Noah : 1Q23 Edited Earnings Call Transcript (English) 192.7 KB

Noah Holdings Limited [Noah]

Q1 2023 Earnings Release Conference Call

May 31, 2023, 8:00 PM ET

Company Representatives

Ms. Jingbo Wang, Co-Founder, Chief Executive Officer

Mr. Grant Pan, Group Chief Financial Officer

Mr. Melo Xi, Director of IR

Analysts

Helen Li, UBS

Chi Yao Huang, Morgan Stanley

Mr. Xi

Good morning 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, Chairlady and CEO, and Mr Grant Pan, our CFO. I'd like to inform you that we are currently live from our new headquarters Noah Wealth Center, located in Hongqiao, 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 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 discussion of some of the 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 the 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.

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

Ms. Wang speaking in Mandarin (as translated)

For the agenda of today's conference call, I would like to first talk about the macro economic environment, Noah's global expansion progress, and then report the overall performance of the first quarter as well as our various business segments. Then, Grant Pan, our group CFO, will present the financial information for the quarter, and lastly, we will end with a Q&A session.

After an 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.S. not only limited the recovery in economic activities, but also significantly impacted the stability of the European and US financial systems. The loss of depositor confidence in small and medium-sized banks and regional banks spiraled into an accelerated withdrawal of savings and bank runs, also causing shareholders of these banks suffering significant losses. While U.S. regulators provided timely protection for clients' deposits in these banks, the restoration of investor confidence in the capital markets was inevitably delayed again.

In the Chinese market, after 3 years of pandemic control, we believe the Chinese economy will get back on trajectory for growth, as COVID restrictions were 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 and restaurants are picking up, sales of big-ticket items such as real estate, automobiles and home appliances are still weak,

which indirectly reflects the cautious attitude of consumers towards future income growth expectations. We believe that China's wealth management and asset management industry, which is dominated by capital market products, will encounter great challenges as the bank deposit portion of consumers' financial assets may be held longer, and China's wealth management industry will shift back to bank dominance; on the bright side, we believe the rising savings rate also provides growth opportunities for diverse investment products in the future, benefiting distinguished independent wealth managers like us; As overseas inflation and U.S. dollar interest rates remain high, we have seen a substantial increase in overseas Chinese's demand for global asset allocation. As an independent wealth manager, Noah's overseas offices in Hong Kong, Singapore and the U.S. have become substantially more attractive to overseas Chinese HNW clients as they can offer a more diversified range of global wealth management products.

From 2019 to 2022, after three years of organizational reforms, Noah has internally formed three established product business units, namely, Gopher Asset Management, Fund Smile and Noah Glory which provides insurance, family trust and other value add services. Each of these product BUs has relatively independent domestic and international operations. Starting in 2022, Noah has also begun to actively build overseas direct sales capabilities, and online client service interfaces to better service global Chinese investors.

During the first quarter of 2023, the Company recorded overall net revenues of RMB 803 million, up 1.0% YoY and down 8.9% QoQ. The domestic business contributed RMB 488 million, accounting for 60.3%, down 20.2% YoY and 19.0% QoQ, while the overseas business contributed RMB 321 million, up 68.4% YoY and 13.0% QoQ, and increased to 39.7% of total revenue from 23.8% from the comparable period last year. 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 3-5 years.

Thanks to better cost management, the operating margin for the first quarter was 34.7% and operating profit was RMB 279 million, an increase of 26.9% QoQ.

By segment, the wealth management segment contributed RMB 589 million, up 1.5% YoY and down 9.4% QoQ. The domestic portion contributed RMB 351 million, down 17.5% YoY and 20.7% QoQ, while the overseas portion contributed RMB 238 million, up 52.7% YoY and 14.8% QoQ, thanks to the growth of overseas product transaction value and insurance distributions.

The asset management segment contributed RMB 206 million, up 2.3% YoY and down 8.1% QoQ. The domestic portion contributed RMB 123 million, down 26.3% and 16.6% YoY and QoQ, respectively, while the overseas portion contributed RMB 83 million, up 138.8% YoY and 8.2% QoQ; this was mainly due to the growth in the scale of overseas AUM and the increase in carry income from overseas private equity exits in the first quarter.

On the protection and preservation side, the demand for insurance product allocation from HNW individuals remained high. During the first quarter, the domestic insurance brokerage business generated 241.0% YoY growth in revenue and the number of active clients increased more than 6 times YoY.

For our overseas insurance brokerage business and overseas family trust services, during the first quarter, overseas insurance revenue increased 179.8% YoY and 2.9% QoQ, and the number of active clients increased 234.1% YoY and 31.7% QoQ. Our overseas family trust team has provided trust services to a total of 473 overseas Chinese families as of the end of the quarter, an 8.2% increase 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 is still a lot of unmet 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. As domestic HNWI migrate to Tier 1 cities, Noah is also reducing the number of satellite cities to further reduce costs and increase efficiency, while increasing investments in Tier 1 cities. As of the first quarter, the number of domestic relationship managers was 1,299, a 3.2% increase from the previous quarter.

In terms of domestic online channel, we focused 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 a more interactive and informative portfolio interface, transaction value for mutual funds reached RMB 10 billion, an increase of 40.3% year-on-year;

In terms of corporate and institutional clients, the Smile Treasury platform launched in 2022 successfully attracted nearly 5,000 corporate and institutional clients. During the first quarter, the number of active clients of Smile Treasury increased by 325.5% YoY, and the overall AUA with us reached RMB 2 billion.

On the international wealth management side, we further expanded the number and quality of our branch offices and private bankers. As of the end of the first quarter, Noah's Hong Kong and Singapore wealth management teams had 28 relationship managers, with the goal of reaching 100 private bankers in Hong Kong and 20 private bankers in Singapore by the end of 2023.

As of the first quarter of 2023, the number of clients in Hong Kong and Singapore achieved 13.1% and 77.6% YoY growth, respectively. Clients' AUM with Noah on a discretionary investment basis reached USD 230 million, up 33.2% YoY, and the cumulative number of clients reached 327, up 79.7% YoY. Noah's international client grew 13.2% YoY to 13,427, and the number of active overseas clients reached 1,763 in the quarter, up 35.3% YoY.