New Stocks Outlook | Shuhui Technology: When will it escape the "quagmire" of unstable performance and perennial losses under the background of "integration of production and sales"?

Since the beginning of this year, the phenomenon of insurance technology companies going public in large numbers is no longer something new. Previously, iyunbao went public in the United States and obtained approval from the China Securities Regulatory Commission. Following that, Zhongmiao Chuangke, which has attempted to go public on the Hong Kong Stock Exchange twice, finally passed the hearing for listing on the main board. Recently, Yisheng Xin Technology, Yuanbao Technology, Yuancen Technology, and Shouhui Technology have also started the process of going public. Among them, Shouhui Technology, as a "midstream player" submitting their application for the second time, has attracted attention from investors in this wave of IPOs due to their market share. On July 30th, Shouhui Technology Co., Ltd. (hereinafter referred to as "Shouhui Technology") submitted its prospectus to the Hong Kong Stock Exchange, planning to go public on the Hong Kong main board. This is their second application after their first one failed on January 12th, 2024. The company is an intermediary service provider in the life insurance sector, mainly providing insurance services and solutions to insurance customers online through a digital life insurance transaction and service platform. In 2023, based on the total premium of the Chinese life insurance intermediary market, Shouhui Technology ranked eighth with a market share of 2.9%. Based on the total premium of long-term life insurance, Shouhui Technology is the second largest online insurance intermediary in China with a market share of 7.3%, being a major participant in the market with a share of 45.5%. Based on the first-year premium of long-term life insurance, the company is also the second largest online insurance intermediary in China. Nowadays, in the insurance industry, especially in the intermediary channels, navigating the survival environment where insurance and technology are merging, what is the purpose of Shouhui Technology's IPO, and what is the company's real strength? Fluctuating revenues cannot hide the common problem of "losses" Looking at the business structure, Shouhui Technology's digital life insurance transaction and service solution are facilitated through three major platforms: Xiaoyusan, Kacha Bao, and Niubao 100. Among them, Xiaoyusan platform is used for online direct distribution, Kacha Bao platform is used for distribution through agents, and Niubao 100 distributes with the help of business partners. It is worth mentioning that under the coordination of the three major platforms, Shouhui Technology's premium scale has been steadily growing. According to the prospectus data, as of May 31, 2024, the company has over 3.1 million insured persons and over 4.9 million insured persons, of which 1.5 million insured persons and 2.1 million insured persons had valid policies as of May 31, 2024. Insured persons are mainly from the 30-45 age group in first-tier and second-tier cities in China, with the 30-45 age group contributing 63.5% of the total premiums and 71.4% of the policies sold during the performance period. Although the synergistic effects of the business structure have led to the company's growing scale, from a fundamental performance perspective, it seems that Shouhui Technology cannot hide the common problem of "losses" faced by insurance technology companies at present. It is reported that looking at current insurance technology companies that have submitted their applications, it is not surprising that many of them are in a state of losses. Companies like Hengguang Holdings, Zhibao Technology, and others that have submitted their applications are still balancing between profits and losses or continuously incurring losses, with only a few companies such as Zhongmiao Chuangke achieving profits. According to the financial reports, in the past five months of 2021, 2022, 2023, and 2024, Shouhui Technology's operating revenues were 1.548 billion, 806 million, 1.634 billion, and 603 million yuan, showing fluctuations; the corresponding net profits were -204 million, 131 million -356 million, and -52 million yuan, accumulating a total loss of 612 million yuan in three and a half years. And by examining its operating costs, we can easily see the related reasons why Shouhui Technology has been continuously trapped in a cycle of losses. According to the prospectus, from 2021 to the first five months of 2024, the proportion of Shouhui Technology's operating costs to total revenue was 70.2%, 65.2%, 66.2%, and 63%, respectively. During that period, the company's commission expenses were 691 million, 335 million, 519 million, and 188 million yuan, accounting for 63.6%, 63.7%, 47.9%, and 49.5% of the operating costs in the same period. In addition, the company's channel promotion fees paid to self-media channels during that period were 333 million, 150 million, 503 million, and 165 million yuan, accounting for 30.6%, 28.6%, 46.5%, and 43.5% of the operating costs in the same period. Historically, insurance intermediary platforms have been overly reliant on third-party traffic platforms, but now it is no longer the early stage of Internet platforms. With Internet traffic reaching its peak and customer acquisition costs continuously rising, these factors are constantly squeezing the profit margins of insurance intermediary platforms, and Shouhui Technology is no exception. In a high-growth market, high commissions may encounter obstacles From the perspective of market development trends, the online life insurance intermediary market where Shouhui Technology operates is indeed a high-growth track. According to Frost & Sullivan data, in terms of total premiums, the size of the online life insurance market in China reached 550 billion yuan in 2023, with a compound annual growth rate of 31.1% from 2019 to 2023. It is estimated that the market size will reach 2,015 billion yuan by 2028, with a compound annual growth rate of 29.7% from 2023 to 2028. Leveraging the double high-speed development of the Chinese online life insurance market, the growth rate of the online life insurance intermediary market is even more pronounced. In terms of total premiums, the total premiums contributed by online intermediaries in 2023 were 211 billion yuan, with a compound annual growth rate of 36.9% from 2019 to 2023. It is estimated that by 2028, online intermediaries will contribute a total premium of 1.031 trillion yuan to the Chinese life insurance market, with a compound annual growth rate of 37.3% from 2023 to 2028. The industry's high growth momentum obviously brings many opportunities for Shouhui Technology's future development. However, it is important to note that the current online intermediaries face the risk of declining commission rates due to the integration of insurance and banking brought about by the "convergence of insurance and banking" policy. This is a policy-driven inevitability and an unavoidable growth obstacle. In 2023, in response to regulatory requirements, the curtains were raised for the integration of banking and insurance channels. The "convergence of banking and insurance" means that the assumed expense ratio data reported or filed by insurance companies should be consistent with the actual expense ratio data, which poses a development risk of declining commission rates caused by policy changes. Overall, Shouhui Technology's IPO this time is seen as a strategic move to capitalize on the high-growth potential of the online life insurance intermediary market and expand its market share. However, issues such as fluctuating revenues, high operating costs, and losses indicate potential challenges ahead for the company as it navigates the changing landscape of the insurance technology industry.Consistency. For most insurance technology companies waiting to go public, commission income still accounts for a high proportion of the company's revenue. Therefore, in the context of the development of "reporting and banking integration", insurance intermediaries also face the challenge of significant income decline.In July of this year, Luo Yanjun, director of the personal insurance department of the China Banking and Insurance Regulatory Commission, responded to the latest situation of "separation of sales and insurance" in an interview with the media. From the perspective of the implementation effect of "separation of sales and insurance", the average commission level of the entire industry has decreased by 30% compared to before. Considering the revenue composition of Shuhui Technology, almost all of its revenue comes from insurance transaction services, specifically commissions earned from insurance sales. From January to May of 2021 to 2024, this revenue accounted for 99.9%, 99.4%, 99.6%, and 99.5% of the total revenue. Therefore, the company also warned of risks in its prospectus, stating that any decrease in the commission rates set by insurance companies or increases in commission expenses or channel promotion fees may have an adverse effect on the company's financial performance. In this context, it has become evident that Shuhui Technology's business is single-focused and lacks stability in its competitive advantage. Therefore, the majority of the funds raised in this offering will be used to strengthen its competitive advantage. Specifically, around 60% of the funds raised will be used to develop insurance products and improve services; about 20% will be used to enhance the company's research and development capabilities and improve its technological infrastructure; around 10% will be allocated for mergers, acquisitions, and strategic investments; and about 10% will be used for operating funds and general corporate purposes. However, the consistently high net liabilities have forced Shuhui Technology to seek external funding to supplement its financial resources. According to the prospectus, from January to May of 2021 to 2024, the company's net current liabilities were 693 million yuan, 573 million yuan, 1.018 billion yuan, and 1.155 billion yuan, while the net liabilities for the same period were 513 million yuan, 374 million yuan, 626 million yuan, and 667 million yuan. In addition, the company's net cash used in operating activities in 2022 was 54.3 million yuan, and there may be negative operating cash flows in the future. Any of the above situations could expose the company to the risk of a shortage of working capital. Based on the above, although Shuhui Technology is positioned upstream in the industry, the flurry of insurance technology companies going public also reveals the current dire situation faced by related companies. Despite the risks of perennial losses, unstable income, and high liabilities, Shuhui Technology's decision to go public in the US reflects its proactive attitude towards change.