Noah Holdings - Q3 2023

Transcript

Operator (participant)

Good day, and welcome to Noah Holdings third quarter 2023 earnings conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Melo Xi, Investor Relations Director. Please go ahead.

Melo Xi (Director of Investor Relations)

Thank you, operator, and good morning, and welcome to Noah's 2023 third quarter's earnings call. Joining me on this call today are Miss Wang Jingbo, our co-founder, Chairlady, and CEO, and Mr. Grant Pan, our CFO. Miss Wang will begin with an overview of our recent business highlights, followed by Mr. Pan, who will discuss our financial and operational results. They will both be available to take your questions in the Q&A session that follows. I would like to gently remind you that we just held our annual Investor Day on November 14 in Hong Kong, where Noah's executive management team provided an in-depth review of the business and laid out our strategic priorities for the future. The presentations and the panel discussions focused on our resilient standardized product offering, overseas expansion plans, solution-driven advisory services, global product leadership, as well as the client service strategies.

A full replay of the event and presentation materials can be found on our investor relations website, which I encourage all of you to watch. Before we begin, please note that discussion today will contain forward-looking statements that are subject to risks and uncertainties, that may cause actual results to differ materially from those in our forward-looking statements. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SFC and the Hong Kong Stock Exchange. Noah does not undertake any obligation to update any forward-looking statements, except as required under applicable law. In addition, today's call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release.

Lastly, this call should not be interpreted as a solicitation to sell or purchase an interest in any Noah or Noah-affiliated product. 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 pass the call to Miss Wang. Please go ahead.

Wang Jingbo (Co-Founder, Chairwoman and CEO)

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今天的电话会议议程，我想首先和大家分享一下近期和诺亚客户面对面交流的观察，以及对于财富管理行业的思考，海外业务的进展，再汇报三季度的绩效和几大业务板块的发展情况。过去两个月，我们密集地举办了很多场次的诺亚客户的年会，从上海开始，我们在新总部接待了超过 1,200 位国内的客户，并为客户进行了家庭资产配置健康度的体检。根据客户实际的情况，为客户提供战略资产配置调整的建议。之后，在香港和新加坡，我们又和超过 150 位和 800 位国际黑卡和超富客户进行了会谈和交流，了解他们的 ...

了解和洞察他们的需求，以及推广诺亚国际的服务。根据我们近距离的观察交流，我们欣喜地看到，诺亚服务的高净值客户，在财富管理和资产配置方面的需求越来越成熟。从过去关注具体产品，关注收益，正在转变为考虑资产安全，企业与家族的传承方案，以及全球的战略资产配置。特别是诺亚国际的客户，基本上从产品驱动过渡到了配置驱动的财富管理需求。过去的两三年，也是诺亚从产品驱动向解决方案驱动的转型期。我们在国际财管端建立了CIO办公室，客户战略CSO办公室，产品解决方案ITS办公室，通过CCI体系拉通了从宏观资产持有到客户需求配置，产品，和服务解决方案的对齐。通过组织能力的建设，提升了一线理财师的服务品质，提高了客户的满意度，也降低了可能因为理财师水平不够，可能带来的服务品质问题。在产品和服务矩阵的建设方面，诺亚国际财管为高净值客户提供全球室类账户配置方案，并将解决方案固化在科技系统中，大大提升了诺亚国际理财师的资产配置和诚信服务的能力。

Melo Xi (Director of Investor Relations)

Thank you all for joining us. I would like to begin today's call by sharing some recent insights gleaned from the face-to-face interactions I had with Noah clients, and my thoughts on the state of the wealth management industry. After that, I'll cover the recent progress in our overseas business, provide a comprehensive overview of our third quarter performance, and go over some updates from our business segments. Over the past two months, we have held numerous annual meetings with over 1,200 domestic clients at our new headquarters in Shanghai, where we offer each of them an asset allocation assessment paired with strategic advice tailored to their unique circumstances.

Subsequently, in Singapore and Hong Kong, we held meetings with over 150 and over 800 international Black Card clients, respectively, allowing us to gain valuable insights into their needs while promoting Noah International's product and service offerings. Our close discussions revealed an encouraging evolution in the wealth management needs of Noah's high-net-worth clients. In particular, there has been a noticeable shift in focus from specific products and returns to a broader array of considerations encompassing asset security, enterprise and family succession plans, and global strategic asset allocation. This transition is particularly pronounced among Noah's international clients, reflecting their journey from product-centric to asset allocation-driven wealth management needs.

Over the past two to three years, Noah has overhauled its offerings, transitioning from a product-driven to a solution-driven approach. In our international wealth management segment, we roll out the CCI Model, comprising of the Chief Investment Office, Client Strategy Office, and Investment and Product Solution Office. Through the CCI Model, we directly align our macro house views with the client demand to build product and solutions, and improve relationship manager service standards and client, client satisfaction. Noah International Wealth Management's product offering and services matrix provides high-net-worth clients with our, with our four global account allocation schemes embedded in our technology infrastructure, significantly enhancing the ability of Noah's relationship managers to provide asset allocation advice and continuity of service.

Wang Jingbo (Co-Founder, Chairwoman and CEO)

我们认为财富和资产管理公司想要成功的要素，首先需要具备令人信服的业绩以及丰富的货架，畅通的销售渠道，以及有一定的规模。而财富管理服务要得到客户的长期认同，需要优秀的人才，需要建立从筛选到培养人才的长期机制，还有要有可以打动客户，却我们自己也很信服的使命愿景和价值观。最后是我们的组织架构和科技架构，可以支撑我们为客户提供高质量的服务，一切围绕以客户为中心的原则为底线。我想，这也是诺亚保持长期和客户良好合作的核心原因。诺亚致力于服务的是全球高净值华人客户和家族。在国际市场，诺亚依托香港，在新加坡、欧美、欧洲、美国等地开始建立理财团队，服务华人客户，为客户提供大量资产配置的解决方案。随着诺亚国际财管队伍的逐渐成熟，我们相信可以保持一定的增长，服务更多的客户。

Melo Xi (Director of Investor Relations)

We believe to achieve success, wealth and asset management firms must have a solid track record, offer a diverse product portfolio, maintain efficient sales channels, and build high, high quality AUM base. At Noah, we recognize the pivotal role of talent and focus on cultivating a strong team through a long-term talent screening and development system. We also believe it's crucial to have a mission, vision, and values that resonate with our clients. Our organizational and technological architecture underscores our commitment to providing high quality, client-centric services, with client satisfaction serving as the cornerstone of our long-term relationships. Noah remains dedicated to serving high-net-worth Chinese clients globally. Leveraging Hong Kong as a hub, we have begun building teams of relationship managers in key locations such as Singapore, Europe, and the United States, to cater to Chinese clients' comprehensive asset allocation needs.

As the international wealth management team continues to mature, we're confident that we'll sustain our growth and expand our reach to serve a growing number of clients globally.

Wang Jingbo (Co-Founder, Chairwoman and CEO)

在财务数据方面，2023年的前三季度，公司整体录得总收入25.1亿元，同比增长11.9%，其中中国国内业务贡献15亿元，占比59.9%，同比回落11.6%。随着客户全球资产配置需求提升，以及诺亚国际在渠道、产品和综合服务端的持续投入，海外业务贡献10.01亿元、10.1亿元，同比增长85.1%，占总收入比重从去年的24.3%提升到了40.1%。分板块来看，财富管理板块贡献18.9亿元，同比增长20.9%，其中国内业务贡献11亿元，同比小幅回落0.2%；海外业务贡献7.8亿元，受益于海外产品募集规模和综合服务收入的增长，同比提升了72.3%。资产管理板块贡献5.8亿元，同比回落5.4%，其中国内业务贡献3.6亿元，同比回落31.8%，海外业务贡献2、2.2亿元，同比增长150.3%，主要源于海外AUA和AUM的增长。综合服务端，高净值客户和家族对财富的保护和传承需求仍然强劲。今年前三个季度，国内保险经纪业务收入同比增长63.4%，海外保险、信托等综合服务收入同比增长381.8%，三季度活跃客户数同比增加超过4倍。在过去几个季度，我们加大了对保险和综合服务体系的数字化投入。我们的科技团队陆续与全球各地的保司打通了科技系统，也是香港市场首个实现全数字化投保，并可以通过代理人账户支付保费的经纪渠道，大大提升了客户投保的效率和体验，也提升了后续存续服务的质量。2023年前三季度录得经营利润8.8亿元，经营利润率为35.2%。

Melo Xi (Director of Investor Relations)

Now, turning to our financial performance. For the first three quarters of 2023, we generated total revenues of RMB 2.5 billion, a year-on-year increase of 11.9%. The domestic business contributed RMB 1.5 billion, a year-on-year increase of 11.6%, accounting for 59.9% of the total net revenues. The growing client demand for global asset allocation, coupled with Noah's ongoing investments in channels, products, and comprehensive services, propelled overseas revenues to RMB 1 billion, a year-on-year increase of 85.1%, accounting for 40.1% of revenues, up from 24.3% in the previous year. Breaking it down by segments, wealth management contributed RMB 1.9 billion, a significant year-on-year increase of 20.9%. The domestic wealth management business contributed RMB 1.1 billion, a slight year-on-year decrease of 0.2%.

The overseas wealth management business contributed RMB 784 million, a year-on-year increase of 72.3%, as it benefits from the growth in overseas transaction value and comprehensive services income. The asset management segment contributed RMB 582 million, a year-on-year decrease of 5.4%. The domestic asset management business contributed RMB 358 million, a year-on-year decline of 31.8%, while the overseas business contributed RMB 223 million, a year-on-year increase of 150.3%, primarily driven by the growth of overseas AUA and AUM. On the comprehensive services front, we continue to see robust demand for wealth protection and inheritance solutions from high-net-worth clients.

Our domestic insurance brokerage business achieved a remarkable year-over-year growth of 63.4% in the first three quarters of 2023. Meanwhile, revenues from overseas insurance, trust and other comprehensive services surged 381.8% year-over-year. The number of active overseas insurance clients increased more than fourfold year-over-year in 2023, in Q3. Over the past quarters, we have increased our investments in digitalizing our insurance and comprehensive services program. Our technology team has begun integrating our systems with insurance companies worldwide, making us the first company in the Hong Kong market to offer fully digital insurance applications and premium payments through a Noah's nominee account. This has made insurance application a significantly more efficient experience for our clients, while enhancing our ability to provide high quality fulfillment services.

For the first three quarters of 2023, operating profits stood at RMB 877 million, with an operating profit margin of 35.2%.

Wang Jingbo (Co-Founder, Chairwoman and CEO)

For domestic wealth management business, we continue to implement the strategy of focusing on and expanding in China's first-tier and central cities. Through organizational structure adjustments, we ensure business compliance and safety. As of the end of the third quarter, the number of domestic relationship managers was 1,331, up 0.7% year-over-year and up 1.9% quarter-over-quarter. In domestic wealth management, we continue to invest in technology systems, realizing functions such as one-click CCI rating report generation and asset allocation checkup on the client app interface, improving the client retention experience and driving new business lead generation in ongoing services. In the first three quarters of 2023, public fund fundraising exceeded RMB 36.9 billion, up 19.3% year-over-year.

Private securities product fundraising exceeded RMB 14.2 billion, up 46.2% year-over-year. For corporate clients, in 2022 we launched the Smile Treasury SaaS platform, serving nearly 6,000 small and micro enterprises and financial institutions. In the first three quarters, the number of active Smile Treasury clients increased 73.7% year-over-year, with client assets under custody exceeding RMB 600,000. In international wealth management, we continue to implement the private banker recruitment plan in Hong Kong and Singapore. As of the end of the third quarter, Noah Hong Kong and Singapore wealth management teams had 77 relationship managers, up 37.5% quarter-over-quarter, steadily progressing toward the full-year target of 120 relationship managers. In addition, in the third quarter of 2023, we successfully opened the Los Angeles client service center and relaunched U.S. insurance products.

The wealth management office is also actively being established, aiming to better cover and meet the wealth management needs of global Chinese clients. As of the end of the third quarter of 2023, the number of account-opening clients in Hong Kong and Singapore increased 12.8% and 315.2% year-over-year, respectively. The number of international clients exceeded 14,200, and the balance of cash management products reached $570 million, up 14.4% quarter-over-quarter. The number of active trading clients in the quarter increased 30.3% quarter-over-quarter, with cumulative clients reaching 2,598, up 3.1%, or 3.5% quarter-over-quarter. Clients using discretionary mandates in Noah's asset management business reached $300 million in AUM, up 15.1% quarter-over-quarter.

The number of active trading clients in the quarter increased 40.5% quarter-over-quarter, with cumulative clients reaching 653, up 38.6% quarter-over-quarter. On the international online wealth management side, we continue to enrich the iNoah and app product shelves, expanding the categories of client services.From C-end clients to B-end and A-end clients, there are different solutions, and we have made breakthrough progress with A-end clients. During the third quarter, the number of active high-net-worth overseas clients reached 2,280, up 78.6% year-over-year and up 14.6% quarter-over-quarter.

Total fundraising reached $960 million, up 106.9% year-over-year and up 22.9% quarter-over-quarter. Among them, the number of active clients in U.S. dollar public funds reached 1,758, up 105.6% year-over-year, with fundraising scale reaching $270 million, up 50% year-over-year. For corporate clients, we have also started to make efforts. As of now, we have successfully expanded account opening and order placement for more than 210 overseas corporate clients. In the first three quarters, the overseas public fund order volume on Smile Treasury exceeded $120 million. In addition, international online wealth management has also started to adapt to To A business, hoping to empower the business development of multiple EAM and MFO clients through SaaS services and Noah's product system.

We hope that in the future, through international online wealth management, we can develop a sales platform that does not rely on Noah's direct sales channel, with the goal of serving 300 EAM and MFO clients overseas.

Melo Xi (Director of Investor Relations)

Our domestic wealth management strategy continues to focus on first-tier and other highly populated cities in China. We have also implemented organizational structural adjustments to ensure business compliance. As of the end of the third quarter, the number of domestic relationship managers increased by 6.7% year-on-year, and 0.9% quarter-on-quarter to 1,331. Our domestic wealth management funds, we have continuously invested in technology infrastructure, rolling out functions such as CCI portfolio report in one click and asset allocation review through our mobile app. This enhances the client experience while generating new business leads within the fulfillment service program process. In the first three quarters, the transaction value of mutual funds exceeded RMB 36.9 billion, a year-on-year increase of 19.3%.

The transaction value of private secondary products exceeded RMB 14.2 billion, a substantial year-over-year increase of 46.2%. In terms of corporate and institutional clients, the Smile Treasury platform that launched in 2022 has successfully onboarded nearly 6,000 clients. In the first nine months of 2023, active clients increased by 73.7% year-over-year, with an average client AUA exceeding RMB 600,000. On the international wealth management side, we continue to recruit private bankers in Hong Kong and Singapore. As of the end of the third quarter, we had 77 relationship managers in Hong Kong and Singapore, up 37.5% quarter-over-quarter, as we make steady progress towards our annual recruitment goal of 120 overseas relationship managers.

Additionally, in the third quarter of 2023, we opened a client service center in Los Angeles, relaunched our US insurance products, and continued setting up our Dubai office to better serve the wealth management needs of Chinese clients around the world. As of the third quarter of 2023, Noah International had more than 14,200 international clients, with the number of clients in Hong Kong and Singapore growing by 12.8% and 315.2% year-on-year, respectively. Cash management product AUM, which are $570 million, reflecting a quarter-on-quarter increase of 14.4%, with the number of active clients in Q3 increasing by 30.3% quarter-on-quarter, and the number of cumulative clients reaching 2,598, up 3.5% quarter-on-quarter.

Clients AUA with Noah on a discretionary investment basis reached $300 million, up 13.1% quarter-on-quarter, with the active clients during the quarter increasing 40.5% quarter-on-quarter, and cumulative number of clients hitting 653, up 38.6% quarter-on-quarter. In terms of international online wealth management, we continue to expand the product offerings on our wealth management app, expanding the client service categories to provide different solutions to individual clients, institutions, and in particular, agency clients, which we have made significant progress during the quarter. In Q3, the number of overall active overseas clients increased by 78.6% year-on-year, and 14.6% quarter-on-quarter to 2,284.

Overseas transaction value reached $957 million, reflecting a year-on-year increase of 106.9% and quarter-on-quarter increase of 22.9%. The number of active clients in the US dollar mutual funds reached 1,758, reflecting a year-on-year increase of 105.6%, with transaction value reaching $269 million, up 59% year-on-year. As of the end of Q3, we have successfully attracted more than 210 overseas corporate and institutional clients. The transaction value of overseas mutual funds reached over $120 million year to date.

In addition, the international wealth management online wealth management business began trial operations for its two agent business, which drives the development of EAMs and multifamily offices, leveraging a SaaS platform and Noah's comprehensive product offering. Our objective is to develop diverse sales channels and targeting the goal of serving 300 overseas EAMs and multifamily offices.

Wang Jingbo (Co-Founder, Chairwoman and CEO)

On the asset management side, Gopher Asset Management's total assets under management were RMB 154.87 billion, a year-over-year decrease of 0.9%, mainly due to the asset management team actively exiting funds such as Real Estate and other PE fund assets, as well as a decline in the net value of some secondary market products. As of the end of the third quarter, RMB AUM decreased by 5% year-over-year, reaching RMB 119.38 billion. During the third quarter of 2023, secondary market volatility slowed down, with the Shanghai Composite Index and Shenzhen Component Index falling by 4.12% and 9.39%, respectively.

Gopher Asset Management's actively managed target strategy product team focuses on balancing drawdown volatility control and long-term returns for the public, seeking balance and so on. As of the end of the third quarter, the target strategy aggressive annualized return was -1.63%, with an annualized volatility of 5.98% and a Sharpe ratio of -0.52. The balanced annualized return was 3.08%, annualized volatility 5.74%, and Sharpe ratio 0.28. The stable annualized return was 8.22%, annualized volatility 2.10, and Sharpe ratio 3.2. On the Gopher Asset Management international side, we are fully committed to improving the global investment product system.

The overseas AUM of actively managed products reached RMB 4.86 billion, achieving a year-over-year growth of 13.4%, and the proportion of total AUM also increased to 22.9%. In the primary market, in addition to traditional PE/VC products, we have gradually launched strategies such as Infrastructure, GP stakes, secondary funds, and private credit, making the product matrix more complete.

In terms of ecosystem building, we are also using the domestic DSG strategy, first cooperating with top GPs for fundraising, then investing as LP through fund of funds, and finally establishing deep cooperative relationships with GPs to obtain co-investment shares. Currently, our Silicon Valley team has already completed the construction of the DSG model in the Silicon Valley VC ecosystem. We aim to continue improving a broader and more comprehensive asset class ecosystem in the future. As of the end of the third quarter, overseas PE AUM reached $3.82 billion, a year-over-year increase of 5.7%.

在二级市场方面，我们加强对海外顶尖的对冲基金管理人的筛选、覆盖和上线。目前已经上架的全球排行前50对冲基金管理人中有10家，另外还有9家在尽调中。我们覆盖的产品策略也更加多元化，多投、中性、对冲，70分钟多策略等等。同时，我们的投资团队也在打造对冲母基金和全权委托等新的主动管理的产品。

Melo Xi (Director of Investor Relations)

In terms of asset management, Gopher's total AUM was RMB 154.9 billion, representing a year-on-year decrease of 0.9%, driven by the continued exit of RMB private equity funds and decrease in NAV of some public market security products. As of the end of the third quarter, RMB AUM decreased by 5% year on year, reaching RMB 119.4 billion. The third quarter of 2023 was categorized by significant volatility in public markets, with the Shanghai Composite Index and Shenzhen Component Index falling by 4.1% and 9.4% respectively. Gopher's actively managed product strategy product team remains committed to balancing drawdown volatility and maximizing long term yields.

As of the end of the third quarter, annualized returns for active investment products was -1.6%, with the volatility of 6.6% and the Sharpe ratio of -0.5. The balanced investment products generated an annualized return of 3.1%, with volatility of 5.7% and a Sharpe ratio of 0.3. Stable investment products generated annualized return of 8.2%, with volatility of 2.1% and a Sharpe ratio of 3.2. Internationally, we are fully committed to enhancing our global investment product matrix.

The overseas AUM of actively managed products reached $4.9 billion, reflecting a year-on-year increase of 13.4%, and its proportion of group's total AUM also increased to 22.9%. In the primary market, beyond traditional PE VC products, we have gradually launched infrastructure, GP stakes, private credits, secondary funds, and resulting in a more comprehensive product matrix. Mirroring the domestic strategy, our DSG strategy, deployed across the Silicon Valley VC ecosystem, focused on fundraising from the top GPs first, followed by investing as an LP through a fund of funds, with a goal to ultimately establishing a long cooperative relationships with GPs to secure co-investment opportunities. We expect to deploy our DSG strategy across a wider spectrum of product segments in the future.

As of the end of the third quarter, overseas PE AUM reached $3.8 billion, reflecting a year-on-year increase of 5.7%. In public markets, we have intensified our screening and coverage of top hedge fund managers worldwide. 10 of the top 50 hedge fund managers globally have been onboarded, with nine more in the due diligence process. Our offering encompasses a diverse range of strategies, including long, neutral, hedging, trend following, and multi-strategy. At the same time, our investment team is developing new actively managed products such as fund of hedge funds and discretionary investment products.

Wang Jingbo (Co-Founder, Chairwoman and CEO)

在ESG方面，作为金融机构，诺亚管理层更多关注的是公司治理和组织决策机制的有效性。我们始终坚持各BU的委员会运作和集体领导的实践，来提升诺亚的组织能力和组织活力。在数据安全方面，客户信息数据的保密和安全被排在最高优先顺序。通过建立境内境外数据中心和严格的客户信息使用审核机制，实现境内外部数据强隔离，客户数据强管理。诺亚作为独立的财富管理机构，核心能力是源于深度的客户洞察和有说服力的业绩。同时，我们通过数字化能力和基础设施的建设，提升客户经营效率、效率和客户体验，通过审慎的投研观点，为客户提供匹配度高的资产配置方案。我们相信，在财富管理行业，人和人之间的互动、信任和个性化的关系，即使在人工智能高速发展的时代，对需求复杂的诺亚高净值客户而言，也依然十分重要。作为财富管理和资产管理者，我们的基本功是聚焦真实和长期的客户价值创造，以客户为中心，生存为底线，是诺亚文化的基矗和底色。我们相信，只有客户成功，才会有诺亚的商业成功，才能为股东创造长期价值。在刚刚召开的诺亚董事会上，我们通过了提升股东回报机制的议案，计划将公司年度Non-GAAP净利润50%用于分红和回购，这代表了管理层对公司长期稳定运营和增长的信心。接下来请潘青给大家介绍。Thank you。

Melo Xi (Director of Investor Relations)

In terms of our ESG efforts, Noah's management places a premium on promoting effective corporate governance and organizational decision-making mechanisms. We employ a committee-based operation and collective leadership decision-making process across our business units to ensure that Noah remains a dynamic organization and an industry leader. We maintain our strong focus on data security as well, and prioritize the confidentiality and security of client information. We have established separate domestic and foreign data centers, governed by stringent client data usage audit mechanisms, to create a robust firewall between domestic and foreign data and ensure that we safeguard client privacy at all times. In conclusion, as an independent wealth management institution, Noah's core competitive advantage stems from its profound client insights and strong track record....

We are firmly committed to investing in the digital capabilities and infrastructure needed for our relationship managers to grow the business and provide the best client experience. We pride ourselves in providing high quality asset allocation solutions rooted in proven research-based houses. While acknowledging the significant role of technology, we recognize that a human touch, trust, and personalized relationship remains indispensable, particularly in meeting the complex needs of NOAH's high net worth clients. Our core competencies are centered on creating real and long-term client value, encapsulated in the ethos of client-centric, with survival as the bottom line. We firmly believe that only by helping our clients thrive, can we succeed as a business and thereby creating enduring value for our shareholders. Finally, a note on our updated shareholder return policy.

NOAH's board of directors recently approved a plan to allocate up to 50% of the company's annual non-GAAP net profits towards dividends and share repurchases. This strategic decision underscores management's confidence in the company's stable operations and long-term growth potential. I'll now hand over to Mr. Grant Pan for a detailed overview of our third quarter financial results. Thank you, everyone. Grant, thank you.

Grant Pan (CFO)

Thank you, Melo. And, yeah. Thanks, Melo, and thank you, Chairlady, for walking us through the quarter three operations. Good morning, investors, analysts, and good evening. For today's presentation, I'd like to start by sharing the latest insights of our clients' profile and how Noah's strategy has been adapting to meet their needs in order to drive the growth of business. According to a recent survey, more than half the clients are engaged in the past in export-oriented manufacturing, trade, or internet industries, with very deep foreign currency assets already, including cash, equity, and stock options. Age-wise, most of the Black Card and Diamond Card clients are in their mid-fifties or even sixties. They predominantly reside in China's major metropolitan centers, echoing our recent strategy of consolidating operations in key cities.

In terms of their wealth management objectives, we're seeing two key shifts in investment appetite taking place among our client base. China's first generation entrepreneurs continue to be the primary decision-makers within their families, and are seeking more balanced and security-driven allocation strategies for their wealth. This is marked by distinct shifts from the rather aggressively seeking high returns on investment in the past, to a focus on wealth protection. Definitely, many of our clients are now entering a new phase of globalization in business and also capital. Not only is there a personal demand for global asset allocation services increasing, but their enterprise side need to enter global markets as entrepreneurs is also growing. This will lead to an accelerated wealth accumulation effect for a high-net-worth client in the coming years.

According to a survey, 70% of the clients demand global asset allocation, and as a result, the ability to provide global solutions is a key requirement for wealth management firms. With years of in-depth experience in building a business in the high-net-worth wealth management industry, we now possess a deep understanding of our clients, and is capable of providing comprehensive solutions for their globalization needs. Our results for the first three quarters of 2023, which featured solid revenue growth driven by insurance product sales and a robust expansion in our overseas business, demonstrated how we're successfully meeting clients' demand in both situations. Furthermore, our healthy financial position ensures we are well-positioned to further expand with close to RMB 5 billion in cash on our balance sheet, a healthy debt to asset ratio, and zero interest-bearing debt on the balance sheet.

Crucially, we also have a very clean AUA, free from any legacy, domestic, private credit, or residential real estate exposures. In addition, we have a deep bench of talents across our key functions, product investments, sales teams, both domestically and globally. These factors give us confidence that Noah is ideally positioned to meet the ever-evolving needs of Mandarin-speaking high-net-worth individuals in the next phase of China's globalization. With that, let's get into the details of our quarter three financial performance. In the third quarter, our top line continued to see robust year-over-year growth, with net revenues reaching RMB 760 million, close to 10% increase compared to the same period last year. Traditionally, our other quarters are relatively quiet due to seasonality, as our sales and marketing teams prepare for the Grand Opening season at the beginning of the fourth quarter.

Net revenues for the first three quarters of 2023 increased by 12.5% year-over-year to RMB 2.5 billion. Mainly driven by the 90% year-over-year growth of one-time commission fees, which amounted to RMB 780 million. The insurance products contributed 94% of total one-time commission fees in quarter three, and have emerged as an important component of our revenue structure. This can be attributed to the more defensive positioning being adopted by our clients, with an emphasis of safeguarding assets and wealth in light of ongoing market volatility and geopolitical factors. We believe the trend of clients increasing allocation towards protection-driven products will continue for the near future.

That being said, we'll continue to strengthen our overseas alternative product offerings, including global primary markets and hedge fund solutions, to provide clients with more balanced solutions that can deliver long-term return while minimizing volatilities and risks. Overseas net revenues accounted for 39% of total net revenues during the third quarter, a figure we anticipate will continue to grow going forward. Notably, we officially opened our Los Angeles office in the third quarter, which will provide a client service interface for local clients in the United States, expanding our U.S. insurance business and promote our investment business. Additionally, we have an exciting lineup of events planned for our clients, including a flagship annual conference exclusively for esteemed Black Card clients. In addition, we recently began establishing a dedicated product selection team based in New York City, specifically focusing on U.S. hedge fund managers.

We expect overseas revenue contribution to increase further as we continue to expand our global footprint. Recurring service fees, which are a key stabilizer in our revenue mix, were RMB 1.4 billion year-to-date, a slightly decrease of 3.2% year-over-year, due to a decrease in our AUM as we continue to exit RMB investments. Performance-based income was RMB 125 million in the first nine months of 2023, down 45% year-over-year. This decline can be attributed to the relatively low valuation of assets resulting from a high-yield environment. That being said, our Silicon Valley team was still able to achieve exits in this tough market, contributing to the performance-based income for this year.

Other service fee income in the first nine months of the year was RMB 205 million, up 37.2% year-over-year, primarily due to more value-added services provided to our clients. Operating profit for the third quarter was RMB 250 million, up 7.4% year-over-year and down 28% quarter-over-quarter. Operating profit margin for the third quarter remained largely stable year-over-year at 33.2%. Our compensation and operating expenses decreased by 15% quarter-over-quarter, but increased by 10% year-over-year, mainly due to the high base effect created by COVID-like lockdown in 2022, which curtailed both marketing activity and business travel, as well as increased international travel this year in support of our global expansion.

In addition, we incurred a number of one-time expenses related to the relocation to the Shanghai headquarters and the consolidation of our domestic network, among others, amounting to RMB 40 million. Over the long term, however, we'd expect to reduce annual cost savings by RMB 50 million. Government subsidies for the quarter were RMB 105.3 million, a sharp increase of 141% year-over-year, but flat on a year-to-date basis due to the delay in the distribution of government subsidies across various regions this year. Non-GAAP profit for quarter three was RMB 232 million, up 21.8% year-over-year, and RMB 785 million year-to-date, down 8.7% year-over-year, due to a soft first quarter earlier this year.

Transaction values reached RMB 22.3 billion in the third quarter, representing a strong increase of 24% year-over-year and 21% quarter-over-quarter. By region, the total domestic transaction value in the first three quarters of 2023 was RMB 15.3 billion, up 4.5% year-over-year and 20% quarter-over-quarter. The total overseas transaction value was $957 million, up 106.9% year-over-year, and 22.9% quarter-over-quarter. The increase in transaction value was primarily driven by mutual funds and overseas private secondary products, thanks to the introduction of U.S. dollar cash management and structured products. In the third quarter, mutual funds contributed RMB 14.9 billion in transaction value, up 28.1% year-over-year.

The total transaction value for overseas private secondary products was $530 million in the third quarter, up 17x year-over-year, and 65% quarter-over-quarter, driven mainly by strong demand for discretionary investment products and structured products. Going forward, we expect to increase the share of global investment products and foster the growth of overseas AUM. As of September thirtieth, our overseas AUM grew 13.4% year-over-year to $4.9 billion. Turning to the results of each segment in the first nine months, net revenues from wealth management were RMB 1.9 billion, and net revenues from asset management were RMB 0.6 billion, accounting for 75% and 25, 23% of total revenues, respectively.

As of end of quarter, we had 7,461 Diamond Card clients and 2,250 Black Card clients. The total number of Diamond Card and Black Card clients were 9,711, up 0.3% quarter-over-quarter and down 0.7% year-over-year, rather flat. The number of active clients of quarter three was 9,489, down 58% year-over-year, primarily due to individual clients adopted a rather conservative approach towards RMB public security products. In light of 4.1% and 9.2% drop in Shanghai Composite Index and Shenzhen Component Index, respectively, during the third quarter. That being said, transaction value during the quarter was not negatively impacted by this, as our corporate and institutional clients continued to transact with us.

On the other hand, overseas active clients increased close to 80% year over year to 2,284, as we continue to build up our overseas distribution channels with 77 overseas arms by end of this quarter. Turning to the balance sheet, our debt to asset ratio and current ratio improved sequentially. We have maintained a very healthy liquidity position with our current ratio at 3.5x and our debt to asset ratio at 18.4% with zero interest-bearing debt. We have RMB 5.0 billion in cash and cash equivalents, providing ample resources to support our global expansion plans. We also saw a decrease in accounts receivable in quarter three, primarily due to accelerated collection of domestic insurance commissions. The board has always placed shareholder return and capital management efficiency as a priority.

Based on strong clean balance sheet and strong liquidity position, and after considering the necessary investments associated with our global expansion plan, the board has authorized new shareholder return policy, where we will allocate up to 50% of total annual non-GAAP net income attributable to shareholders through corporate actions budgets, to be used for purposes including dividends and share repurchases. Under this new policy, we will allocate no less than 35% of its annual non-GAAP net income attributable to shareholders towards dividends, subject to various factors. The final dividend payout ratio for fiscal year 2023, and the timing of any share repurchase program, will be determined at the company's fourth quarter board meeting in March 2024, and announced thereafter. To sum up, we remain optimistic for the high net worth individual wealth management industry.

The third quarter showcased our ability and resilience to drive robust revenue growth and generate strong cash flow, giving a relatively quiet market environment. Looking ahead, with a robust balance sheet and nearly RMB 5 billion in cash and cash equivalents and poor liquidity, and a standardized product offering and AUA, we're well positioned to fuel future growth and execute our strategy, as well as increase returns for shareholders. Our other balance sheet, quote, unquote, "A clean AUA with no legacy private credit or residential real estate exposure," has built us a solid reputation as trusted advisor to our clients, which we're leveraging to drive our global expansion as demand for global asset allocation grows. We will continue to scale our international operations following a successful launch of the office in the third quarter.

We're still preparing to commence operations in Dubai and continue to recruit relationship managers in Hong Kong and Singapore and other talents actively. As we'll continue to execute our growth strategy, we will embrace evolving landscapes and maintain our corporate flexibility. In the long term, we're very confident that our diverse offerings and commitment to globalization will enable us to meet the needs of global client investors and continue creating value for our shareholders. Thank you for listening. We'll now open the floor for questions.

Operator (participant)

Thank you. We'll now begin the question and answer session. To ask a question, press star then one on your touchtone phone. To withdraw your question, please press star then two. If you're using a speakerphone, please pick up your handset before pressing the keys. We'll momentarily pause to assemble the roster. First question will be from Helen Li of UBS. Please go ahead.

Helen Li (Equity Research Analyst, China/HK Banks, Wealth Managers and Fintech)

Thanks, management. This is Helen from UBS. I have two questions, if I may. First, the growth increase in Gopher AUM was RMB 4.7 billion in the third quarter, almost double that of the second quarter. But why did one-time commissions from Gopher managed funds decline sharply to RMB 32,000? That's my first question. Second question, in terms of the transaction value mix, I noticed that the proportion of Gopher products increased to 21% in the third quarter.

...I'm just wondering whether you have any longer-term targets for the transaction value mix from Gopher products, and what are Gopher's product pipelines for the fourth quarter and into next year?

Thank you.

非常感谢管理层，就是我这边有两个问题，第一个是一个会计上的问题，这个主要是想问潘总，就是我看到就是这个Gopher的这个AUM，它在三季度其实是有一个RMB 4.7 billion的一个矛盾，这个其实是比今年的二季度基本上是要翻倍。其实在今年的三季度，就是Gopher就是，来自于Gopher管理的这个基金里头的这个前端的这个费用，它其实是大幅度下降到了RMB 32,000，我不知道这个原因是什么。第二个问题其实是想请教王总，就是，在今年的三季度，其实从募集量的这个角度来看，其实Gopher这个产品对于募集量的贡献提升占比提升到了21%。我不知道这是咱们公司中长期的话，有没有，就是对于这个募集量，Gopher产品占比多少的一个规划。然后在今年的四季度和明年，咱们就是Gopher这块的一个产品，有哪些的一个部署计划，谢谢。

好的，好，谢谢 Helen 啊。我那个先回答第一个问题。第一个问题的话呢，其实主要是在我们的 AUM 里面的这一部分的增长呢，其实是主要啊，还是来自于这个海外的定存产品或者现金宝的这些产品，那么这一块的 AUM，它其实是会持续地产生管理费，但是在前面的这个一次性的募集收入呢，相对来讲就会比较少，所以它会，慢慢地去释放这个收入。不像过去的话呢，我们可能发一个 B 啊，或者一个 private hedge fund 呢，会有一个比较高的 one time commission，直接就反映在单个季度里面。啊，

Grant Pan (CFO)

So Helen, I'll explain, your question.

So basically, a good chunk of the AUM increase in the Gopher product actually came from US dollar cash management products in some of the discretionary portfolio investments for deposits. So basically, majority of the revenue structure will come from management fees going forward. The same quarter revenue actually doesn't reflect as we actually don't charge a very high so-called subscription fee for this type of products.

Wang Jingbo (Co-Founder, Chairwoman and CEO)

哦，那，那王总要不您，回答一下Helen的第二个问题。

在歌斐，在歌斐国际端的话，我们肯定还是要持续地致力于扩大歌斐的FOF和主动管理的规模。目前就是除了我们直接代销的这些，产品是我们的募资端，其他的话我们也还是在非常积极地去构建歌斐的在各个条线的主动管理的 能力吧，所以特别在FOF方面，从一级市场、二级市场，然后现金管理类产品，但目前我们确实没有规划说一定要占比达到多少。我们的出发点呢，还是从客户需求的 角度，如果歌斐的能力提升了，客户认可的话，规模就会上来，然后它的绩效也比较稳定。那现在我们在海外的话，还是在一个，开始的过程 中吧，所以没有规划这个比例，但肯定是我们最重要的战略之一。

Melo Xi (Director of Investor Relations)

Thank you, Helen. I'll translate for chair lady. So, in terms of Gopher's international front, we are committed to, you know, increasing our capabilities in, actively managed product space, including, primary, secondary public securities as well as cash management. So, you know, that, that is kind of a, a more of a long term process.

Now in terms of the third party distributed products versus our actively managed products, we don't have quite a clear picture in terms of the split yet. But then, you know, going forward, it will be depending on what the client really needs and also, you know, you know, our investment in increasing our research and investment capabilities in Gopher's overseas markets. Helen?

Wang Jingbo (Co-Founder, Chairwoman and CEO)

非常感谢，非常清楚.

Melo Xi (Director of Investor Relations)

Yeah, thank you, Helen. Operator, I believe we have Peter lining up in the queue as well.

Operator (participant)

Yes, thank you. Again, to ask a question, press star then one. Next question will be from Peter Zhang, JPMorgan. Please go ahead.

Peter Zhang (Equity Research Analyst)

Thank you to the management for giving me this opportunity. I have two questions. First, I think this quarter has a highlight, which is that our wealth management products' transaction volume has increased somewhat. I want to ask, if you can break this down for us, is it mainly driven by transaction volume on the international side, or domestic? Then, management also mentioned recent communication with investors, a lot of communication, I want to ask, what changes have there been in investors' sentiment recently? This is the first question. The second question is on the cost side. I see that this quarter's government subsidies had a fairly large increase, which helped reduce our cost pressure. I want to ask what this is mainly, and what the subsequent trend will be like?

I have two questions. First one is on the wealth management transaction volume. We noticed that, the-

The transaction volume increased sequentially in the third quarter. We wish to understand what's the driver behind it. Is it mainly driven by the transaction of, say, from international client, overseas client? And Madam also mentions that Noah engaged with a client in third quarter, but what's the latest client investment sentiment you'll get back? This is the first question. On second question, we noticed that on the cost side for third quarter, there's a large contribution from the government subsidy, which helped you reduce the OpEx in third quarter. We wish to understand what does that represent or what's the driver behind it, and what's the, say, the trend going forward? Thank you.

Wang Jingbo (Co-Founder, Chairwoman and CEO)

好，请潘青讲一下，潘青回答。

Grant Pan (CFO)

So Peter, the first question, the contribution actually mainly came from the US dollar side, which we managed to actually distribute around $1 billion in the transaction value, which has seen a significant increase, about 132% year-over-year. At the same time, we maintained a rather healthy distribution on RMB, which is attributable to the corporate client transaction institution client from Smile Treasury, that account for about 100, actually 12.9 billion RMB mutual funds transactions. So both actually added and contributed to a rather healthy transaction values this year. And to your second question, in terms of... I'll leave the client sentiment observations to Chairlady, and also I will share a little bit of my insights as well.

The second question, in terms of the government subsidies, the total year to date actually remained pretty stable, the first three quarters comparing to last year. But the timing of the grant, of the actual cash, the timing usually is, I would say, pretty spontaneous, based on the government's fiscal situation. So this year we happened to receive the subsidies in the third quarter, but the total amount actually remained rather stable from the last period of the year.

然后那个有关客户这个整个情绪的一个问题吧，我们其实刚刚，整个的黑卡年会啊，其实完成了上海站、新加坡站跟香港站。我想，整体来讲的话，我们客户相对来说也是比较的rational，啊，比较的理性。有关整个的经济啊等等，他们更多的还是在寻求，我觉得一个肯定是在资产管理方面的一个平衡性。第二的话呢，我们也注意到呢，过去可能相对来说，客户比较会关注单产品，甚至单资产类别的表现呢，现在更多的是寻求一个比较完整的解决方案，可能，可能还不不仅仅止于金融产品啊，他们可能更多地从企业需求啊，从这个家庭传承需求啊，我觉得从这个角度上，他们其实看得更多啊。另外的话，我认为客户经过这几年吧，啊，这个其实他整个自己的self assessment啊，专业度，也在不停地提升。所以这个对于我们这个财富管理公司来讲，尤其是致力于跟国际接轨的财富管理公司来讲，是一个非常好的消息啊。这样的话，我们其实可以去leverage，过去积累的啊，尤其是CDI啊，近期的变革啊等等，一个可以给客户提供完整解决方案的这么一个能力和团队呢，我们还是非常高兴啊，看到这一类这个需求跟这个情绪的一个变化。然后有关这个客户情绪的变化，可能汪总有更多color也可以跟Peter分享。

Wang Jingbo (Co-Founder, Chairwoman and CEO)

我觉得可能就谈不上讲情绪了 吧 ， 就是 ， 客户还是被市场教训了 。 所以大家比较更多的 是他的理念和需求的变化 。 你现在来跟客户交流 ， 很少有人在谈什么高收益啊 ， 固定回报啊 ， 可能大家更多地重视安全 ， 然后这个 ， 比如说汇率会发生什么事情 ， 然后以及他们自己的事业怎么能够生存下来 ， 我觉得是到了一个底部平衡吧 。

Melo Xi (Director of Investor Relations)

Yeah. So I will try to translate. Yeah, I'll try to translate for both Grant and chair lady. So, you know, we have held various conferences and annual gala events in the past couple of months in Shanghai, Singapore and Hong Kong. And we have interacted with over 1,000 clients lately. So, you know, what we have witnessed was that first, overall, that the clients have remained rather rational, and they are seeking kind of a more balanced solution and diversity in their global asset management or global asset allocation needs.

Also, we have witnessed a very obvious shift from focusing on product and recent returns from the past comparing to now that the clients are more focusing on the comprehensive solution, on their overall wealth management needs, including their family and enterprise inheritance and succession plans. We have seen that basically the maturity and sophistication of clients have increased. So, which is good news for, you know, independent wealth managers like Noah. You know, we have spent quite a lot of resources in investor education and building our internal research capabilities. So now that we kind of are, it's easier for us to reach a consensus better with our clients.

You know, Chair Lady has also commented that, you know, in the past, year or so, you know, basically the general market or, you know, high net worth individuals in China in general, not just only Noah's clients, have seen, you know, many risk-related events, in the past. You know, their, their demands and needs have become more clear, and more focusing on asset protection and security, and more focusing on global macro views, including, you know, currency risk, and such. So, we're spending more time to do investor education on those fronts. Hope that answer your question, Peter.

Peter Zhang (Equity Research Analyst)

Let me do the translation. So I have a follow-up question on government subsidy. Because Mr. Pan just mentioned that year-to-date amount has been stable from previous level. Can I say that going forward, the annual amount likely to be stable, while there can be a seasonality in quarter by quarter? Thank you.

Grant Pan (CFO)

Peter, I think for 2023, it is probably the right way to put it. Going forward, I think it's very hard to say in terms of the government subsidies, which is a form of refund of, you know, taxes, or actually some of that is associated with the job creation. So depending on the structure, going forward on the, you know, RMB revenue and income that we actually make domestically, I'm not sure whether or not safe to say that it will remain consistent. It's pretty hard to predict. So if we do have a increased revenue going forward on, you know, on the domestic side, we'll probably see a higher subsidy, but if not, we'll see a little bit of volatility in that.

But I guess, you know, from what we have seen, I believe, at least this year, the government is still, you know, honoring their subsidies to us. Yeah.

Peter Zhang (Equity Research Analyst)

Thank you. Thank you. That's very clear.

Grant Pan (CFO)

Yes. Thank you, Peter.

Operator (participant)

Thank you. Next question will be from Chao Jiang of Morgan Stanley. Please go ahead.

Chao Jiang (Quant VP)

Morgan Stanley

Let me translate briefly. The first question is follow up on the, you know, the Black Card Gala that took place in several cities recently. Just wondering, what's the progress in terms of the transaction value generated? And will it provide quite strong support to the 4Q revenue? And the second question is regarding the insurance commission rate. We saw some adjustment, actually quite notable adjustment on the bank insurance commission rate. So could the management expect the commission rates in Noah would also face some potential changes going forward, and that could potentially impact the revenue? Thank you.

Grant Pan (CFO)

Thank you. I'll take the first question. We're actually seeing a very good turnout of attendance for the past three stops, and we have two more to go for the annual gala, but probably will take place in next year, early next year. From what we have seen for the first three stops, you know, with the high attendance, we believe the total creation of revenue or placement of financial products will, you know, we're pretty optimistic about what's going to come. But in terms of transaction value, as much as we understand, it's a pretty key metric, in terms of, you know, to measure how much of client's wallet share you're taking.

We are not aggressively pushing for any specific type of products, but we're mainly focusing on, as we mentioned earlier, the total solution for our clients. So basically, if the client prefers to allocate more towards insurance products, you probably wouldn't see as high as transaction values as in traditional investment products. But we're okay with that. I think we're pretty comfortable with the strategy of as long as, you know, it caters to our clients' real need, as we believe that they are much more sophisticated than before. But with that said, we do have very ample supplies of investment products, especially on the overseas side. We believe our clients are still very globally minded compared to the past.

They are, you know, more, I think, more sophisticated and deeper understanding of how the global investment products play as compared to a few years back. I believe there is a second question. Can you remind me what the second question is? No, that's the only one.

Chao Jiang (Quant VP)

Yes. Okay. But without the insurance commission rate change, so is there any risk for the-

Grant Pan (CFO)

Oh, yeah.

Chao Jiang (Quant VP)

Commission?

Grant Pan (CFO)

Uh,

Yeah. So, so on the insurance commission side, in terms of the insurance brokerage commission declines, right now, the regulation is mainly focused on bank insurance channel. So the independent insurance brokers are not affected yet. But if the regulation should change in the future to include the independent brokerage, then we would be, you know, have no choice but to follow. But, you know, in terms of a global scale, we're not seeing any regulatory changes in the overseas insurance brokerage business or market, so that part should not be affected. And in, you know, in fact, that, you know, after COVID, the overseas insurance brokerage business has been generating more revenue share compared to our domestic business at the moment.

Chao Jiang (Quant VP)

Okay, wonderful. Thank you.

Grant Pan (CFO)

Thank you, Chao.

Operator (participant)

Thank you. That concludes our question and answer session. It also concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.