish a user base of more than 50,000 sales agents by the end of 2014.

Secondly, on the B2C side, we completed upgrading the (indiscernible) and we launched on January 1, 2014. Online premiums were approximately RMB4.5 million in the first quarter of 2014. In order to take full advantage of the opportunities arising from the upcoming auto insurance pricing rate de-regulation and increasing number of consumers are in the (indiscernible), we are committed to increasing investments in our B2C Web site in 2014 as to strengthen our market position in the Internet insurance space. I will be directly in-charge of executing this strategy.

Thirdly, we have been exploring ways to optimize the Internet technology to our claims adjustment business and decide to take on an online to offline model, i.e. to establish a web-based platform that allows claims adjusters to register and do full business on the Internet. Upon the receipt of customers' orders, our [base] (ph) will check the location of all available claims adjusters and designate one nearby to customer's assistance. We believe the new model will enable a centralized, (indiscernible) operation and allows us to rapidly extend our service network while reducing our fixed costs. We have been new working on developing the platform and expect to rollout in the third quarter of this year. The platform will focus on auto insurance claims adjustments service and arbitrage and gradually cover other auto related, value-added services such as designated driving and repairing etcetera.

Over the past three years, we have devoted lots of effort to execute on our strategy to strengthen our competitive edge by using the Internet to acquires customers and build and expand the service network in a cost effective way, and offering personalized financial and risk management solution to customers instead of just selling products. The accomplishments that we have made so far have reaffirmed our confidence in achieving our targets and also achieving both topline and bottom line growth in 2014.

Thank you. Now our CEO, Mr. Wang and our CFO Mr. Ge will open the floor for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Christy He.

Oasis Qiu

[Interpreted] The first question is from Christy He from Morgan Stanley and her question is about our insurance brokerage business. She wondered what's the gross margin, what's the margin level of this line of business compared to other line of business and who are the key customers for our insurance brokerage business and what's the growth outlook.

Chunlin Wang

[Interpreted]

Our current focus for this line of business is to grow our [quote] (ph) business to capture more market share. So (indiscernible) gross margin is moderate compared to other business lines. Going forward we expect the gross margin will be stable at the current levels.

Operator

There are no further questions.

Oasis Qiu

Thank you for your participation. If you have any further question after this conference call, please feel free to contact me. Thank you.

Operator

This does conclude today's conference call. You many now disconnect.

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