Earnings stock to watch: Fanhua Inc (NASDAQ: FANH)

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Fanhua Inc (NASDAQ: FANH), a leading independent financial services provider in China expects negative growth in new premiums for regular individual life insurance business in the industry for the full year of 2019. Due to ongoing US-China trade war, the relaxation in regulatory supervision is not expected in China’s financial market, industry wide transformation and adjustment persist in the life insurance market in China. This resulted in continuous quarter-by-quarter slowdown in growth over the past nine months of 2019. The company also expects the life insurance industry to remain under huge pressure to deliver growth in 2020. In the third quarter 2019, Fanhua’s life insurance business has reported a strong growth of 42% year-over-year to RMB2.1 billion, which has significantly outpaced industry growth. The renewal insurance premiums rose by 46% year-over-year to RMB1.4 billion and first year regular premiums increased by 34.5% to RMB683.6 million, while annualized premium equivalent rose by 6.2% to RMB419.1 million.

Moreover, in the third quarter 2019, the annuity insurance products had accounted for 29.8% of the total life insurance business in terms of annualized life insurance premiums, as compared to 11.3% in the same period last year. The long-term health insurance had accounted for 65.3% as compared to 76.5% last year and endowment insurance, term life insurance and whole life insurance had collectively accounted for 4.9%.o

For the third quarter of 2019, FANH has reported 5% rise in the total net revenues to RMB823.4 million (US$115.2 million). Total operating costs and expenses grew 1.9%  RMB671.9 million (US$94.0 million) for the third quarter of 2019. Non-GAAP operating income which excluded share-based compensation expenses fell by 10.4% to RMB111.6 million (US$15.6 million). Non-GAAP operating margin has declined to 13.6% for the third quarter of 2019, compared to 15.9% for the corresponding period in 2018. Overall, there has been 13.4% fall in the net income to RMB170.2 million (US$23.8 million) for the third quarter of 2019. Non-GAAP net margin has reduced to 15.6% for the third quarter of 2019 compared with 24.9% for the corresponding period in 2018.

Additionally, from March 13, 2019 to November 19, 2019, the Company had purchased the total of 2,511,191 ADSs, at an average price of about US$28.2 per ADS for a total amount of approximately US$70.9 million, under its share buyback program to repurchase up to US$200 million ADSs by December 31, 2019.

Fanhua for the fourth quarter of 2019, expects its Non-GAAP operating income to be no less than RMB100.0 million.

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