Noah : 2Q23 Edited Earnings Call Transcript (English) 140.9 KB

Noah Holdings Limited [Noah]

Q2 2023 Results Conference Call

August 28, 2022, 8:00 PM ET.

Company Representatives

Jingbo Wang, Co-Founder, Chief Executive Officer

Grant Pan, Chief Financial Officer

Melo Xi, Director of Investor Relations

Analysts

Yoyo Fan, CICC

Chiyao Huang, Morgan Stanley

Peter Zhang, JPMorgan

Presentation

Operator: Good day, and welcome to the Noah Holdings Second Quarter 2023 Earnings Conference Call. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Melo Xi, Director of Investor Relations. Please go ahead.

Melo Xi: Thank you, operator. Good morning and welcome to Noah's 2023 second quarter earnings call. I'm Melo Xi, Director of Investor Relations at Noah Group. The presenters joining us today are Ms. Wang Jingbo, our Co-founder, Chairlady and CEO, and Mr. Grant Pan, our CFO.

Before we start, we would like to kindly remind you that during today's call, we may make forward-looking statements based on our current expectations of the business. Please keep in mind that these statements are subjected to risks and uncertainties that may cause Noah's actual results to differ from these statements. We do not undertake any duty to update these statements. For a discussion of some of the key risks that could affect results, please see the Safe Harbor statement section of our 6-K filing.

We'll also refer to certain non-GAAP measures and you'll find reconciliations in our 6-K report made available on the Financial Reports section of Noah's Investor Relations website.

Also please note that nothing on this call constitutes an offer to sell, or a solicitation of an offer to purchase an interest in any Noah or Noah-affiliated products. This call is copyrighted material of Noah and may not be duplicated without consent.

Please also be aware that the link to a live webcast with presentation materials is available on our Investor Relations website.

With that, I would like to welcome our Chairlady and CEO, Ms. Wang Jingbo. Chairlady, handing to you now. Thanks.

Jingbo Wang: Thank you. (Speaking foreign language).

Melo Xi: Thank you, Chairlady.

(Translated). For the agenda of today's conference call, I would like to start with my thoughts on the macro economy and the wealth management industry, Noah's progress in global expansion plan; and then report on the overall performance of the first half of the year and the development of our business units. Then, Mr. Grant Pan, our group CFO, will present the financial information, followed by a Q&A session.

In the second quarter of 2023, we observed that the geopolitical conflicts and global economic slowdown has replaced inflation as the top concerns for Chinese high-net-worth investors, and they are taking accounts of these considerations when actively adjusting their asset allocation strategies. At the same time, due to the innovations and breakthroughs in AI technology driven by ChatGPT, high-net-worth clients who are familiar with primary market investments, such as venture capital, are also hoping to take part in this new round of technology advancement cycle and the investment opportunities that comes along the way.

A diversified asset allocation strategy in terms of geography and asset classes becomes increasingly important amid heightened level of macro-economic uncertainties. We recommend that Noah's high-net-worth clients to review their portfolios, starting with a running through a checklist across all aspect of their investments, ensuring sufficient allocation in the safety-net portion, coupled with multi-strategy investments to capture cross-cycle growth opportunities, achieving an anti-fragile strategic and tactical asset allocation.

We are also aware of the recent payment default by certain wealth management companies and trust product platforms on their non-standardized private credit products. I would like to point out that Noah, since its establishment in 2003, has been sticking to our founding principles and common practices of the financial services industry for 20 years.

From the inception of our company, we have insisted on the segregation of clients' capital, maintaining separate custodian accounts for our asset management products, no leveraged funding for clients, no products with maturity mismatches, and no cross-border fund movement transactions. Together with our continued devotion to investing in research capabilities, such principles not only establish us as a pioneer in terms of compliance and vision, but also bolster our capacity to navigate economic headwinds and shield our clients' hard-earned capital through professional asset allocation advisories.

Thanks to our continued devotion to strengthen our investment research capabilities, coupled with our management's forward-looking macroeconomic judgment, in 2016, we started to wind down our exposure in residential property assets. We have fully exited this asset class and among the clients who invested in this type of products, 98.7% were profitable. After the CX incident in

2019, we also started to wind down and fully exited non-standardized private credit exposure, or so-called trust products. During this exit process, although we experienced short-term hardships and lost some of our clients and employees along the way, we had successfully completed the standardization transformation in 2021 nevertheless, which was proven to have effectively safeguarded our clients' wealth amidst recent challenges faced by this asset class.

In terms of financial performance, the Company recorded overall net revenues of RMB1.7 billion in the first half of 2023, up 13.8% year-on-year. Domestic business contributed RMB1.0 billion, accounting for 59.2%, down 13.4% year-on-year. With our continued investment in distribution, products selection and comprehensive services, overseas business contributed RMB714.9 million, up 104.1% year-on-year, and increased its share of the group's revenue to 40.8% from 22.6% last year.

By segment, wealth management segment contributed RMB1.3 billion, up 22.5% year-on-year. The domestic portion contributed RMB769.9 million, down slightly by 4.3% year-on-year, while due to the expansion of overseas product offerings and comprehensive services income, overseas portion contributed RMB566.8 million, up 96.4% year-on-year.

Asset management segment contributed RMB389.9 million, down 5.4% year-on-year. Domestic portion contributed RMB241.9 million, down 31.2% year-on-year, while overseas portion contributed RMB148.1 million, up 140.3% year-on-year, mainly due to the increase in overseas AUM.

In terms of comprehensive services, wealth preservation and inheritance remain the most concerned wealth management needs among high-net-worth clients and families. In the first half of this year, revenues contributed by domestic insurance brokerage business grew 54.6% year- on-year. Overseas insurance, family trust and other comprehensive services grew by 380.8% year-on-year, with the number of active clients in this segment increasing over 6x, thanks to the growth of our operations in Hong Kong and Singapore offices.

For the first half, we achieved operating profits of RMB628.3 million with an operating margin of 36.0%.

For our domestic wealth management business, with the migration of domestic high-net-worth clients to Tier 1 and central hub cities, as well as more supply of talent, we continued our strategy to focus on and expand our presence in China's Tier 1 and central hub cities by increasing the recruitment of top-tier talent, enhancing the asset allocation capabilities and service quality of our relationship managers, strengthening investment and research capabilities and providing customized asset allocation solutions to our clients with the help of CCI model.

By the end of the quarter, the number of domestic RMs stood at 1,319, up 5.1% year-on-year and 1.5% quarter-on-quarter.

In terms of domestic online wealth management, through continuous investments in technology infrastructure, we have effectively integrated our clients' portfolio report with CCI allocation tools, which provides recommendations for clients' four types of wallets, namely liquidity management, growth investments, protection inheritance and safety-net portfolio.

During the first half, transaction value of mutual funds exceeded RMB 22 billion, up 14% year- on-year, while the transaction value of private secondary products exceeded RMB 8.5 billion, up 33.6% year-on-year.

In terms of corporate and institutional clients, the Smile Treasury platform, which was launched in 2022, has successfully attracted nearly 6,000 clients on board. During the first half, active clients increased by 73.7% year-on-year, with an average client AUA of nearly RMB600,000.

On the international wealth management side, we continued to implement our private banker recruitment program in Hong Kong and Singapore. By the end of the quarter, we had 56 relationship managers in Hong Kong and Singapore, up 100% quarter-on-quarter. We are also in the process of setting up client service stations in Los Angeles and Dubai, which should be completed in the second half of 2023, to better serve the global wealth management needs of Chinese clients around the world.

As of the second quarter of 2023, Noah International had more than 13,600 international clients, with the number of clients in Hong Kong and Singapore grew by 12.8% and 185.2% year-on- year respectively. Clients' AUM with Noah on a discretionary investment basis reached USD262 million, up 20.4% quarter-on-quarter, and the cumulative number of clients reached 471, up 44% quarter-on-quarter.

In terms of international Online Wealth Management, we successfully launched our iNoah One Account platform, an integrated account solution that provides multi-domain and multi-class asset allocation for Noah's overseas clients. We have also successfully connected nine systemically important banks globally through our nominee account, effectively reducing the time and cost of opening and managing separate bank accounts for our global clients.

Active clients for overseas mutual funds reached 1,956 people, a significant increase of 465.3% year-on-year; transaction value reached USD609 million, an increase of more than 700% year- on-year.

International smile treasury business, also began to show significant progress, and so far has successfully attracted more than 170 overseas corporate and institutional clients. The transaction value of the first half reached over USD73 million, an increase of 193.5%.

On the asset management side, Gopher's total AUM was RMB156.9 billion, up 0.9% year-on- year. Meanwhile, Gopher has established three strategic client groups based in Shanghai, Hong Kong and Singapore, with team members coming from diverse backgrounds including investment banking, consulting, buy-side and sell-side investment research and family offices. This not only enables Gopher to cooperate with domestic and international wealth management teams to provide exclusive, diversified and customized asset allocation services for strategic- level clients, but also to actively explore opportunities in expanding overseas institutional and family office clients by leveraging Gopher's diversified actively managed products at home and abroad.

In the first half of 2023, Gopher's actively managed target strategy product team dynamically deployed high-volatility strategies to enhance portfolio returns while balancing pullback and volatilities to maximize long-term returns. During the first half, its active investment product

achieved 4% annualized return, annualized volatility of 6.3%, and Sharpe ratio of 0.4; its balanced investment product achieved a 8% annualized return, 5.6% annualized volatility, and Sharpe ratio of 1.2. Lastly, its stable investment product achieved a 9% annualized return, 2.1% annualized volatility, and Sharpe ratio of 3.6.

Overseas AUM of Gopher International's actively managed products, reached USD4.7 billion, equivalent to RMB34.3 billion, up 15.8% year-on-year, and its proportion of the group's total AUM also increased to 21.8%. In 2023, we strengthened the screening, coverage and launching of top-tier global hedge fund managers, as well as the introduction of USD structured products, effectively completed our overseas product matrix.

In terms of ESG, we continued to promote the integration of investment products with ESG concepts. Since the end of 2022, Gopher has launched an ESG public market product in cooperation with Rayliant Asset Management, which integrates ESG evaluation framework into fundamental quantitative strategy, maximizing long-term investment returns amid the state's efforts to promote the development of various segments of key ESG initiatives such as carbon neutrality.

As of July, we have cumulatively raised nearly RMB100 million for this product, with a cumulative return of over 14%, outperforming the CSI 300 benchmark Index over the same period.

In summary, Noah's long-term success as an independent wealth management firm lies in its adherence to our core strategy of client-centric, survival as the bottom line, as well as respecting the common senses of the financial services industry. Our three complementary business segments, including wealth management, asset management and comprehensive services, not only enable us to fully meet the needs of a diverse range of clients, including individuals, institutions and family offices, but also bring a greater degree of inherent stability and balance to our business.

Next, I would like to ask CFO Grant Pan, to present the financial performances in detail. Thank you all.

Grant Pan: Thanks, Melo. Thank you, Chairlady, and hello, investors and analysts. With the lifting of travel restrictions, the second quarter saw a steady recovery on track, and the contribution of contact-related activities to economic growth also expanded, as evidenced by a 5.5% year-over-year increase in GDP in the first half of the year. Despite more active domestic economic activities, the recovery is still at an early stage, and being confronted with uncertainties due to a slowing global economy and rising geopolitical concerns. The investment sentiment of high-net-worth individuals still remains at the conservative side as they continue to seek out safe havens and wealth preservation.

Our dedicated focus on client-focused strategy has paid off, with strong financial numbers showing that we are aligning clients' best interests with our wealth management advices provided. For the 6 months ended June 30, 2023, our net revenues increased by 13.8% year-over- year to RMB1.7 billion, of which 30.2% came from insurance income, as we have executed our CIO house view on wealth preservation and bottom-line-focused asset allocation strategy.