Noah Holdings - Q4 2022

Transcript

Melo Xi (Director of Investor Relations)

Hi. Good morning everyone, and welcome to Noah's fourth quarter and year-end conference call. I'm Melo Xi, Director of Investor Relations at Noah Group. Joining us today are Jingbo Wang, our Co-Founder, Chairlady, and CEO, and 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 expectation of the business. 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 discussion of some of the risks that could affect results, please see the Safe Harbor Statement section of our 6-K filing.

We also refer to certain non-GAAP measures, and you will find reconciliations in our the 6-K report made available on the Financial Report section of Noah's investor relation website. Please know 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. We will appreciate for you to change your display name to first and last name, plus your institution name. With that, I would like to welcome our Chairlady and CEO, Miss Jingbo Wang. Chairlady, handing to you now.

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 the Q&A session. The year 2022 was an extraordinary year with an extremely complex global macroeconomic environment. The extreme market gyrations caused by the Russian and Ukrainian conflict during the first quarter, China-Shanghai lockdown during the second, and the rapid Fed rate hike spanning almost the entire year has by far exceeded our expectations. In other words, we have seen the most drastic drop in investor confidence in decades. Domestically, the China-Chinese lockdown index, which is highest level 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, prolonged quantitative 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 U.S. Federal Reserve, moved quickly to raise interest rate 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 the both equity and bond markets experiencing their worst year since 2008. The significant shift in investor sentiment 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 focusing on serving global Chinese high-net-worth clients, Noah's mission is to understand and gain insight into the ever-changing needs of our clients.

Jingbo Wang (Co-Founder, Chairlaidy and CEO)

在 2022 年 初，发 布 的 CIO 报 告 中，诺 亚 基 于 对 2022 年 的 宏 观 和 资 本 市 场 判 断 的 前 瞻 性，提 出 了 先 保 护 再 增 长 的 大 类 资 产 配 置 建 议，建 议 客 户 通 过 财 富 管 理 工 具 做 好 资 产 的 保 障 和 隔 离，并 辅 以 多 策 略 绝 对 收 益 型 基 金 和 私 募 股 权 基 金，降 低 资 产 的 波 动，实 现 穿 越 周 期 的 财 富 增 长，有 效 地 帮 助 客 户 在 动 荡 的 资 本 市 场 环 境 中 坚 守 住 了 财 富 的 安 全 。

我 们 明 确 感 受 到 中 国 财 富 人 群 的 资 产 配 置 观 念 发 生 了 根 本 性 的 改 变，安 全 和 保 护 成 为 他 们 的 第 一 诉 求，全 球 配 置 资 产 的 需 求 也 随 之 上 升 。 诺 亚 国 际 自 2012 年 开 设 香 港 办 公 室，并 逐 步 在 美 国、新 加 坡、加 拿 大 和 澳 洲 等 国 际 市 场 开 展 业 务 。 海 外 板 块 已 经 经 历 了 10 年 的 积 累，主 要 由 投 资 产 品 运 营、集 中 后 台 等 部 门 服 务 在 海 外 的 华 人 客 户 。

2022 年，我 们 进 一 步 构 建 诺 亚 的 国 际 化 能 力，建 立 立 足 于 海 外 市 场 的 国 际 财 富 管 理 团 队，创 设 新 的 海 外 产 品，并 通 过 诺 亚 在 过 去 已 经 构 建 的 业 务 能 力 和 体 系，为 全 球 华 人 客 户 提 供 服 务 。 截 止 2022 年 底，诺 亚 国 际 的 海 外 客 户 数 量 同 比 提 升 了 8.4%，全 年 海 外 板 块 产 生 净 收 入 RMB 830 million，占 全 集 团 收 入 比 重 从 2021 年 的 23.5% 提 升 到 了 26.7%，其 中 Q4 海 外 收 入 占 比 更 是 提 升 至 32.2% 。

Melo Xi (Director of Investor Relations)

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

Since the opening of the Hong Kong office in 2012, the gradual establishment in foreign markets, including the U.S., Singapore, Canada and Australia, Noah International has accumulated a decade of experience and capabilities in the overseas segment. In the past, we serve 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 the overseas market, creating new overseas products in order to better serve the asset allocation needs of Chinese high net worth individuals living abroad. On top of the capabilities and system we have already built in the past. By the end of 2022, Noah's international clients increased 8.4% year-over-year.

The overseas segment generated net revenues of RMB 820 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.

Jingbo Wang (Co-Founder, Chairlaidy and CEO)

2022 年 期 间 ， 公 司 通 过 积 极 调 整 经 营 策 略 ， 实 现 了 稳 健 的 财 务 表 现 ， 全 年 达 成 净 收 入 CNY 3.1 billion ， non-GAAP 净 利 润 CNY 1.01 billion ， 并 完 成 全 年 的 盈 利 指 引 。 得 益 于 更 高 效 的 成 本 控 制 以 及 受 疫 情 影 响 差 旅 活 动 的 减 少 ， 经 营 利 润 率 从 27.9% 提 升 至 35.1% 。 财 富 管 理 板 块 全 年 度 得 到 了 净 收 入 CNY 2.2 billion ， 同 比 下 降 31.1% 。

主 要 是 由 于 全 年 募 集 量 放 缓 ， 以 及 客 户 更 倾 向 于 投 资 在 有 流 动 性 的 货 币 基 金 定 存 等 产 品 ， 导 致 的 募 集 费 收 入 下 降 。2022 年 全 年 达 成 募 集 量 CNY 70.28 billion ， 同 比 下 降 27.7% 。 2022 年 期 间 全 球 二 级 市 场 波 动 显 著 ， MSCI World Index 下 跌 17.8% ， S&P 500 Index 下 跌 18.7% ， MSCI China Index 下 跌 21.2% 。

Noah 的 策 略 是 更 多 地 关 注 占 有 客 户 的 钱 包 份 额 ， 帮 助 客 户 实 现 财 富 底 仓 的 有 效 保 护 ， 而 不 是 为 了 追 求 更 多 收 入 而 给 客 户 推 荐 更 多 的 产 品 。 公 募 基 金 产 品 募 集 量 同 比 提 升 16% 。 得 益 于 在 2022 年 推 广 了 聚 焦 于 企 业 现 金 管 理 的 自 主 研 发 的 Smile Treasury SaaS 平 台 ， 在 过 去 ， 实 体 经 济 和 中 小 微 企 业 的 企 业 司 库 和 现 金 流 管 理 缺 乏 被 专 业 和 体 系 化 的 服 务 。

依 托 于 Noah 成 熟 的 公 募 基 金 平 台 和 资 产 配 置 能 力 ， 全 年 通 过 Smile Treasury 开 户 且 交 易 的 中 小 法 人 客 户 数 超 过 了 4,500 家 。 客 户 方 面 ， 我 们 的 Black, Diamond and Black Card 核 心 客 户 数 达 到 了 9,689 名 ， 同 比 增 长 18.2% ， 其 中 Black Card 客 户 同 比 增 长 22.2% 。 扩 大 核 心 客 群 一 直 是 我 们 重 要 的 经 营 指 标 。

过 去 一 年 ， 通 过 在 客 户 界 面 及 品 牌 的 投 入 ， 完 善 客 户 的 权 益 体 系 ， 并 通 过 引 入 star rating system 来 提 升 客 户 的 资 产 配 置 健 康 度 ， 有 效 地 增 强 了 客 户 体 验 。 特 别 值 得 一 提 的 是 。 2022 年 我 们 全 年 实 现 了 超 过 1,000 位 流 失 睡 眠 客 户 的 挽 回 。 经 过 2019 年 的 Camsing Incident 以 后 ， 过 去 流 失 的 老 客 户 开 始 回 归 。

2022 年 ， 通 过 聚 焦 不 同 的 客 户 群 体 ， 给 出 不 同 的 解 决 方 案 ， 我 们 还 认 证 了 超 过 3,000 名 潜 在 的 转 Black Card 客 户 ， 通 过 存 量 客 户 的 转 介 绍 ， 全 年 实 现 了 超 过 1,000 名 Gold level 以 上 的 新 客

Melo Xi (Director of Investor Relations)

In 2022, the company delivered solid financial performance by proactively adjusting our business strategy, achieving an annual net revenues 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 margin cost management and less travel activities due to COVID-19 lockdowns. Whilst management segment reported net annual net revenues RMB 2.2 billion, down 31.1% year-over-year, 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% year-over-year.

In 2022, with significant volatilities in the global public markets, with the global 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 value increased by 16% year-over-year, 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-sized corporate institutional clients who open accounts and transacted through Smile Treasury platform during the year. In terms of clients, the number of Diamond and Black Card clients reached 9,689, an increase of 18.2% year-over-year, 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 clients' reward 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 of 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.

Jingbo Wang (Co-Founder, Chairlaidy and CEO)

资 产 管 理 板 块 全 年 录 得 净 收 入 八 点 三 亿 元 ， 同 比 下 降 百 分 之 十 九 点 九 ， 主 要 是 由 于 受 资 本 市 场 波 动 以 及 一 级 市 场 退 出 机 会 的 放 缓 ， 导 致 业 绩 提 成 收 入 同 比 下 降 百 分 之 六 十 六 。 通 过 全 资 子 公 司 歌 飞 资 产 ， 资 产 管 理 规 模 截 止 二 零 二 二 年 末 达 到 一 千 五 百 七 十 一 点 四 亿 元 ， 同 比 增 长 百 分 之 零 点 七 。

其 中 海 外 资 产 管 理 规 模 达 到 了 三 百 二 十 五 点 四 亿 元 ， 同 比 上 升 百 分 之 十 四 点 七 。 得 益 于 歌 飞 资 产 在 境 外 主 动 管 理 的 房 地 产 、 私 募 股 权 以 及 固 定 收 益 产 品 的 开 发 和 募 集 。 房 地 产 方 面 ， 美 国 地 产 投 资 团 队 专 注 于 进 行 持 有 型 出 租 公 寓 的 开 发 投 资 。 前 两 期 基 金 和 专 户 基 金 投 资 表 现 优 异 ， 并 已 经 实 现 了 两 个 项 目 的 退 出 。

二 零 二 二 年 的 第 三 期 基 金 的 募 集 取 得 了 较 好 的 成 绩 。 私 募 股 权 方 面 ， 美 国 硅 谷 投 资 团 队 专 注 于 科 技 行 业 的 风 险 投 资 ， 已 经 投 资 了 多 家 科 技 行 业 的 独 角 兽 企 业 ， 并 实 现 了 退 出 。 二 零 二 二 年 完 成 了 第 四 期 基 金 的 募 集 。 我 们 相 信 在 当 前 经 济 周 期 处 于 接 近 触 底 区 间 ， 为 VC 和 PE 基 金 提 供 非 常 难 得 的 进 入 机 会 。

我 们 也 ， 也 于 二 零 二 二 年 四 季 度 上 线 了 由 硅 谷 团 队 管 理 的 VC FOFs 基金 ， 旨 在 进 一 步 完 善 歌 飞 在 海 外 市 场 生 态 系 统 的 布 局 。固 定 收 益 产 品 方 面 ， 随 着 美 联 储 加 息 带 来 的 美 元 收 益 率 持 续 走 高 ， 我 们 的 产 品 团 队 及 时 开 发 并 上 线 了 美 元 现 金 管 理 和 定 存 产 品 ， 呃 ， 通 过 提 供 稳 健 回 报 产 品 ， 有 效 地 提 升 了 客 户 在 海 外 -- 在 诺 亚 的 海 外 钱 包 份 额 。

截 止 年 底 ， 海 外 AUM 同 比 增 长 百 分 之 二 十 五 点 二 ， 在 总 AUM 占 的 中 的 占 比 从 二 零 二 -- 从 二 零 二 一 年 底 的 百 分 之 十 六 点 三 提 升 至 了 百 分 之 二 十 六 点 一 。 二 十 一 点 六 。

Melo Xi (Director of Investor Relations)

Asset management segment reported net revenues of RMB 835 million, down 19.9% year-over-year, primarily due to a 66% decline in performance-based income caused by capital market volatility and limit exit opportunities in the primary market. Through our subsidiary, Gopher Asset Management, AUM reached RMB 157.1 billion by the end of 2022, up 0.7% year-over-year. On the other hand, the overseas AUM reached RMB 32.5 billion, up 14.7% year-over-year. Thanks to the successful fundraisings of Gopher's actively managed overseas real estate and private equity funds, as well as the launch of our U.S. dollar cash management and fixed income products. The U.S. real estate investment team, focusing on multi-family residential development investments, have achieved excellent investment performances on the first two series of funds and a separate account, with two successful and profitable exits.

They launched Series 3 fundraising in the second half of 2022. The Silicon Valley early stage tech-focused investment team have achieved multiple profitable exits for LPs through investing in a number of unicorn companies. They launched their Series 4 fundraising during the second half of 2022 as well. We believe that the current economic cycle, which is close to bottoming out, provides a very rare entry opportunity for VC and PE funds. As a result, we have also launched a VC fund of funds managed by our Silicon Valley team as well in Q4 2022, aiming to further enhance Gopher's ecosystem in the overseas market.

In terms of cash management and fixed income products, as U.S. dollar yields continue to rise due to the Fed's rate hike, our product team developed and launched our U.S. dollar cash management and fixed income products in a timely manner, effectively increasing our clients' share of overseas wallets with Noah. By year-end, overseas AUA grew by 25.2% year-on-year, accounting for 21.6% of the total AUA, comparing to 16.3% at the end of 2021. In terms of ESG, Noah has been voluntarily publishing sustainability reports since 2014. We also formulated and initiated the supply chain ESG management guidelines and received 100% of the signatories of the ESG letter of acknowledgment for suppliers and Noah's very first supplier conference, bringing awareness to our supplier partners to better create a sustainable ecosystem.

Noah has cooperated with nonprofit organizations for many years in projects such as 100 million saxaul trees and Noah's Ark. Since 2014, Noah's Heart Forest has planted over 387,000 saxaul trees in Alxa region in China, covering over 8,000 acres of land, achieving about 3.8 square kilometers of sand stabilization and 7,000 tons of carbon stabilization, helping restore the local desert system and slow down desertification while increasing local herders' income. I'm also pleased to announce that company has successfully completed the conversion to primary listing status on the Hong Kong Stock Exchange on December 23, 2022, becoming the first Chinese wealth management company to have dual primary listing status in both the U.S. and Hong Kong. Also completely eliminating the potential delisting risk of ADR stocks.

At our board meeting earlier this month, the board has approved an annual dividend plan to pay out 17.5% of non-GAAP net income of RMB 1 billion for 2022. The final dividend proposal will be evaluated at the upcoming AGM in mid-June. We're committed to creating value for our shareholders in a stable and sustainable manner through a long-term cash dividend plan. While smaller and then some between the two decision making skill. Decision make the right decision is positively correlated with one's understanding of the world. Today in 2023, the consensus of clients' need has been mostly clear. The foundation of this thought process framework is what shapes Noah's CIO house view, our advices on clients allocation solutions and our core values, which distinguish Noah from other wealth management institutions.

We are committed to becoming a leading name by capturing at least 1% of the market share in the wealth management industry for Chinese high-net-worth clients around the world. A goal that has tremendous room for growth, but also requires us to always maintain our founding principle and work hard towards achieving it. Finally, we hope that the pain of 2022 will become the gain of 2023. Now I'd like to pass to our CFO, Mr. Pan, to give you a detailed walkthrough of this year's results. Thank you all.

Grant Pan (CFO)

Thanks, Melo, and thank you, Chair Lady. Welcome investors, analysts. Looking back at 2022 was obviously undoubtedly a challenging year. The U.S. Federal Reserve has raised interest rates by cumulative 425 bps to 4.4% as of the end of last year. The rapidest hike in decades, coupled with geopolitical conflicts and the ongoing increasing global inflation rate from 4.7% to 8.8%, creating volatilities in both the equity and bond markets. Consequently, the MSCI World Index, S&P 500 and MSCI China Index have all dropped 18%, 19%, and 21% throughout the year, respectively. In China, the prolonged COVID-19 restrictions during almost the entire year of 2022 greatly affected economic activities. With the China Effective Lockdown Index, a third-party index that measures the level of COVID-related restrictions, reaching highest level twice since 2020.

The Chinese household saving rate climbed significantly from 30% pre-COVID up to 37% by end of that year. The Chinese Consumer Confidence Index hit a decade low, capital market activities and investors' sentiments also became more conservative, evidenced by a 50% year-over-year decrease in new issuance of mutual funds across the board. Noah has been investing to improve our research capabilities to counter this adversity, and our CIO office published the investment outlook for 2022 at the beginning of the last year, recommending the strategy of preservation before growth to our clients. Looking back at the capital market fluctuations, our recommendation helped preserve clients' assets and our dedication and efforts on enhancing investment abilities paid off. As a result, although 2022 was a tough year, we still achieved increase in number of core clients, up 18% year-over-year.

That's Diamond and Black Card client. Overseas AUM also increased by 15% year-over-year. Due to stricter cost management measures and higher operational efficiency, those operating margin grew from 27.9% to 35.1%. On top of that, we have met our annual non-GAAP net income profit guidance, absorbing the impact of an unexpected and unfavorable outcome of legal proceeding towards the end of last year. Please let me walk you through the detailed financial results of the year and the fourth quarter. Full year net revenues were RMB 3.1 billion, down 28% year-over-year. Primarily due to the decrease in one-time commissions and performance-based income.

One-time commissions fell by 46% year-over-year to RMB 678 million due to lower transaction values and the change in product mix, partially as a result of our proactive direction away from public security-based products in the face of volatile market conditions last year that usually bear high take rates for that type of product. Performance-based income fell by 61% year-over-year to RMB 308 million, as expected in the face of the bumpy capital market environment. Recurring service fees remained relatively stable at RMB 1.9 billion, down 9%. Operating costs and expenses were RMB 2 billion, decreased 35% year-over-year. Due to lower relationship manager compensation expenses as transaction values decreased, combined with lower selling and G&A expenses resulting from a decrease in traveling and offline client activities, both affected by COVID-19 restrictions.

Correspondingly, annual operating income margin increased 7.2% year-over-year to 35.1%. With regard to non-operating results, we incurred a one-off contingent expense of RMB 99 million due to the provision of legal proceeding related to one of our subsidiaries that we disclosed on 12 December 2022. We believe that the associated first instance ruling was reached based on incomplete factual information and have already initiated appealing process and intend to vigorously defend against the civil claim from the plaintiff. Equity earnings of affiliates decreased 71% year-over-year, attributed to the downward yields of fund of funds that were managed and invest in as the general partner of fund manager. In spite of non-operating costs, our non-GAAP net income of RMB 1 billion still achieved annual non-GAAP net income profit guidance with this margin up to 32.5%.

Growth in core clients, Diamond and Black Card clients, still remains as our top strategic priority throughout the year. Benefiting from our continuous strategic investments in expanding our core client group, Diamond and Black Card clients grew to 9,689, an 18% year-over-year increase overall, among which the number of Black Card clients increased by 22% year-over-year. We also have an innovative program to recognize potential Diamond and Black Card clients and grant trial benefits in advance for a limited period of time to attract new clients, which enabled us to identify over 3,000 high potential core client leads. Our total active clients during the year was 35,877, down 16% year-over-year. Due to the transformation to standardized products starting from 2019, we have also been making efforts on reactivating dormant accounts and retrieving lost accounts.

As of December 2022, reactivated and retrieved accounts amounted to more than 1,000. At the same time, we have gained significant growth in a new tier of clients, i.e. corporate and institutional clients. We launched the Smile Treasury platform to facilitate corporate institutional clients treasury management efforts with over 4,500 new corporate and institutional clients who have opened accounts and transacted with us in 2022. With respect to transaction value, we distributed RMB 70.3 billion of products during the year, down 28% year-over-year. Among which mutual funds were RMB 43.1 billion, up 16% year-over-year. Thanks to the aforementioned increase in corporate and institutional clients. Private secondary products were RMB 13.1 billion, down 65% year-over-year, as we proactively decreased allocation and distribution of equity-linked public market products due to heightened market volatilities.

In terms of segmented results, full year net revenues from wealth management business were RMB 2.2 billion, down 31% due to the decrease in transaction value, accounting for 71% of total net revenues to the group. The revenues from asset management business were RMB 834 million, down 20% due to a decrease in performance-based income from private equity fund products, accounting for 27% of total net revenues of the group. Gopher AUM was RMB 157.1 billion as of the end of the year, slightly higher than last year due to increase in private equity AUM. As mentioned by Chairlady, we have started to establish our international wealth management team with relationship managers based in overseas markets, catering to our overseas clients' asset allocation needs.

Our oversea AUM grew 15% year-over-year and 7% quarter-over-quarter, contributed by the successful fundraising activities of Gopher real estate investment team and venture capital investment team in the States. The launch of U.S. dollar cash management and fixed income products. Besides, we have also been cooperating with nine of the top 25 international private equity GPs, and look forward to expanding that list. Overall, full year overseas net revenue was RMB 828 million, accounting for 27% of total net revenue, compared to 24% in the year before. When it comes to our fourth quarter results, net revenues were RMB 882 million, down 30% year-over-year. Recovered quickly by 29% from the Q3. One-time commissions were RMB 269 million, down 44% year-over-year.

Up 170% quarter-over-quarter due to increase in insurance distributions. Recurring service fees were RMB 472 million. Down 15% year-over-year. Slightly increased 4% quarter-over-quarter, mainly due to the service fees generated from liquidating certain credit products with higher fee rates during the corresponding period in last year. Performance-based income was RMB 80 million, down 54% year-over-year due to decrease in carry from public security products and private equity fund products. It was up 191% quarter-over-quarter due to exits generated from some of the private equity fund products in this quarter. Total operating costs and expenses were RMB 662 million, down 41% year-over-year, but up 46% quarter-over-quarter, mainly due to increased expenses related to offline client activities after COVID-19 restrictions were lifted, as well as increased registered manager compensations, performance fee compensations in the quarter.

On top of that, operating income were RMB 220 million, up 66% year-over-year, but down 5% quarter-over-quarter. Quarterly non-GAAP net income was RMB 149 million, down 49% year-over-year, but 22% quarter-over-quarter increase due to one-time contingent expenses. Regarding the balance sheet, our cash increased to RMB 4.4 billion and total assets stood at RMB 11.8 billion as of December 2022. The current ratio was 3.3x multiple and debt to asset ratio was 19.5% with no interest-bearing debt, implying a very healthy and strong liquidity position and balance sheet. Supported by a healthy balance sheet and continuous strong cash flow generating capabilities, pursuant to the dividend policy announced on 10 August 2022, the annual dividends to be declared and distributed for year 2022 will be 17.5% of the group's non-GAAP net income of 2022.

Approximately amounting to RMB 176.5 million, implicating $0.40 per ADS, and HKD 6.25 per share equals to 2 ADS, subject to final approval of our AGM on June 12, 2023 this year. We look forward to providing stable and sustainable returns to the shareholders with the growth of our business. Looking back to 2022, obviously great challenges stems from global macroeconomic uncertainties and domestic difficulties, including zero COVID limitations. We're glad that we completed the secondary listing on the main board of Hong Kong Stock Exchange, within the same year, with the effort of the team, also completed voluntary conversion to primary listing in Hong Kong within the same year.

Due to the regulations of Hong Kong Stock Exchange, by the way, we'd also like to kindly inform our investors that Noah will not be able to publish annual non-GAAP net income profit guidance going forward. Looking forward to 2023, we'll continue to invest talents and resources into expanding our global footprint and improving our client service experience and quality. At the same time, we'll also be mindful of both cost controls and growth initiatives. Again, we sincerely appreciate all shareholders for their ongoing trust and support, and strive to create long-term value for clients and shareholders. Thank you everyone for listening. I will now open the floor for questions. Thank you.

Melo Xi (Director of Investor Relations)

Thank you, Grant. If you have a question, please kindly press the Raise Hand button in Zoom. Now I believe we have Helen from UBS. Moderator, could you please turn on her microphone? Thank you.

Helen Li (Equity Research Analyst)

Let me translate my question. This is Helen from UBS. two questions, if I may. One, for insurance product distribution. Since the 4th quarter 2021, the growth momentum was very strong. Insurance products seem to be the key driver for one-time commission fee. It's been five quarters since the 4th quarter of 2021, what's the insurance product penetration rate for existing clients? Think the strong growth momentum could persist this year and next year. If not, what types of product or services may bridge the revenue gap? Could you please give us more color on transaction value outlook this year, both in terms of growth outlook and product mix. My second question is on Gopher AUM.

I noticed that back to 2015 to 2016, private equity products were a major driver for transaction value, and this product may enter the redemption period very soon, I guess. What's the impact on Gopher AUM? Will Gopher AUM decline in the next one to two years? What's Gopher's product strategy this year and in the coming two to three years? Thank you.

Grant Pan (CFO)

Thank you, Helen. I'll supplement some data points and also do a quick summary of what the Chairlady has mentioned. I guess we do look at this allocation of product mix from a slightly different angle that basically we don't necessarily just voluntarily put out a product mix or recommendation to our clients without understanding the client's need. You know, throughout 2022, the sentiment of the entire market is actually preservation and risk averse. The demand from insurance products actually grew across the board in the market. You know, we're not manufacturing any insurance products, basically just having an insurance brokerage and responsible for picking the right products for our clients. As mentioned by Chairlady, the coverage or penetration rate, especially in the Diamond Black Card client group, is relatively low.

You know, 21% for overseas insurance products and 24% for the domestic one. The contribution to the total revenue by insurance related revenue for 2022 is about 77%, slightly higher than 60% in 2021 as well. We still believe that, you know, still abundant room to grow in terms of insurance products. If the client still considers that insurance product becoming a very fundamental important layer of their asset allocation strategy. In terms of Gopher's AUM, domestically, we believe that our fund of funds portfolio will benefit greatly from the registration scheme in A-share stock market that provide more exiting opportunities for these portfolio companies to become IPO companies and provide better exiting routes for this type of funds. In terms of the secondary market public security products within Gopher, we actually also invest heavily into our R&D team.

We have a team of about 40 people focused on the macro and also micro researches on different kind of stocks and strategies for multiple strategy sort of fund. For overseas, we are investing heavily, both in budget and talents actually, for 2023 to make sure that we'll be able to meet the demands for our clients, especially for the overseas allocation of more products towards public market type of products that in the past the market probably provides a lot of volume, but we weren't able to provide too much on the USD-denominated public markets. We're assembling a team to focus on that selection, and I believe that we'll be able to provide more on that type of products for our clients. Helen, back to you.

Helen Li (Equity Research Analyst)

Thank you. Crystal clear.

Grant Pan (CFO)

Thank you.

Melo Xi (Director of Investor Relations)

Thank you, Helen. I believe we have Chiyao Huang from Morgan Stanley. Also raised his hand. Operator, please. Hello, Chiyao Huang.

Chiyao Huang (Equity Research Analyst)

Hi. Hi. Let me translate. The first question is the market volatility we've seen in the fourth quarter 2022, and in both equity and the fixed income market. I was wondering how does the reaction from Noah's clients in the fourth quarter and what reaction Noah has been taking to stabilize the AUM in fourth quarter last year? Second question is on the outlook for 2023 in terms of the client demand and the revenue opportunity for Noah. Thank you.

Grant Pan (CFO)

Thanks, Chiyao Huang. I think those are great questions. Also we want to stress that, you know, the strategy in terms of recommending our clients to preserve first, then pursue growth opportunities didn't start in quarter four last year. Actually, we published the CR report in the first quarter when we sensed a very highly volatile market of the entire year. Actually a majority of the allocation, as we just mentioned in the market actually, and also consistently, our clients strategy. Are, you know, highly liquid products, including money market funds, including the U.S. dollar-denominated deposit type of funds. Towards the end of last year, when the Fed actually raised the interest rates very quickly. In terms of overseas, we have about over $1.1 billion AUM for clients to put their money in the actual deposit type of products.

We're seeing actually a very good increase in the fourth quarter alone. That's about $1.6 billion raised in that single quarter. You know, in the face of very complex market situation, Noah actually never push sell any products that we don't even believe in. We, you know, still try to recommend the more conservative and safe strategy for our clients to actually place on. We're actually seeing a huge influx of repatriating clients last year. As mentioned in the press release, we're seeing probably around 1,000 clients either reactivated from long time dormant accounts or repatriated back to Noah from other platforms. I believe that clients are very impressed with Noah's strategy, that we actually didn't have any exposure, you know, AUM or AUA to real estate type of products to, you know, the non-standard credit products.

We have a very clean and light AUM for our clients. In 2023, we continue to hold a very conservative view, especially for our clients, but probably we'll more emphasize on the provision of supply of overseas assets for our client to carry out the global allocation strategy. We're putting a lot of effort, also, budget actually in developing our overseas businesses. We believe that the opening up of new tier or new group of clients overseas, you know, the high net worth, Chinese individuals overseas will actually provide very strong growth, driving factors behind the incremental, revenue in 2023, if you will. Thank you, Chiyao.

Chiyao Huang (Equity Research Analyst)

Thank you, management. That's very clear.

Grant Pan (CFO)

Thanks.

Melo Xi (Director of Investor Relations)

Thank you, Chiyao. We also have Peter from JPMorgan. Operator, please turn on Peter's microphone. Thanks.

Peter Zhang (Equity Research Analyst)

谢 谢 管 理 层 给 我 提 问 的 机 会 。 我 这 边 有 两 个 问 题 ， 一 个 关 于 四 季 度 的 趋 势 ， 我 们 看 到 我 们 季 度 理 财 销 售 和 歌 飞 AUM 都 环 比 上 有 提 升 ， 然 后 这 个 趋 势 也 是 比 季 度 行 业 的 趋 势 要 好 。 我 们 想 了 解 一 下 背 后 的 原 因 ， 是 不 是 我 们 呃 对 比 银 行 的 私 行 在 产 品 或 者 策 略 上 有 什 么 不 同 ？

展 望 二 零 二 三 年 ， 呃 疫 情 期 间 积 累 的 超 额 储 蓄 将 在 二 零 二 三 年 有 可 能 会 有 一 定 的 释 放 。 我 们 想 了 解 诺 亚 在 二 零 二 三 年 将 如 何 受 益 于 这 个 趋 势 。 我 的 第 二 个 问 题 是 关 于 海 外 市 场 的 ， 我 们 看 到 就 是 最 近 一 个 月 海 外 金 融 市 场 十 分 波 动 ， 硅 谷 银 行 、 瑞 士 信 贷 都 相 继 出 现 问 题 。

呃 我 们 想 问 诺 亚 有 没 有 给 客 户 提 供 呃 银 行 发 行 的 AT1 产 品 ？ 呃 然 后 对 面 对 海 外 的 风 险 ， 我 们 有 如 何 的 策 略 ？Let me translate.

AUM sales and office A-AUM beat Max AUM in fourth quarter. How does Noah differentiate from leading banks in China when it comes to strategy and product? In 2023, there is talk of release of excess saving China. How do you think Noah will benefit from the trend, if any? The second question, as most over risks from SVB and Credit Suisse were write down, and 2023 is going to be volatile. How does Noah position for this? Does Noah offer investment products like AT1 issue to your client? Thank you.

Jingbo Wang (Co-Founder, Chairlaidy and CEO)

好 的 ， 谢 谢 哈 。 我 先 回 答 。 首 先 我 们 没 有 给 客 户 提 供 任 何 AT1， 都 没 有 ， 所 以 还 是 比 较 安 全 。 但 我 想 这 个 因 为 我 们 在 海 外 还 做 得 太 小 ， 所 以 就 规 模 和 我 们 的 这 个 基 础 设 施 还 不 是 那 么 成 熟 。 在 海 外 的 这 个 发 展 策 略 呢 ， 我 觉 得 拓 客 就 是 只 要 能 够 服 务 更 多 的 华 人 的 高 净 值 客 户 ， 能 够 设 呃 ， 设 立 我 们 的 理 财 服 务 网 点 吧 。

那 过 去 的 话 ， 我 们 在 海 外 主 要 是 产 品 和 中 后 台 ， 那 我 们 其 实 是 没 有 特 别 成 熟 、 成 建 制 的 客 户 经 理 队 的 。 那 么 在 二 零 二 零 ， 我 们 在 香 港 ， 我 们 ， 呃 ， 我 规 划 我 们 的 财 管 理 达 到 一 百 人 ， 在 新 加 坡 的 话 可 以 做 ， 我 们 在 美 国 ， 在 其 他 国 家 也 都 在 拓 展 我 们 的 财 管 理 度 。

那 在 过 去 的 这 个 八 个 月 ， 我 们 主 要 是 搭 建 了 海 外 的 产 品 平 台 ， 过 去 的 话 还 是 比 较 卖 充 式 的 ， 就 是 以 产 品 驱 动 客 户 。 我 们 现 在 ， 现 在 我 们 搭 建 了 全 球 的 呃 ， 海 外 保 险 的 产 品 平 台 ， 以 及 我 们 的 呃 ， 阿 根 廷 市 场 这 个 公 ， 这 个 产 品 。 在 完 成 了 这 个 产 品 的 这 个 全 ， 呃 ， 全 景 图 和 全 部 的 在 线 可 以 交 易 ， 它 才 符 合 当 地 的 这 个 政 策 。

的 这 个 前 提 下 ， 我 们 觉 得 我 们 的 拓 客 才 能 够 发 力 。 所 以 可 以 这 么 说 ， 在 诺 亚 的 海 外 业 务 发 展 上 ， 我 们 是 在 这 个 创 业 的 阶 段 吧 ， 呃 ， 是 搭 基 础 设 施 ， 构 建 团 队 ， 能 够 真 正 的 服 务 客 户 ， 那 么 这 是 我 们 的 呃 ， 增 长 点 啊 ， 这 是 ， 这 是 我 的 看 法 。

那 我 们 有 了 客 户 ， 然 后 有 了 产 品 ， 我 们 还 要 去 思 考什 么 样 的 渠 道 ， 用 什 么 样 的 这 个 平 台 ， 能 不 能 够 触 达 我 们 的 客 户 。 所 以 我 们 也 这 个 就 之 间 还 有 一 些 成 本 ， 比 如 说 我 们 在 海 外 ， 我 们 的 下 队 伍 ， 我 们 的 线 下 队 伍 的 体 验 ， 以 及 外 部 的 渠 道 和 我 们 割 费 的 直 销 等 ， 都 是 我 们 关 注 的 ， 我 们 组 织 的 建 设 。

这 是 我 想 讲 到 的 ， 这 个 海 外 的 业 务 的 发 展 哈 。 那 在 国 内 的 话 ， 我 们 主 要 还 是 要 更 合 规 ， 就 聚 焦 在 大 的 ， 那 比 如 说 像 像 广 深 省 会 城 市 ， 我 们 能 够 提 升 我 们 的 理 财 队 伍 。

但 是 对 于 像 过 去 我 们 在 百 强 线 的 这 种 布 局 ， 比 较 ， 呃 ， 比 较 多 的 网 点 ， 然 后 比 较 分 散 的 这 种 在 线 化 的 运 营 ， 我 们 可 能 会 做 到 优 化 ， 来 提 升 效 率 ， 降 低 成 本 ， 也 能 够 集 中 我 们 对 客 户 的 服 务 ， 就 是 提 升 我 们 对 客 户 服 务 的 品 质 。

Grant Pan (CFO)

Yeah. Thanks, thanks for great questions again. Yeah, we actually don't have any AT1 or CoCo bond related cross product. I know the reason is because we're still relatively small in terms of providing US dollar and offer. Like we have mentioned in the past that we focused on pretty much product maintenance in overseas. In the U.S., we have two investments pretty much for the as years we see actually clearly number of relations in Hong Kong compared to what we have is by professionals. Our team is from zero, basic from scratch to 20, and we're in the process to actually hiring in those two places, also looking at these potential to be able to be access to local markets to serve the Chinese national in those nations, including in the U.S. Product convention will go and work.

In terms of wealth management, for the past eight months, focused pretty much on US dollar products, also spend quite a bit of time and investment to establish global insurance platform. We're moving on to the primary market and secondary market products, both denominated in the US dollars. Just to supplement on the numbers when you mentioned that the growth in the fourth quarter, I think still benefited greatly from, you know, products that we have in the Silicon Valley. We raised about more than $1 billion in the fourth quarter alone. That actually fit the client's need for more exposure to a deeper and probably more stronger markets in terms of oversea products.

The focus for 2023 is to expand the interfaces where we can reach out to our clients in different ways, including, for example, institutional client sales group, the online platform, also including direct sales, or direct distribution from Gopher manager, especially the screen of the global products, and to be able to actually put them into a portfolio for our clients. In terms of domestic development strategy, we focus on continue to heighten investment in both branding talents in large cities, first-tier cities. But in terms of the probably third-tier, fourth-tier cities, we used to have network and branch offices, we're looking at to consolidate these offices into the nearby hub cities. One is to obviously control the cost efficiency, and two is actually to ensure that we provide better quality service to our clients.

As you would, you know, probably understand that, you know, majority of the high-net-worth individuals will probably gradually move to the nearby big cities, you know, for better life quality. We also want to make sure that our service team is also there to be able to serve our clients. Peter, back to you.

Peter Zhang (Equity Research Analyst)

Yeah, I think that's pretty clear. Maybe I add one more question about the investment sentiment. In 2023, do you see improvement in household investment segment in your clients? How does this compare to the 2022 or 2021 level? 客 户 情 绪 跟 二 一 、 二 零 比 ， 您 觉 得 怎 么 看 ？

Jingbo Wang (Co-Founder, Chairlaidy and CEO)

我 就 刚 才 我 想 补 充 ， 就 是 说 我 们 四 季 度 总 体 的 这 个 您 感 觉 可 能 比 同 行 好 一 点 。 我 觉 得 还 是 得 益 于 就 Noah 还 是 持 续 地 在 跟 客 户 触 达 ， 高 频 的 触 达 和 活 动 。 我 们 在 去 年 四 季 度 成 本 其 实 也 上 升 了 ， 但 我 们 在 新 加 坡 ， 然 后 在 香 港 也 开 了 很 多 客 户 的 沟 通 跟 说 明 会 ， 我 觉 得 这 个 在 市 场 动 荡 的 过 程 中 还 是 很 有 帮 助 的 。

Peter Zhang (Equity Research Analyst)

我 明 白 ， 谢 谢 。

Jingbo Wang (Co-Founder, Chairlaidy and CEO)

对 ， 我 们 刚 刚 就 是 上 个 星 期 ， 这 个 星 期 还 是 上 星 期 ， 在 香 港 我 们 还 办 了 一 场 ， 这 个 ， 这 个 海 外 的 这 些 客 户 哈 ， 这 个 有 六 - 六 百 多 人 到 香 港 来 ， 都 是 从 全 球 各 地 飞 过 来 的 吧 。 然 后 我 们 跟 他 们 的 一 些 交 流 、 沟 通 ， 我 们 觉 得 还 是 很 有 意 义 的 。 情 绪 ， 客 户 的 情 绪 ， 我 觉 得 总 体 还 是 比 较 悲 观 的 吧 。

Peter Zhang (Equity Research Analyst)

在 投 资 端 是.

Jingbo Wang (Co-Founder, Chairlaidy and CEO)

投 资 端 就 是 大 家 都 是 很 保 守 ， 就 是 大 家 因 为 它 还 是 很 害 怕 失 去 ， 我 - 我 现 在 感 觉 是 这 样 ， 就 是 以 前 的 话 ， 嗯 ， 华 人 客 户 嘛 ， 我 们 虽 然 服 务 的 客 户 是 ， 呃 ， 这 个 都 是 讲 华 语 的 ， 可 能 过 去 都 是 在 中 国 创 业 ， 然 后 在 中 国 成 长 的 ， 虽 然 他 们 现 在 可 能 有 些 已 经 住 在 海 外 了 ， 但 总 体 来 讲 还 是 以 中 国 为 核 心 的 ， 这 个 感 觉 还 是 ， 嗯 ， 情 绪 还 是 比 较 悲 观 吧 。

Grant Pan (CFO)

Peter, I think just to supplement, obviously, in fourth quarter, we benefited quite a bit of, I guess, heightened interaction with the clients. We actually held a pretty big client conference in Singapore towards end of December. Actually, before the official opened up of China market last year, about 300 clients flew over to Singapore. We held a very large conference last week in Hong Kong, and about 600 clients came over, you know, and joined our conferences. We're providing, you know, views from different GPs, our own GP and also economists, just to share, you know, the outlook of the capital market to our clients.

We're able to actually interact, I guess at a better quality and better interaction frequency with the clients. In terms of sentiment, we actually published a white paper with PwC for 2022 high-net-worth individual sentiment index. This first year we're doing this white paper, I think it's actually a great way for us to understand what people are thinking, especially the very unique group of high-net-worth individuals in China, mostly actually are private business owners and entrepreneurs. You know, it seems that, obviously, you know, after the reopening up, elevated quite a bit. I think the overall sentiment towards investment and wealth management or asset allocation will continue to be conservative, you know, towards RMB type of products.

We think that they probably were looking, continue to look to further diversify their asset allocation across the board, also in the product mix. Peter.

Peter Zhang (Equity Research Analyst)

Thank you. Very clear.

Melo Xi (Director of Investor Relations)

Thank you, Peter. We have no further questions from the audience. With that, we would like to conclude this quarter and year-end earnings call. For our most updated financial reports, please refer to the financial statements section within our investor relation website. Thank you all for listening and have a good day.

Grant Pan (CFO)

Thank you very much.

Melo Xi (Director of Investor Relations)

Thank you.

Grant Pan (CFO)

Bye.

Melo Xi (Director of Investor Relations)

Bye.