Earnings call transcript: Checha Group Q4 2024 sees strong premium growth

Checha Group, currently trading at $1.18 and showing signs of being undervalued according to InvestingPro analysis, reported a robust fourth quarter for 2024, with total written premiums rising 15.6% to RMB 7.4 billion ($1 billion). The company’s full-year total written premiums also saw an increase of 7.5%, reaching RMB 24.3 billion ($3.3 billion), contributing to its impressive 32.6% year-to-date stock performance. Net revenues for the quarter grew 13.4% year-over-year to RMB 983.6 million ($134.8 million), while the operating loss was significantly reduced by 93.7% to RMB 3 million ($400,000). The company is optimistic about shifting from an operating loss to profitability in 2025, supported by its expanding insurance offerings for New Energy Vehicles (NEVs) and AI-driven solutions.

Key Takeaways

• Total written premiums increased by 15.6% in Q4 2024.
• Net revenues grew 13.4% year-over-year in the fourth quarter.
• Significant reduction in operating loss by 93.7% in Q4.
• Expansion into NEV insurance and AI-powered products.
• Positive outlook with a focus on profitability in 2025.

Company Performance

Checha Group demonstrated strong performance in the fourth quarter of 2024, driven by substantial growth in its insurance premiums and net revenues. With a market capitalization of $91.86 million and a FAIR Financial Health Score from InvestingPro, the company’s strategic focus on the rapidly growing NEV sector and the integration of AI technologies has positioned it well within the digital auto insurance market. InvestingPro subscribers can access over 30 additional financial metrics and exclusive analysis through the comprehensive Pro Research Report. This growth trend aligns with the broader industry expansion, particularly in the NEV market, which is growing at a rate of 40-50% annually.

Financial Highlights

• Total written premiums: RMB 7.4 billion ($1 billion) in Q4, up 15.6% year-over-year.
• Full-year total written premiums: RMB 24.3 billion ($3.3 billion), up 7.5%.
• Net revenues: RMB 983.6 million ($134.8 million) in Q4, up 13.4% year-over-year.
• Operating loss: RMB 3 million ($400,000) in Q4, reduced by 93.7%.

Outlook & Guidance

Looking ahead to 2025, Checha Group projects net revenues between RMB 3.6 billion and RMB 3.8 billion, indicating a growth rate of 3.7% to 9.4%. The company expects total written premiums to reach RMB 25.0 billion to RMB 25.5 billion. Analyst consensus maintains a positive outlook with a price target of $2.99, suggesting significant upside potential. InvestingPro analysis reveals additional growth indicators and valuation metrics that could help investors make more informed decisions about this emerging player in the NEV insurance market. With a strategic focus on expanding NEV insurance services and leveraging AI-driven solutions, Checha Group anticipates a transition from operating loss to profit.

Executive Commentary

CEO Lei Zhang emphasized the company’s strategy to diversify revenue streams across various product types, stating, "We are actively broadening our revenue streams by diversity across different product types." He also highlighted the role of AI in the industry, saying, "AI will be fully utilized in this industry." CFO Sander Jie expressed optimism about the NEV market, noting, "We expect the trend will continue and we can enjoy way faster growth rates in the EV market."

Risks and Challenges

• Market saturation in the traditional car insurance sector.
• Dependence on the rapidly evolving NEV market.
• Potential regulatory changes affecting the insurance industry.
• Technological challenges in implementing AI solutions.
• Economic uncertainties that could impact consumer spending.

Q&A

During the earnings call, analysts inquired about the company’s revenue growth strategies and the application of AI in insurance processes. Executives detailed plans for partnerships and market expansion, reinforcing their commitment to innovation and growth in the NEV insurance sector.

Full transcript - Campus Crest Communities Inc (CCG) Q4 2024:

Conference Operator: Good morning and welcome to the Checha Group’s Fourth Quarter and twenty twenty four Results Call. All participants will be in listen only mode. Session. Please note this event is being recorded. I would now like to turn the conference over to Crocker Colson, Investor Relations for Cheechan Group.

Mr. Colson, the floor is yours.

Crocker Colson, Investor Relations, Checha Group: Thank you so much, operator. Good morning, everyone, here in The U. S. Good evening to those of you joining us from Asia, and thanks to all of you for joining us to review Checha’s twenty twenty four fourth quarter and full year results. This morning, Checha posted both the earnings release and a related investor presentation to our website, which you can find at ir.chechagroup.com.

I’m pleased to say that with me on the call today are Lei Zhang, Checha’s Founder and Chief Executive Officer and Sander Jie, Checha’s Chief Financial Officer. After their prepared remarks are concluded, we’re going to open up this call to your questions. But before we begin, some statements in this teleconference are forward looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can provide no assurance that they will prove to be accurate because they are perspective in nature. Actual results could differ materially from those that we discuss today.

So we encourage you to review the most recent filings with the SEC for the risk factors that could materially impact our results. As I mentioned, the earnings release is available on ir.chechagroup.com and we encourage you to review the reconciliations of certain non GAAP measures contained within. With those formalities now out of the way, it’s my pleasure to turn the call over to Lei Zhang, Chief Executive Officer. Lei, take it away.

Lei Zhang, Founder and Chief Executive Officer, Checha Group: Thank you, Claude. Greetings, everyone. Thank you for joining us today to review Churchill Group fourth quarter and full year twenty twenty four results. I am pleased to report that Churchill Group continues to perform positively in the rapid evolving insurance life gap, driven by the increasing relevance of new energy vehicles, our expanding partnerships and technological advancements within our platform. Overall, China’s NEV sector is seeing continued momentum with penetration rates hovering around 50% of total passenger vehicle sales.

For the full year of 2024, the number of embedded charter policies were up 159% year over year to $1,100,000 with corresponding NEV write premiums growing 128% from prior year to US452 million dollars over the same period. As a leading player in the space, Xueche is well positioned to capitalize on the industry positive trends as we expand our insurance offering for NEV vehicles to capture renewal and policies for used vehicles. This is a critical step in growing our customer base and increasing our revenue streams from existing policyholders. The platform grew as the largest auto insurance technology platform by digital auto insurance transaction premiums continue to feed the industry, providing customized system and embedded insurance products. As we continue to block strategic partnerships and leverage our innovative solutions, our reach among the NEV manufacturers has grown to 15 as of the fourth quarter.

The need for advanced technology, debt driven system and cost of teledars insurance products in the NEV space drives improved margins. As the NEV industry continues to match and underwriting becomes more apparent, the higher margins of our NEV policies will continue to positively shift the overall revenue mix. We continue to deepen our partnership with both traditional and NEV automakers, positioning Quechua as a key player in this space. These partnerships provide us with valuable data, insights and access to customs that will allow us to further expand our presence and enhance our offerings. We are particularly excited about our ongoing innovation in the realm of autonomous driving.

In collaboration with automakers and insurers, we are working to launch new suite of products on our independent third party platform. Their products are designed to help provide forensic reports that connect all parties involved in accident and assign a sliding scale of responsibility. We plan to launch selected products on a test basis in certain cities later this year. We are also incorporating AI and machine learning into our business by partnering with a leading computer model to enhance efficiency and reduce costs. Currently in development are products that focus on fraud detection in claims management and on rapidly assessing vehicle damage, which we believe will significantly improve customer experience and operation efficiency.

Last month, Queche announced that its innovative Tianwu Insurance Anti Fraud and Risk Control model has been recognized in the prestigious Top 100 AI Products of 2024 list, highlighting Chuchu’s commitment to leveraging cutting edge technology in the insurance industry. The award winning Tiemu model integrates advanced technologies such as big data, AI and biometrics to construct intelligent anti fraud and risk control system. As a company, we are actively broadening our revenue streams by diversity across different product types with a focus on increasing our market share through more tailored and flexible policies. Additionally, we are launching new SaaS and data analytics tools to enhance the value of our technology and further improve our margins. Looking ahead, our unique insights and broad capabilities help drive our growth of the digital insurance industry, delivering great value to our partners and customers.

Future alongside our network of insurance companies and intermediaries, we will continue to innovate the insurtech best of users, more personalized and cost effective coverage options. We are proud of what we have achieved and are excited about these new opportunities that lie ahead. I will now turn the call over to our CFO, Sandra. Thank you.

Sander Jie, Chief Financial Officer, Checha Group: Thank you, Lei. Firstly, I would like to begin by touching on our first quarter operational and financial highlights before taking questions. Our total written premiums placed for this quarter increased 15.6% to RMB7.4 billion or $1,000,000,000 while total written premiums placed for the full year of 2024 increased by 7.5% over the prior year to RMB24.3 billion or $3,300,000,000 The total number of policies issued increased from 4,800,000 for the prior year quarter to 5,100,000 in the fourth quarter this year, while the total number of policies issued over the full year of 2024 increased from 15,800,000 of the prior year to RMB17.3 million. As Lei already mentioned, RMB141000 policies and RMB1.4 billion of corresponding premiums were embedded in an EV deliveries, growing 184171% respectively year over year. Embedded policies and the corresponding recent premiums for the full year of 2024 reached RMB1.1 million and RMB3.3 billion, which is US452.4 million dollars respectively, representing growth of 159% for policies embedded and 128% for written premiums compared to the prior year.

In terms of our net revenues, we generated RMB983.6 $6,000,000 or $134,800,000 in the fourth quarter, an increase of 13.4% year over year, while net revenues for the full year of 2024 increased by 5.2% over the prior year to RMB3.5 billion or $475,800,000 The growth was driven by increase in insurance transactions conducted through our platform by referral partners and third party platform partners. The cost of revenues in the quarter was RMB932 million or US127.7 million dollars up 13% from the prior year quarter. Cost of revenues increased by 4.8% to RMB3.3 billion or $454,100,000 from the prior year, which was consistent with the growth of business volume and net revenues. We also reported a drop of 20.1% in selling and marketing expenses in the quarter to RMB19.7 million or US2.7 million dollars primarily due to decrease in staff costs and lower marketing expenses. For the full year, selling and marketing expenses decreased 28.7 to RMB79.5 million or $10,900,000 from RMB111.5 million in the prior year.

General and administrative expenses were also lower this quarter, declining 53.2% to RMB25.7 million or $3,500,000 from RMB 54,900,000.0 in the prior year quarter, largely due to decreased share based compensation expenses and partially offset by increase in post listing professional service fees and staff costs. As for the full year of 2024, general and administrative expenses decreased by 22.6% to RMB107.9 million or $14,800,000 Research and development expenses decreased 25.3% in this quarter to RMB9.3 million or $1,300,000 and decreased $33,600,000 to RMB38 million dollars or $5,200,000 from RMB57.2 million in the prior year. The operating loss in this quarter decreased by 93.7% year over year to RMB3 million or $400,000 If we excluded non GAAP expenses, the adjusted operating income for this quarter was RMB1.3 million, which was $200,000 compared to an adjusted operating loss of RMB12 million in the prior year quarter, which resulted in the growth of our net revenues and the improvement of our operational efficiency. Operating loss for the full year of 2024 decreased by 60.3% year over year to RMB66.5 million or $9,100,000 Excluding non GAAP expenses, the adjusted operating loss decreased by 40.2% year over year to RMB28.2 million or $3,900,000 Net loss in the quarter also improved 67.4% to RMB10.4 million or $1,400,000 over the fourth quarter of twenty twenty three, while improving 61.6% for the full year to RMB61.2 million or $8,400,000 from RMB159.6 million over the prior year.

Adjusted net loss for the quarter improved to RMB3 million or $400,000 which is down 38.6% from the adjusted net loss the prior year quarter, mainly due to foreign exchange losses of RMB5.3 million. Adjusted net loss was only RMB24.8 million or $3,400,000 in 2024, which decreased by 25.3% from RMB33.2 million for the prior year. Turning to our balance sheet, we reported RMB152.9 million or 21,000,000 in cash, cash equivalents and short term investments in the fourth quarter. Next, looking ahead to our full year of 2025 guidance, we expect net revenues to range from RMB3.6 billion to RMB3.8 billion, representing an increase of 3.7% to 9.4% compared to the full year of 2024, with total written premiums placed to range from RMB25.5 billion to RMB25.0 billion, representing a year over year increase of 4.9% to 11.1%. Net return premiums placed are expected to range from RMB7 billion to RMB8 billion, representing a year over year increase of 112142% growth.

We also anticipate our adjusted operating results shifting from a loss to a profit for the full year 2025. I think this concludes our remarks. Next, we will be happy to take your questions. Thank

Conference Operator: The first question comes from Alan Klee with Maxim Group. Please go ahead.

Alan Klee, Analyst, Maxim Group: Yes. Hi, good evening. Congratulations on the quarter where your revenues and bottom line results were better than my projections and also your outlook is better than my projections. So, great job. If I could start off on some of the, one of the first things I heard you say on this call was you’re looking you expect to increase revenue streams from existing partners.

Could you talk a little bit about how you think that’s going to happen?

Sander Jie, Chief Financial Officer, Checha Group: I’ll help translate. Firstly, our revenue growth will in the NEV market will come from the below aspects. Firstly, in terms of the partners, we already have 15 partners currently and we will try

Lei Zhang, Founder and Chief Executive Officer, Checha Group: to

Sander Jie, Chief Financial Officer, Checha Group: bring more partners into our business and that’s the first pathway to increase our revenue stream. Secondly, during the current partnerships in the past few years, the main growth driver was for the new car deliveries. And we already started to do business with our IMV automakers to provide service for their used vehicles for their existing car owners to help them to do the insurance renewal business. So that’s the second pathway. And thirdly, apart from the traditional insurance car insurance auto insurance business, we are already starting to provide non auto insurance service along with the auto insurance to constitute service product package to the car owners.

That’s the third pathway. And beyond that, we also are trying to provide service to cover more car types within the same partners because only in the even in currently even in the current partnership, automaker can produce different a lot of types of cars. And currently we only cover the parts of their car types. We are trying to cover more and more in the future. Thank you.

Alan Klee, Analyst, Maxim Group: Thank you. Could you give you talked about different ways you’re using artificial intelligence. Could you maybe describe some of the examples of how you’re using that today and how you might expand it?

Lei Zhang, Founder and Chief Executive Officer, Checha Group: So basically in China right now, the high margin driving in smart connected NUVs is very high. For instance, among Huawei, how many intelligent driving users? The intelligent driving accounts for about 35% of the total mileage, reducing collision instance by about 1,600,000 times. So when accident occurs, the car owners would typically think it is caused by the stability and safety of the autonomous system rather than themselves. So under this scenario, has urged the insurance industry to introduce a new type of insurance product, which is product liability insurance.

This insurance product is designed based on factors such as the stability, safety and the maturity of the intelligent driving system. So many automakers are now actively rolling out this product liability insurance, which may be purchased either by the vehicle owner or the automaker. So Choce’s role comes into play when a traffic accident occurs. We as a third party, we can determine whether the vehicle owner or the intelligent driving system was in control at the time of the incident. So we provide an independent third party quote platform and SaaS solution with blockchain technology for fraud provision and AI powered analysis and reasoning.

So this is our AI based technical solution in the intelligent driving area.

Lei Zhang, Founder and Chief Executive Officer, Checha Group: Thank you.

Alan Klee, Analyst, Maxim Group: That’s very interesting. Thank you. And then just maybe two more questions, one on revenues, and we’re all combining them with one big question. On the revenues, I’m curious for your guidance for 2025, how should we think about your projection for revenue growth? How much is because you think the market’s going to be growing like at a certain rate versus how much is relative to your thinking that it’s going to be an expansion of what you’re offering of your partners and your new products and upselling and all that.

And then, sorry to make this so long, the other one is just you’ve been able to increase your gross margins around 50%, fifty basis points a year. Does that seem like with more, NEVs that’s probably that should continue and you’ve also been doing a great job on operating expense control and how to think about that in ’twenty five. Thank you so much. Sorry for so much.

Sander Jie, Chief Financial Officer, Checha Group: Okay. Yes. In terms of the logic for the revenue growth, If we see the whole market for the traditional car insurance market for the past couple of years, the year over year growth rates are remaining at like only 4% to five percent a year. So I think for the ICE market, as IE traditional car market, we will keep growing along with the total industry. So we won’t expect fixed price from that.

And for the EV market, the industry growth rates for the past two years is around 40% to 50%. And definitely we are going way faster than the whole industry. And we already keep the momentum of growth of over 100% growth rate for three or more consecutive years. We expect the trend will continue and as we showed in the guidance, yes, we are quite confident that we can enjoy way faster growth rates in the in an EV market than the whole industry growth. Yes, that’s the logic.

And as for the margin, I think I talked before for the traditional car insurance the gross margin is relatively low which was only around 3% to 5%. And the best for the NAV insurance because we provide the SaaS system service to those to our business partners, I. E. Those automakers and we also provide operational and other service, renewal service like we mentioned before to them. We can enjoy a higher gross margin in the market, which was around 20% compared to 3% to 5% for the traditional car market.

So that’s why we are confident we can improve our profitability going forward and achieve breakeven or even make profit soon. Thank you.

Alan Klee, Analyst, Maxim Group: Thank you very much.

Conference Operator: The next question comes from Steve Silver with Argus Research. Please go ahead.

Steve Silver, Analyst, Argus Research: Thanks, operator, and thanks for taking my questions. So the company is exiting 2024 in a very strong capital position in terms of cash. With the expectation of the company turning profitable in 2025, I’m curious if there are any areas that you’ve identified for capital investments to continue this growth trajectory?

Sander Jie, Chief Financial Officer, Checha Group: Actually, we don’t think we will sorry, we will invest too much in this year besides in the AI R and D sector because as Lei mentioned we are developing certain new types of products like AI claim management and damage assessment tool and also for the third party platform for the autonomous driving insurance. Yes, since we are still developing those new products, we will invest some funds into this area like to increase the service or increase staff investment. Other than that, we don’t expect we will invest in other sectors. Thank you.

Steve Silver, Analyst, Argus Research: Great. And so the press release mentions that you’re now aligned with the majority of significant NEV manufacturers in China. I’m curious as to whether there are any other groups that will now make up the majority of new partnerships that the company may form, just other areas you might have identified there?

Lei Zhang, Founder and Chief Executive Officer, Checha Group: So as we just mentioned, currently, we have been cooperating with 15 new makers. So we expect that in this year, this number will still grow. But as we are now in China, there are around 20 to 30 AUV makers basically in total. And we just take 17% of the total OEMs on the market.

Sander Jie, Chief Financial Officer, Checha Group: So basically in the

Lei Zhang, Founder and Chief Executive Officer, Checha Group: future, we think the growth will mainly come from the auto insurance renewal services from our existing partners, because in China, you need to renew your auto insurance each year. So with the NEV keeps growing each year and this is a big growth.

Conference Operator: The next question comes from Mark Long with Prime Impact Capital. Please go ahead.

Mark Long, Analyst, Prime Impact Capital: Hi, Lei and Sandra. Congratulations on the strong quarter and strong 2024 momentum and the outlook for profitability in 2025, very impressive results. And my question, Leigh, is around how you plan to leverage the new low cost, open source AI models that are available in China for your new products and what you see in terms of the ability to deploy cost effective solutions across your portfolio.

Lei Zhang, Founder and Chief Executive Officer, Checha Group: As we can see, in the first quarter of this year, there show a lot of big models on the market and a lot of industries are using AI to reshape the industry workflow to reduce the cost and improve efficiency. So about application of AI in the insurance industry, we believe it will play a big role in both underwriting and claims segments. So on the writing side, which is about pricing, we will use AI to help automakers achieve real time actual area calculations and dynamic pricing. By utilizing a big amount of driving data, including user behavior data, our approach is far more precise than traditional auto insurance pricing methods, which can better reflect the difference among drivers. While on the claim settlement side, we are researching solutions that can utilize data from smart connected NVs.

So in the event of accidents, relevant driving data such as the radar ratings, camera footage and collision data can be extracted and analyzed using AI large models for investigation and assessment. So this intelligent claims solution will revolutionize the traditional claims process by integrating five key steps, which are investigation, damage assessment, claims, loss calculation and payment. These five steps into one stop signaling system. So this is our exploration in the intelligent claims processing and we believe it will reshape the entire industry workflow to achieve cost effectiveness and risk mitigation.

Conference Operator: Was there a follow-up, Mr. Long?

Mark Long, Analyst, Prime Impact Capital: No, that’s excellent. And it sounds like you’re well positioned to leverage the open source models, which will give you a huge advantage given your relationships with the large NEV OEMs. So that’s great. That sounds like you’re going to leverage your leadership position and become one of the leaders in how AI reshapes the auto insurance industry in China. Thank you.

Sander Jie, Chief Financial Officer, Checha Group: Thank you.

Conference Operator: The next question comes from Fei Zheng Gao with Citic Securities. Please go ahead.

Fei Zheng Gao, Analyst, Citic Securities: So let me translate it. We know that we have some partners such as Xiaomi, Lioto and so on. So my question is that why does this OEM prefer to cooperate with us? Could you give some information about this question? And what is our air products and the future plan?

That’s all. Thanks.

Lei Zhang, Founder and Chief Executive Officer, Checha Group: So as for the first question, why as you can see, we have been cooperating with the main NEV partners on the market. So basically, there are two main reasons, I think, why they chose us. So the first line, we are the leading digital platform in China. So after ten years of experience, we have been connected our core system with multiple insurance companies. So we can help them to realize online co auditions and policy insurance.

So we provide a full service a full stop service for our partners. And that’s the first one. The second one, because we have a rich amount of auto insurance operational experiences. During the past years, we have been providing services for more than 20,000,000 car owners. So whether it comes to operational technology, we are always the best choice for them.

So as for the second question about AI, so apart from what I just mentioned about the AI applications in the claims and underwriting, We think because right now in China, most of the new ways are smart connected new ways. So the intelligent driving skills in China are leading globally. So basically on the base behind this, there we produce a large amount of data no matter the driver user’s data or collision data. So all of this data can be utilized in AI. So that’s why right now we are investing in AI techniques.

So basically in auto insurance, especially in the smart connected in the smart AUV insurance, AI will be fully utilized in this industry. So this is our future and this is the direction of our future strategic investment.

Conference Operator: Was there a follow-up? For Beijing Gao?

Fei Zheng Gao, Analyst, Citic Securities: Okay. Well, clear. Thank you.

Conference Operator: The next question is a follow-up from Allen Klee with Maxim Group. Please go ahead. This concludes our question and answer session. I would like to turn the conference back over to Lei for any closing remarks.

Lei Zhang, Founder and Chief Executive Officer, Checha Group: Thank you. We appreciate you taking time to join us on the call today. If you have any follow-up questions, please reach out to Investor Relations. Have a great day. Thank you.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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