Noah : 4Q22 Edited Earnings Call Transcript (English) 248 KB

Noah Holdings Limited [Noah]

Q4 2022 Earnings Release Conference Call

March 28, 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

Peter Zhang, J.P. Morgan

Mr. Xi

Good morning and welcome to Noah's fourth quarter and year-end 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 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 relationswebsite.

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 start by discussing the macroeconomic landscape and update on our globalization strategy, then report on

Noah's overall performance and the development of various business segments in

2022. Mr. Pan will then present the financial information for the year and conclude with a Q&A session.

2022 was destined to be an extraordinary year with an extremely complex global macroeconomic environment. The extreme market gyrations caused by the Russian and Ukraine conflict during the first quarter, Shanghai lockdown during the second, and the rapid Fed rate hikes spanning almost the entire year have far exceeded our expectations. In other words, we have seen the most drastic drop in investor confidence in decades.

Domestically, the Chinese lockdown index reached its highest levels twice since the first outbreak of Covid-19 in 2020. Frequent lockdowns severely restricted economic activities, with the household savings rate reaching its highest level since the beginning of the outbreak and consumer confidence hitting rock bottom.

Turning to the global market, since the subprime financial crisis in 2008, prolongedquantitative easing and abundant liquidities have led to a significant level of global asset inflation. With global supply chains severely disrupted over the past three years by the raging pandemic, coupled with the impact of surging commodity prices due to geopolitical conflicts, we have seen the most acute global inflation in decades. In order to tame inflation, the world's major central banks, led by the US Federal

Reserves, moved quickly to raise interest rates at the fastest pace in almost 40 years.

The sudden quantitative tightening measures and escalating risk free rate of return led to huge losses in risk assets, with both the equity and bond markets experiencing their worst year since 2008.

The significant shift in investor sentiments led to a decrease in preference for high yield products and an increase in demand for assets with lower volatilities and higher liquidities. As a wealth and asset management firm focused on serving global Chinese

HNW clients, Noah's mission is to understand and gain insight into the ever-changing needs of our clients.

In the CIO report published at the beginning of 2022, based on our assessment of the macroeconomic and capital market environment, we proposed our clients to adopt a "protection before growth" asset allocation strategy, advising them to protect and diversify their portfolio using various wealth management tools against the upcoming uncertainties. We recommended our clients to increase their allocations in absolute return oriented multi-strategy funds and private equity funds, in order to reduce asset volatility and capture cross-cycle growth opportunities, which effectively helped clients to protect their wealth in the turbulent capital market environment. We have become increasingly aware that the concept and understanding of wealth management through the lens of Chinese HNWI is undergoing fundamental changes, with "safety and security" becoming the number one demand. The need for global asset allocation has also increased.

Since the opening of the Hong Kong office in 2012 and the gradual establishments inforeign markets including the US, Singapore, Canada and Australia, Noah

International has accumulated a decade of experience and capabilities in the overseas segment. In the past, we served our overseas Chinese clients with our overseas staff, which mainly consisted of investment, product selection, operation and middle and back office professionals. In 2022, we further reshaped Noah's international capabilities by building an international wealth management team based in overseas markets, creating new overseas products, in order to better serve the asset allocation needs of Chinese HNWIs living abroad on top of the capabilities and systems we have already built in the past.

By the end of 2022, Noah International's clients increased 8.4% YoY. The overseas segment generated net revenues of RMB828 million for the year, accounting for 26.7% of the Group's revenue, an increase from 23.5% in 2021, with this figure further increasing to 32.2% in the fourth quarter.

In 2022, the company delivered solid financial performance by proactively adjusting our business strategy, achieving an annual net revenue of RMB 3.1 billion and non-

GAAP net income of RMB 1 billion, meeting the annual non-GAAP earnings guidance. Operating income margin improved to 35.1% from 27.9%, driven by more efficient cost management and less travel activities due to COVID lockdowns.

Wealth management segment reported annual net revenues of RMB 2.2 billion, down

31.1% YoY, primarily due to clients leaning more towards products with higher liquidity such as money-market funds and fixed-term deposits, leading to a decline in one-time commissions. Transaction value was RMB 70.3 billion for the year, down

27.7% YoY. In 2022, with significant volatilities in the global public markets, with the

MSCI World Index down 17.8%, the S&P 500 Index down 18.7% and the MSCI

China Index down 21.2%, Noah's strategy was to capture and maintain clients' wallet share and help clients preserve their wealth, instead of trying to chase higher revenues and profits through pushing products with higher risk profiles.

Mutual fund transaction volume increased by 16% YoY, driven by the launch of our

Smile Treasury SAAS platform specifically targeting corporate and institutional clients' treasury management needs. In the past, corporate treasury management for mid and small enterprises lacked specialized and systematic services. Capitalizing on

Noah's existing mutual fund platform and asset allocation capabilities, we have offered services to more than 4,500 mid to small size corporate and institutional clients, who opened accounts and transacted through Smile Treasury platform during the year.

In terms of clients, the number of our diamond and black card clients reached 9,689, an increase of 18.2% YoY, with a 22.2% increase in black card clients in particular.

Growing our core client base has always been a key strategic objective. Over the past year, we have effectively enhanced our client experience by improving our client interface and branding, improving our client rewards system and enhancing the integrity of our clients' asset allocation through the introduction of a star rating system. Furthermore, we recovered over 1,000 lost or dormant accounts, and after the

Camsing incident in 2019, many lost clients have started to turn back to us. In 2022, through better client segmentation strategies and personalized asset allocation advices, we recognized over 3,000 potential diamond and black card clients during the year.

Through referrals from our existing clients, we gained over 1,000 new clients that became gold level or above. Winning clients' trust through care and professionalism has always been the source of Noah's success.

Asset management segment reported net revenues of RMB 835 million, down 19.9%

YoY, primarily due to a 66% decline in performance-based income caused by capital market volatility and limited exit opportunities in the primary market. Through our subsidiary, Gopher Assets Management, AUM reached RMB 157.1 billion by the end of 2022, up 0.7% year-over-year.