Noah Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 30, 2023

There are 4 speakers on the call.

Operator

Good morning, everyone, and welcome to Noah's 2023 First 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, Chair Lidi and CEO and Graham Han as our CFO. I'd also like to inform you that we're currently live from our new headquarters, Noah Wealth Center, located in Hongxiao, Shanghai, 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 expectation of the business.

Operator

Please keep in mind that these statements are subject 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 discussions of some of the risks that could affect results, please see the Safe Harbor Statement section of our 6 ks filing. We will also refer to certain non GAAP measures and you will find reconciliations in our 6 ks report Made available on the Financial Report section of Noah's Investor Relations website. Also please note that nothing on this call constitutes an offer to sell or Solicitation of an offer to purchase any interest in any Noah or Noah affiliated products.

Operator

This call is copyrighted material of Noah and may not be duplicated with our consent. With that, I would like to welcome our Chairlady and CEO, Ms. Wang Jingbo, Chairlady, Han Yijing The agenda of today's conference call, like to first talk about the macroeconomic environment, Noah's global expansion progress and then report on the overall performance of the quarter as well as our various Then, Glenn Pat will present financial information for the quarter. And lastly, we'll end with the Q and A session. After extremely complex macro environment in 2022, the macro challenges still persist in 2023, Heightened interest rate levels and a tight credit environment in the U.

Operator

S. Not only limited the recovery in economic activities, But also significantly impact the stability of the European and financial systems. The loss of deposit confidence in small and medium sized banks and regional banks Into an accelerated withdrawal of credit and bank runs, helping shareholders of the bank suffering significant losses. While U. S.

Operator

Repositioned funding protection for client deposit in these banks, The restoration of investor confidence in capital markets was inevitable by then. In the Chinese market, Chinese economy will get back to trajectory for growth as COVID restrictions are lifted and borders opened. However, it will take time for the economy to recover And we see that while consumption in sectors such as tourism, restaurants are picking up, sales of big items tickets such as real estate, automobiles and The causes of consumers towards future income growth expectations. We believe that top management and asset management industry We're dominated by capital markets, but we'll encounter great challenges as the deposit for consumers' financial assets might no longer. And China's wealth management industry will shift back to the bank on this.

Operator

On the broad side, we believe the rising since we face growth opportunities for diversifying products and by elevating distinguished independent wealth managers like us. As overseas inflation and U. S. Dollar interest remain high, we've seen a substantial increase in overseas Chinese demand for global asset allocation. The independent manager, Noah's overseas office in Singapore and the U.

Operator

S. Have become substantially more attractive to overseas and our clients As they can offer a diversified range of global wealth management. From 2019 to 2020, after 3 years of organizational reforms, Noah has internally formed 3 established products, namely Gopher Asset Management, Fangzhou and Noah Glory, which provide insurance, Family trust and other value add service, each of the use has relatively independent domestic and international operations. Starting 2022, Noah has begun to actively build overseas RackSells capabilities and online service interfaces To better serve global Chinese investors. During the Q1 of 2020, The KG recorded overall net revenues of RMB803 1,000,000, up 2% year on year and down 8.9% quarter on quarter.

Operator

The stick business contributed RMB488 1,000,000, accounting for 60.3%, Down 20.2% year on year and 19% quarter on quarter, while the overseas business segments contributed RMB321 1,000,000, up 68.4% year on year and 13% quarter on quarter With the gradual improvement of Noah's overseas setup, We hope that the contribution of overseas revenue can reach more than 50% of the whole group in the next 3 to 5 years. And thanks to better cost management, the operating margin for the Q1 was 34.7% The operating profit was RMB279 1,000,000, an increase of 26.9 percent quarter on quarter. By segment, the Wealth Management segment contributed RMB589 1,000,000, up 1.5% year on year And down 9.4% quarter on quarter. The domestic portion contributed RMB351 1,000,000, Down 17.5% year on year and 20.7% quarter on quarter, while the overseas portion contributed RMB238 1,000,000, Up 50.7% year on year and 14.8% quarter on quarter, thanks to the growth of overseas product transaction value And insurance distributions. The asset management segment contributed RMB206 1,000,000, up 2.3% year on year and down 8.1 percent quarter on quarter.

Operator

The portion contributed RMB123 million, down 26.7% And 16.6% year on year on quarter respectively, while the overseas portion contributed RMB83 1,000,000, up 136 38.8 percent year on year and 8.2% quarter on quarter. It was mainly due to the growth in the scale of overseas AUM And the increase in carrying from overseas private equity assets in the Q1. On the protect and preservation side, The demand for insurance product allocation from high net working individuals remained high. During the Q1, domestic insurance brokerage business generated 241 percent year on year growth in revenue and the number of active clients increased more than 6 times year over year. For our overseas insurance brokerage business and overseas family trust services, during the Q1, Overseas insurance revenue increased 179.8% year on year and 2.9% quarter on quarter.

Operator

And number of active clients also increased 234.1 percent year on year and 31.7 percent quarter on quarter. Our overseas family trust team has provided family trust services to a total of 4 73 overseas Chinese families as of the end of the quarter, an increase of 8.2% compared to the end of 2022. Evidently, in an environment where capital market volatility continues and uncertainty in the macro environment has yet to subside, There's still a lot of demand for asset allocation security from Chinese clients around the world. For our domestic Wealth Management business, our core Strategy is to focus on upsizing and strengthening central hub cities. Tier 1 cities have more talent resources and better innovation environments As well as better education options for children.

Operator

As domestic high network individuals migrate to Tier 1 cities, no one It's also reducing the fee while increasing investments in Tier 1 cities. As of the Q1, the number of domestic relationship managers was 1299, A 3.2% increase in the previous quarter. In terms of domestic online channel, we focus on strengthening the empowerment of technology systems And upgrading client experience. By providing a wider array of online product shelf, CCI asset allocation tools and investment strategy reports As well as a more interactive and informative portfolio interface, transaction value for mutual funds reached RMB10 1,000,000,000, an increase of 40 0.3% year on year. In terms of corporate institutional clients, the Smile Treasury platform launched in 2022 Successfully attracted nearly 5,000 corporate institutional clients.

Operator

During the Q1, the number of active clients of Smile treasury platform increased by 325.5 percent year on year and the overall AUA with us reached RMB2 1,000,000,000. On the international wealth management side, we further expanded the number of and quality of our branch offices and private anchors. As of the end of the Q1, Noah's Hong Kong and Singapore Wealth Management team had 28 relationship managers with a goal of reaching 100 Private bankers in Hong Kong and 20 private bankers in Singapore by the end of the year. As of the Q1 of 2023, The number of clients in Hong Kong and Singapore achieved 13.1% and 77.6% year on year growth, respectively. Class AUM with Noah on a discretionary investment basis reached USD230 1,000,000 Up 33.2% year on year and the cumulative number of clients reached 327, Up 70.7% year on year.

Operator

Noah's international overall clients grew 13.2% year on year To 13,427 and the number of active overseas clients during the quarter reached 1763 In the quarter, up 35.3 percent year on year. In terms of international wealth online wealth management, In 2023, we will mainly focus on helping overseas private bankers to be able to fully execute their clients' transactions Provide portfolio advice and services to your clients online more efficiently. The number of active clients for overseas mutual funds Reached 1409 in the Q1, a significant increase of 537.1 year on year. Transaction value reached RMB340 1,000,000, an increase of 10.6% quarter on quarter, top of Lamor's year on year increase. Overall overseas mutual fund AUA reached US970 $1,000,000 an increase of 588.7 percent year on year.

Operator

International Smile Treasury Business also began to show significant progress and so far has successfully attracted more than 140 overseas Corporate and institutional clients. The transaction value for the 1st quarter reached $35,000,000 increase of 13.4 times. On the asset management side, Gopher's overall AUM was RMB157.6 billion, up 0.9% year on year, Among which Gopher successfully managed target strategy products, executed disciplined risk management and limited pullback during the past year. This quarter, the investment team made timing judgment judgments and its active investments achieved 12.3% annualized volatility of 6.3% and short term Annualized volatility of 6.3 percent and job ratio of 1.1.1. As balanced investment product achieved 14.9% annualized 5.2% annualized volatility job ratio of 2.6.

Operator

Lastly, the stable investment products reached 7.8% annualized return, 1.9% annualized volatility and Sharpe ratio of 3% during the quarter. Overseas AUM of Gopher's international Activity managed products achieved 0.9% year on year increase to US4.9 billion dollars and capped 22.2 percent of the total A1. In the current history and economic cycle, we see opportunities and investment thesis in private equity buyout, special opportunities And PE secondary funds as well as early technology leasing investments. Overseas PPAU year on year increase to US2 dollars in the Q1. We also plan to continue to improve our coverage And expand our partners' network as well as upgrading our KYC technology system to better provide overseas Alternative Investment Product Solutions to our global Chinese clients.

Operator

In terms of ESG, 2023 was the 9th year for us to publish sustainability report to showcase the new developments and achievements of Noah towards ESG every year. In the past 3 years, Noah started to track ESG awareness among Diamond and Black Card clients and saw the willingness of investing in ESG increase From 35% to 87%. Noah's continuous ESG advocacy and investor education also played a non In a flexible role in the progress of clients' greater recognition of ESG concepts. In addition to environmental and sustainability aspects, We have made continuous improvements in the corporate governance level. We have built collective leadership by establishing 5 major committees at group level, Including the Strategy Committee, Talent Committee, Reform Committee, Operation Committee and Technology Committee, we have also established the AT and ST framework In each business unit and region, which is responsible for building and motivating talents as well as making and managing key business objectives, respectively, Thus completing the transformation from individual leadership to organizational capability.

Operator

In this process, although the management awareness and decision making efficiency seem to be Lower, but the quality of decision making has been greatly improved. Finally, we have officially opened our brand new headquarter on May 18 this year. Noah Wealth Center is located at the core area of Hongqiao Transportation Hub, located in the central axis of Shanghai. The whole complex has a total area of about 72,000 square meters. With the geographical advantage of Hongqiao Transportation Hub, Noah can service clients from data triangle as well as the whole country Even the road more conveniently.

Operator

We have made a standalone building of our new headquarters, a client centric experience center for Noah's global clients,

Speaker 1

Thank you, Chairlady, and good morning, investors and analysts. As mentioned by the Chairlady, The Q1 of 2023 entails a moderate economic recovery in China, indicated by a 2.5% year over year growth In GDP, market sentiments started to slightly lean away from savings, turning to a mild increase in the demand Investment, evidenced by a 2.2% quarter over quarter rate rebound in the issuance value of mutual fund products. Although investors' activities became more active and transaction values in the markets have gone up, sentiments toward Relatively higher risk profile products like private equity products still remain prudent. In the meanwhile, from an international perspective, The U. S.

Speaker 1

Federal Reserves have been sticking to a hawkish monetary policy throughout the quarter, accumulatively raising the federal interest rate twice From 4.5% to 5%, which largely indicated the continuation of the theme from 2022. In addition, the sudden collapse of SVB in March caused U. S. Banking sector in crisis and even has spillover effects On Global Financial Industry, which brought concerns to investors about market volatilities on top of hiking rates and tightening credit conditions. Same true to our client centric strategies, we dedicated to transform these uncertainties into opportunities to generate clinical preservation and Growth for our clients, coupled with a constant improvement in domestic capabilities and ongoing expansion in the international market.

Speaker 1

Entire client engagement and financial performance weren't hindered by the concurrent complex macro environment. Noah's quarterly transaction value increased by 12% year over year to RMB16.8 billion, 31.5 percent of which contributed by overseas products. Reflecting our financials, revenues from overseas business for this quarter Increased 68.4% year over year and 13% quarter to quarter to be RMB321 1,000,000, Taking up 40% of the group's total revenue, combined with the cost effective strategy, Nao achieved a total 0.9% Quarter over quarter indices in operating income to RMB279 1,000,000, implying operating margin of 34%. As a result, non GAAP net income was RMB240 1,000,000, up 60.6 percent quarter over quarter With the net margin standing at 29.8%. Now please let me share with you the detailed financial results for the Q1.

Speaker 1

We recorded quarterly net revenue of RMB803 1,000,000, up 1% year over year, but down 8.9% quarter over quarter. But notably, our one time subscription fees were up 72.5% year over year to RMB176 1,000,000, Indicating a quick recovery in investor sentiments regarding products with lower risk profiles such as insurance products. As our global expansion strategy progresses, the distribution of offshore insurance products took up an increasing share of revenue this quarter, and we believe The expansion of offshore products distribution to our investors residing abroad will have ample room to grow. The stabilizing revenue stream, recurring service fees was RMB474 1,000,000 in the Q1 of 2020 3, which takes up 58.8 percent of total revenues and remains relatively steady from last quarter. Performance based income was RMB8, flat from the previous quarter, but went down 52% year over year due to weaker Market performances, especially on security type products.

Speaker 1

Quarterly operating income was RMB270, 11.1 percent year over year, but up 27.9% quarter over quarter, implying increase of 9.8 The quarter over quarter operating margin due to a 20% quarter over quarter decrease in total operating costs and expenses, Which has resulted from precise cost efficiency strategy in G and A and selling expenses. Interest income in this quarter was RMB34 1,000,000, up 172.1 percent year over year and 141 percent quarter over quarter, mainly as a result of our U. S. Dollar deposits. Consequently, non GAAP net income was RMB240 1,000,000, down 23.6% year over year, but up 60 0.6% from the last quarter, indicating non GAAP net margin of 29.8%, which increased 12.9% from last quarter, a decrease of 9.6% year over year due to the change of the revenue Structure, especially in performance fee.

Speaker 1

Transaction value was RMB16.8 billion for the quarter, 12% year over year, but down 6.7% from the previous quarter. Notably, transaction value of private secondary products increased 6.5% year over year and 27.5 percent quarter over quarter to RMB4.3 billion. The transaction value of mutual fund products decreased 18% from last quarter to RMB10 1,000,000,000, But increased 40% year over year, thanks to our continuous effort to enlarge our client base, including both individual and institutional clients, onshore And offshore. Besides, the transaction value of private equity products was RMB1.3 billion, Mainly from U. S.

Speaker 1

Dollar PE products, which went up 3% quarter over quarter, thanks to the proprietary investment teams Of Gopher, in New York, real estate investment team and also Silicon Valley Venture Capital Investment team As well as enlarged coverage and selection of global top tier products. Since the loosening up The COVID restriction on both domestic and international traveling, we have been investing heavily to bring back Nowhere's famous investment seminars to our clients. The client summit we held in Hangzhou during the Q1 of 2023 Attracted more than 1200 high net worth individuals, clients and dozens of reputational fund managers in the industry We're invited to provide their latest views on the economy and investment strategies. Additionally, overseas client activities Like the investment summit we held in Hong Kong also underpinned the promising progress for Noah's growth expansion plan With over 600 clients in attendance, the portion of overseas transaction value reached 31.5%, up 15% year over year and 3.2% quarter over quarter. Overseas AUM also increased About 15% year over year and 2.8 percent quarter over quarter to RMB33.4 billion, Taking up 21% of the total AUM, moreover, overseas active clients went up 35% Year over year, 1.3 percent quarter over quarter, demonstrating the progress in the establishment of client channels in our overseas wealth management business.

Speaker 1

As for our segmented results, net revenues from Wealth Management were RMB587 1,000,000, taking up 73% total net revenues. Net revenues from Asset Management net revenues was RMB205.2 million, taking up about 25.5 percent of total revenues. Total AUM increased by RMB445 1,000,000 from last quarter, sitting at RMB157.6 billion, Primarily due to the increase of AUM in public securities products, thanks to our U. S. Dollar cash management offerings, Overseas AUM increased by RMB9 1,000,000,000 with a strong 21.2 percent of total AUM.

Speaker 1

Moving on to balance sheet, we remain in a very healthy position in terms of liquidity as our current ratio stands at 3.2 times, The dividend payout is 20.2 percent with no interest bearing debt. Currently, we have RMB 4.7 percent in the dividend payouts as well as executing The other acquisition plan. In addition, as mentioned in the previous quarter, we will declare final dividend of Our RMB5.5 per share equivalent to $0.40 per ADS or HKD5.5 Subject to the final approval of upcoming AGM on June 12, 2023, we look forward to providing stable Sustainable returns to shareholders with the growth of our business. Wrapping up, our Q1 performance delivered a stable set of underlying results With a positive outlook outlook on our domestic international dual circulation strategy. We believe that Noah will be able to tread through the uncertainties And seize the opportunities to expand in the coming years.

Speaker 1

Again, we sincerely appreciate all shareholders for your ongoing trust and support And strive to create diversified portfolio and long term values for our clients and shareholders. Thank you for listening, and we'll open the floor for questions.

Operator

Thank you, Brent. Dear investors and analysts, if you have any questions, please use the raise hand function from the Zoom webinar. Now first, we have Helen Li from UBS.

Speaker 2

Okay. Let me translate my questions. This is Helen from UBS. Two questions, if I may. The first is on RM expansion plan.

Speaker 2

In the Q1, the number of onshore RMs saw a sequential increase of 40. I remember your previous guidance was no increase or slight increase in onshore So is there any change of plan? And for the 40 increase in onshore RM, how many were new joiners and how many RMs have left the firm? The second question is on revenue contribution from Hong Kong Business. What proportion of the revenue can be attributable To newly acquired local clients rather than onshore client referrals.

Speaker 2

Thank you.

Speaker 1

So thanks, Helen. Basically, change In the domestic IMs are in compliance actually with our strategy domestically. We do have a program called 311, Basically the 14 cities, the 3 major cities, which is Beijing, Shanghai, Shenzhen and also 11 or 12 other first Tier cities that we believe are very, very important for the future market expansion. So for these cities, we actually do have a goal For the average business, that's over RMB10 1,000,000,000 each year within 3 to 5 years. So for these cities, we're still expanding and also recruiting actively.

Speaker 1

As a result, On the smaller cities, probably in the 3rd, 4th tier networks, the branch offices, some of the RMs that are not operating or performing to the standard of the 3 11 cities are obviously let go Or they choose to leave. But we don't have exact data to track the turnover. But if you need it, we'll be very happy to provide it. But basically, the strategy surrounded the domestic market is to continuously to heavily invest into the 3 11 cities. We actually, as a matter of fact, I just want to supplement from the budget standpoint, we do set aside a strategic budget to support the hiring, especially The higher talents that probably doesn't fit in the current compensation scheme.

Speaker 1

So actually do have a strategic budget To supplement these cities, so they're able to attract the relatively higher tier talents. So we'll see a number In the number RM and also contributed partially to the plan of Big That's basically we're trying to attract relatively younger blood into the team. So basically the ones with less 5 years experience, but with great academic background and to supplement the RM team so that we'll actually have A team of younger towns, they'll be able to grow into large and better RMs in their future years. So Helen to your second question, so basically we don't Typically characterize that as referral or local business. So basically, all the overseas business that are rising from the clients demand are 100% viewed As locally developed.

Speaker 1

So basically, the domestic RMs, when they do realize Are they their clients actually express to them that they do have overseas assets and they need some help on the allocation of overseas assets. The domestic RM1 will actually team up with the RMs in Hong Kong and Singapore To continually to focus on figuring out what exactly the allocation is. But I think one factor is for sure The domestic arm is not aware and they will not be able to know what exactly they're placing orders on What kind of allocation advice is provided to them. So that's, I would say, 100% as being served Locally on the overseas market. And these clients' assets are already overseas and they're probably already being served by The overseas private bank or other institutions, so basically that piece of business will be built purely as overseas allocation.

Operator

Next we have Xiaofeng from Morgan Stanley, Xiaoying

Speaker 3

So the first question is on the asset allocation of high net worth Individuals there are preference and the preference products, what's the latest trend the managements are seeing right now? And the second question is on the revenue and profit outlook and especially what part is more certain we think will be the most certain drivers this year and what the other parts are more have some uncertainty this year? Thank you.

Speaker 1

So, well, basically we still are looking at rather uncertain macro outlook. So majority of the clients actually take a pretty defensive stance in terms of the investment strategy or you would say bear market Minded or balanced minded type of strategy. I think it's one interesting fact to note that the age structure Majority of the high net worth individuals are 1st generation entrepreneurs or business owners. So in the first half of their life, Obviously, very aggressive and probably in the attack mode, if you will, in the investment strategy. But now they're getting Especially the baby boomers that was born between 1962 to 1972, they're looking at the second half Their life, so they're taking much more defensive strategy mindset towards investment and asset allocation strategy.

Speaker 1

If you think about it that Majority of the wealth and the asset and investment probably very heavily pro China in the past. And now they're probably looking at erupting globalization as allocation strategy to diversify The geographic risks. So we're seeing a very clear trend of the increasing allocation Probably to the preservation strategy in terms of assets structure, in terms of insurance products, even trust Some of the family planning to actually not only support investment, asset allocation, but also the lifestyle on the global citizen type of style. Not yet seeing a quick recovery or strong recovery in investment type of assets. I believe we believe that they're still assessing the situation, but I guess the action and also the mindset I would say very conservative.

Speaker 1

So that's the answer to your first question, Cheyue. And to your second question in terms of revenue and profit for the rest of the year, obviously, Since we're getting primarily listed on Hong Kong Stock Exchange, we cannot give a revenue or profit guidance. But I think one thing is for sure that from the expense and cost strategy, even if we're Heavily investing on the globalization. We're still actually trying to maintain relatively consistent profit margin to the Past year, so basically, we're seeing more cost efficiency, especially from domestic operations. For example, we're actually Heavily concentrated on larger cities by closing down some of the smaller cities and also letting go some of the low performing RMs and also using more the NWC, which is the new headquarter as the marketing scenario instead of Paying millions on the hotel rooms, especially for Shanghai and Zhengzhou provinces.

Speaker 1

So we'll maintain a relatively steady profit margin, especially from human capital expenses standpoint. And 2, we believe that the continued strength for as you see in the Q1, we actually have a very strong recovery In one time commission, which means that we're still growing the new revenue From larger wallet share on newer clients, that's what we'll maintain. So hopefully, obviously, even During a recovery year that China has the goal for the GDP recovery and increase. So we obviously from the annual budget standpoint Still very growth minded. We're obviously growing the new territory in the global and overseas business.

Speaker 1

At the same time, we have been installing quite ambitious targets, I would say, for wealth management As well as other 3 business units that we have just mentioned. So we'll be hopefully seeing Larger growth on the top line and at the same time maintaining relatively healthy profit margin.

Operator

Thank you, If you have any other questions, please use the raise hand function in the Zoom webinar. So we have no further questions from the investors and analysts. So thank you all for listening to our earnings release today. And if you have any questions, please don't hesitate to contact the Investor

Speaker 1

Please don't hesitate to stop by our new headquarter. Please do as well. Thank you. Thank you.

Powered by Quartr
Earnings Conference Call
Noah Q1 2023
00:00 / 00:00