Hello, dear investors and analysts, and welcome to the Noah Holdings' Third Quarter 2022 Earnings Conference Call. Please note, your line has been automatically muted and this event is being recorded. The company management team will first give a quarterly update presentation. After today's presentation, there will be an opportunity to ask questions.

[Operator Instructions] Thank you. I would now like to turn the conference over to Ms. Jingbo Wang, Chair, President, and CEO of Noah Holdings. Please go ahead..

[Foreign Language] The agenda of today's teleconference. I will first share my views on the macro market. I then introduce Noah's overall performance in the third quarter of 2022, the development of several business sectors, and our overall strategy.

Next, let's invite Pan Qin to introduce quarterly financial information, then conclude with the interactive Q&A. First of all, I would like to report to you that we have received the acknowledgment from the Hong Kong Stock Exchange regarding our voluntary applications for conversion to do primary listing in Hong Kong.

We sent the recognition from the stock exchange. Before the new year of 2023, Noah would become a dual primary-listed company both in the United States and Hong Kong. Although the compliance requirements for the two jurisdictions are stricter, Noah has also completely removed the ADR delisting risk.

The third quarter of 2022 is a difficult quarter we had experienced with Federal Reserve raising interest rates significantly and the global secondary market continuing to fluctuate.

The prevention and control policy of COVID in China has continued to cause lockdowns in different cities across the country, bringing huge challenges to business operations and our client investment sentiment continued to be low.

With the increasingly fierce competition between China and the United States, as well as the Russia-Ukraine war, investors' willingness to invest down to the phrasing point in the third quarter. The most urgent demand of clients is to protect the security and liquidity of the investable assets of their own families.

The increase of global uncertainty superimposed many external risks making us feel that the period of strategic activities for peaceful development has turned into a wartime stage.

In times of crisis, how to increase the frequency of contact with clients, increase the client wallet share on the management and protect current assets are the key points of our thinking and action. At such a moment, Noah’s management needs to be aware of the market situation and make decisions decisively.

The execution team needs to implement efficiently, respond quickly and reconfigure resources quickly to ensure Noah’s future survival and development and keep it in a healthy stage. We believe the current macro situation presents not only challenges, but also opportunities.

The global asset allocation of China's high net worth clients will become a major trend in the future. The end of industrial globalization is exactly at the beginning of China's capital globalization.

The wealth management needs of overseas Chinese speaking client group are not -- or at least have not been fully matched, are need to be served by financial institutions familiar with their needs. The change of client demand is the core driving force for Noah's international development and also the key development direction of Noah.

Now aim for the future. [Foreign Language] Third quarter of 2022, Nova realized net revenues of RMB618 million and a non-GAAP net income attributable to shareholders of RMB190 million, both decreased both year-on-year and quarter-on-quarter.

As of September 30, the accumulated non-GAAP net income of 2022 has reached RMB860 million, reaching 59.3% of the annual guidance, which is behind the schedule. In terms of core business data, transaction revenue in the third quarter was RMB17.97 billion, down 25.3% year-on-year and 7% quarter-on-quarter.

To achieve such results in this difficult environment makes us feel that the trust of our clients has not come easily. That clients for were remised [ph] to continue to put their valued shares in Nova. In this quarter, the transaction value of mutual funds increased by 30.3% year-on-year, down 4.4% quarter-on-quarter.

The transaction value of high secondary counts also picked up slightly to RMB3.33 billion, up 38.9% quarter-on-quarter. The transaction value of private equity was RMB2.5 billion, down both year-on-year and quarter-on-quarter. In the third quarter, Nova's total number of active clients reached 22,641, up 6.5% year-on-year and 76% quarter-on-quarter.

Among them, the number of overseas active clients was close to 1,400, an increase of 84% quarter-on-quarter. High net worth and ultra high net worth clients are Noah's core client base and Diamond and Black Card clients have been growing steadily. By September 2022, Noah had 7,653 diamond clients, up 17.4% year-on-year.

The number of Black Card clients reached 2,129, up 39.4% year-on-year. Noah continued to increase the frequency of contact with clients as well as to reach -- as well as to recover those lost clients in the process of exiting private credit bonds and real estate bonds. As of November 17, 1,014 lost clients have been recovered this year.

It is worth mentioning that our independently developed Smile Treasury platform, focusing on institutional cash flow management was launched in December 2021. By the end of the third quarter, the number of institutional clients could open the accounts and transacted with Smile Treasury had reached 3,237, an increase of 224.3% quarter-on-quarter.

The cash flow management of the real economy, micro businesses and small to medium-sized enterprises has not been systematically served in the past.

We focus on enhancing the balance and accessibility of wealth management products and services at institutional level, providing dedicated and optimized asset location solutions, as well as building a full life cycle and full spectrum wealth management product services system. We will continue to deepen and expand in this field.

I believe that we can continuously improve the sense of gain, happiness and security of the vast real economy and small and micro enterprises. In the third quarter of 2020, Noah accelerated the pace of international business development to adapt to clients' global asset allocation needs.

In Hong Kong and Singapore, we set up a direct sales team for International Wealth Management. The International business revenue in the third quarter rose 21.5% quarter-on-quarter and its share in net revenues rose to 28.3% from 21.6% in the previous quarter.

I believe that Nova's international operations will contribute more revenues to the group in the near future.

[Foreign Language] As of September 30, 2022, growth of AUM was RMB156.2 billion, an increase of 0.5% over the end of the second quarter, among which private equity increased to RMB132.8 billion, public securities were affected by the fluctuation of NAV falling from RMB10.7 billion in the previous quarter to RMB10.2 billion.

In terms of real estate funds, our actively managed US rental apartment real estate funds increased from RMB6.2 billion in the last quarter to RMB6.7 billion in the primary market, the AUM of growth for hedge has also made achievements with a year-on-year growth of RMB1.33 billion to exceed RMB8 billion.

Gopher's overseas AUM rose 7.1% year-on-year and 3.1% quarter-on-quarter and reached RMB30.5 billion. Private equity, public securities and real estate all maintained the growth trend and achieved a quarter-on-quarter growth of 1%, 4.5% and 30.3%, respectively. We maintained good growth expectations on our overseas AUM.

Gopher's well stabilized the product target strategy, continued to outperform China Securities Index 800 and Shanghai and Shenzhen's CSI at 300 significantly in the third quarter across all stable, balanced and positive strategies.

As of November 11th, 2022, returns were minus 1.19%, minus 6.69% and minus 9.68% respectively, in 2022, while those of CSI 300 and CSI 800 in the same period were minus 23.32% and minus 21.66%, respectively.

The maximum drawdown of the target strategy since their establishment of minus 3.24%, minus 10.57% and minus 13.74%, respectively, compared with minus 33.45% and CSI 300 a minus 29.1% of the CSI 800 in the same period. It shows that target strategy has continuously played a role in stabilizing client portfolio amid market fluctuation.

[Foreign Language] At the beginning of 2022, Noah established a new process to serve high net worth and corporate clients. Based on the macro asset allocations have view of the Chief Investment Office, the client strategy and cross-product line solutions of the Chief Strategy Office combined with the investment products and services office.

Nova provides flexible adjustments and springs or core levels of client asset allocation solutions, including the high-risk priority, protection and adherence solution, stabilization solution, liquidity management solution and growth solution.

In this extremely uncertain market in 2022, we could say that we have achieved the group results and have been recognized by clients. We believe that excellent wealth management and asset management companies will make full preparations for the next bull market in a bear market.

After the successful listing of Noah Holdings in Hong Kong, it needs to meet the requirements of both the Securities and Exchange Commission of the United States and the Hong Kong Stock Exchange and specify the carbon neutral strategy of the group in the TCFD framework, aka the guideline recommendations of the Task Force on Climate-Related Financial Disclosures, we have launched the relevant plans to improve [indiscernible] risk management policy, a plan to set up a TCFD team for risk control and completed the relevant planning climate information disclosure report.

The sustainable development committee of the group incorporates climate risk into their investment in management process framework and regularly submits reports to the Board of Directors.

At the same time, we're gradually promoting the inclusion of climate factor assessment in the investment process and working with the technology team to build a calculation model for the carbon footprint and the investment portfolio. Sustainable development is our advantage [ph].

Although, we have encountered great challenges in a micro perspective, Noah adheres to the core values of client-centric and survival at the bottom line. And the company has maintained a healthy state of existence. The organizational change promoted by Noah in the past three years has also highlighted the value this year.

The optimization of the client-first model of the relationship manager and from a single relationship manager to the Noah Triangle service model makes the development of our international wealth management possible.

On the client development side, through the reform of least cash, under the difficult market situation this year, we have made hard loan achievements in the treasury management business of small to medium-sized enterprises, both in terms of the number of clients and AUM. Psychologist Abraham Maslow once said in any given moment, we have two choices.

Step forward into growth or step backward into safety.

It maybe too grand to think about the destiny of the country, but based on ourselves, for market participants and individuals, even in difficult situations, we still believe that to gather together the power of each new employee, we can seize the opportunity in a challenge, expand and strengthen our international business, maintain a leading position in China and achieve our value of professionalism and empathy.

Now, let's invite the CFO, Pan Qin to introduce the quarterly data in detail. Thank you..

Thanks, Tonya, and thank you Chairlady. Good morning to investors and analysts online. As Chairlady has mentioned, following our successful secondary listing in Hong Kong in July. On October, we received acknowledgment from Hong Kong Stock Exchange in respect to have application of voluntary conversion to Dual-Primary Listing in Hong Kong.

The effective date on which of the primary conversion is expected to be before December 31, 2022. With the successful conversion will be done primarily received on both the Hong Kong Stock Exchange as well as the New York Stock Exchange, which removes our ADR delisting risk, because Hong Kong shares and ADR are fully fungible.

We also hope to be able to join the Stock Connect link in the future, which will allow investors from the Chinese stock market to be our shareholders. We're mindful that the following the impact from continued geopolitical conflicts in the second quarter, the macro environment in the third quarter continued to be highly challenging.

The United States Federal Reserve raised rates twice in the third quarter, each time by 75 bps following its rate hikes in March, May and June, followed by another 75 bps on November 3. That means accumulated 375 bps in 2022, the highest level in 14 years.

And in China, lockdown measures that came with COVID-zero policy was not alleviated as many have originally anticipated and hoped, further affected investor sentiment, especially towards making investment decisions in large sums and in equity market products.

This is evidenced by the drop of mutual fund net asset value in the third quarter and also the declining of revenue from fund distributions across the industry. Now please let me walk you through more detailed results for the third quarter.

As a result of the challenging market environment dampened investment sentiment, total transaction value decreased to RMB18 billion, down 25.3% year-over-year and 7% quarter-over-quarter. The transaction value of private equity declined by 34% year-over-year and 36% quarter-over-quarter to RMB2.5 billion.

Noticeably, the transaction value of private secondary products saw a significant increase of 38.9% quarter-over-quarter to RMB3.3 billion, representing a short rebound, but still down 68.5% year-over-year. Moreover, the transaction value of mutual funds was RMB11.7 billion, up 30% year-over-year and down 4% slightly quarter-over-quarter.

And the total number of active clients for the quarter was 22,641, a 6.5% increase year-over-year and a 76% increase quarter-over-quarter, benefiting from continued strategic investments in our core client group, diamond and black card clients grew to $9,782, up 14.3% quarter-over-quarter and 21.6% year-over-year, among which the number of black card clients and dial-in card clients increased by, respectively, 39% and 17% year-over-year, thanks to the operational enhancements of a more targeted client segmentation strategy program and resumed client events.

Our client-centric philosophy will continue to be a key strategy in the long run.

It is also worth mentioning that through our self-developed customized treasury platform, Smile Treasury, which was launched in December 2021, the number of institutional clients boomed to 2,522 as of the end of third quarter, more than doubled from the end of last quarter.

We believe there remains a large treasury management market potential for these underserved small to medium-sized enterprises, and we'll keep developing the segment with our comprehensive product line and a well-established service network.

As a result of slower placement in equity market products, we have seen perhaps the slowest quarter in recent years. Non-GAAP net income was RMB190.9 million for the quarter, down 32% year-over-year and 46% quarter-over-quarter. As of September 30, 2022, it was RMB860 million, representing 59% of a full year non-GAAP net income guidance for.

Income from operations for the quarter was RMB231.8 million, a 1.3% growth year-over-year due to our tightened expense control policy, but a 28.3% decrease quarter-over-quarter due to a 7.3% decrease in net revenue, and also 8% increase in operating costs and expenses as less expenses were incurred in the second quarter of 2022 due to the unprecedented COVID lockdown in Shanghai.

Consequently, the operating margin was 33.9%, up 8.7% year-over-year and down 9.9% quarter-over-quarter. We expect to see continued challenges from the Fed rate hikes, sporadic lockdowns in China due to its prolonged COVID-zero policy as well as very volatile public markets.

Considering the impact of these factors on clients' investment sentiments especially, the Company revised its estimated non-GAAP net income attributable to Noah shareholders for the full year 2022 from a range of RMB1.45 billion to RMB1.55 billion as previously published, to a range of RMB1.0 billion to RMB1.1 billion.

In addition to comply with the applicable requirements under the Hong Kong Exchange rules and be in line with the general market practice for companies with primary listing in both the United States and Hong Kong will no longer publish its annual forecast after the conversion to a dual-primary listing in Hong Kong, starting from our results announcement next quarter.

As a result of lower transaction value, net revenues for the third quarter was RMB684.5 million, down 25% year-over-year and 3 – and 7.3% quarter-over-quarter. One-time commissions fell to RMB99.9 million, down 53% and 51% quarter-over-quarter.

Recurring service fees were very stable with RMB489.6 million, up 6.7% quarter-over-quarter were still down 13% year-over-year, affected by NAV movements of private secondary products.

Performance-based income grew to RMB27.6 million, up 6.8% quarter-over-quarter but down 66.4% year-over-year, while net revenues from other service fees continued to grow to RMB67.3 million, a 50% increase year-over-year, and a 45% increase quarter-over-quarter, mainly due to more value-added services, Noah offers to our high net worth clients.

As for segmented results, net revenues from the Wealth Management segment were RMB465.9 million, down 28.7% year-over-year and 8.4% quarter-over-quarter due to a decrease in transaction value during the quarter. Net revenues from the asset management segment were RMB200 million, down 17% year-over-year, and down 4.8% quarter-over-quarter.

Gopher's AUM was stayed relatively stable at RMB156.2 billion as of September 30th, 2022, slightly higher than RMB155.4 billion at the end of the second quarter. Moving on to the balance sheet. We remain very healthy liquidity position as our client ratio stood at 3.7 times.

The debt-to-asset ratio was 17.9%, still with no interest-bearing debt on our book. By the end of third quarter, we had RMB4.3 billion in cash. Supported by a strong balance sheet, we expect to announce our dividend payout ratio in the second quarter of 2023.

In light of the current volatilities in the public market, Noah [ph] CIO office reiterated the house view of domestic international dual circulation and suggests our clients to balance their portfolio accordingly. We have implemented stricter cost control measures internally, while committing to further develop our international operations.

Noah will for the first time post a global Black Card Gala event for our clients in Singapore next month, together with Diamond client events in various cities in China that's ongoing right now, hoping to better understand domestic and international asset allocation needs.

Again, we thank our shareholders and analysts for ongoing trust and support, especially during this difficult time and thank you, everyone, for listening. I will open the floor for questions..

Thank you. [Operator Instructions] Thank you. Now, the first question comes from [indiscernible]..

[Foreign Language] So, maybe I'll briefly translate. So, the first question is on the strong growth in the diamond and the black card clients in third quarter.

I was just wondering what's the key drivers behind it? The second question is on the wallet share of the clients' AUM both in and -- onshore and offshore? And what's our current wallet share? And how do we see the potential there? And especially to reach the wallet share for clients overseas assets and what kind of drivers you would be looking at? Thanks..

Great. I'll take the first question and -- will comment on your second question. First question, we actually installed the diamond, black card in strategic program with actually strategic budget set aside. That program has been running for over two years.

And this is the third year actually, the group that's running this project has obviously gained more experiences.

And also the programs we have increased more client-centric, especially incentives for our RM to actually bringing potential -- high-potential clients with more accurate KYC programs as well as more importantly, that supported by the budget, they were able to post those mini diamond, and black card clients conferences, if you will, locally and be able to increase the interaction frequency with the potential clients.

And another measurements that has been very effective is the MGM program that we have installed in place, that basically encourages our black card and diamond cards to bring in their circular friends to participate.

Actually, most of them are Noah marketing events that to help them getting more familiar with Noah, as well as the trust towards the brand name, which also is one of the strategic program investments this year for the branding.

So I just say, it's a comprehensive set of factors, but I think more importantly, is that the culture of the organization have improved greatly over the last three years, while we are implementing client-centric policy, so from our top to the front line, everybody is more a client service oriented.

I think that's probably one of the very important reasons. [Foreign Language].

Absolutely. Yes, first translation. I think Kelly just mentioned that as the majority of our client basis or entrepreneurs especially, in the manufacturing and exporting businesses.

So they do have quite a bit of demand in terms of allocation of their overseas assets we probably serve around roughly 100,000 plus cumulative that had overseas asset allocation. And we have about US$2 billion about overseas insurance cumulatively and also serving 400-plus families in our trust services.

And we're significantly strengthening the direct service teams in Hong Kong and Singapore since the last two quarters and hoping to be able to more closely serve these clients or maybe even including some local clients in this type of situation.

And also, obviously, with the rate hikes, the simple deposit products overseas are more attracted to our clients. We don't have the exact ratio between our clients well this year in terms of domestic and overseas assets.

But probably by estimate of how our own AUM is allocated probably about 30% to 70% in terms of overseas versus domestically that we think that the ratio and also the asset that's already overseas for our clients, probably a little bit higher than what we have seen.

So we believe that's actually ample room for growth, especially in the need of allocating their overseas efforts. So Yes, I hopefully, that covered your question..

Thank you very much. That's very helpful..

Okay. Thank you. We’ll take another question..

The second question comes from Kan Hue [ph] from CICC..

I will briefly translate my question. And my first question is regarding to relationship managers. -- a number of relationship managers has achieved slightly growth quarter-on-quarter. I just wondering the future recruitment from relationship managers? And my second question is regarding to overseas business.

In the third quarter of 2022, overseas revenue contribution increased to 28%. And our management fees introduce to us overseas business expansion strategy..

[Foreign Language] Thank you, Kan [ph] for your question. I think in terms of the strategy towards the IM [ph], I think, domestically, we are actually growing the team on a more controlled pace Basically, we are actually out in the lower performances and also are looking -- continue to look for better performance IMdomestically.

But I think in general, domestically it is taking forward pace. We do have quite a bit of talent supply for the increasing due to difficult times from banks and security brokers. So we actually have the luxury to be more selective on the domestic side.

In terms of overseas side, we are putting significant investment and budget to grow the teams, both basically Hong Kong and Singapore. And we believe that actually going to be a strategic differentiating factor in the next step strategy, especially increasing competition from similar institutions. So that's the side of IM.

And in terms of overseas business, obviously, we are continuing to invest significantly to beef up the product supplies both from the [indiscernible] side direct investment in Silicon Valley as well as the real estate products in New York. We also have been beeping up the selected product suppliers on the pipeline to provide that to our clients.

And also on the iNoah side, we're continuing to developing that and now have the capability of actually helping our clients to transact both Hong Kong and the US stocks on our online platform.

And also on the Smile Treasury platform that we have seen very strong growth in this year, actually a very successful strategy this year that we have grown, basically from less than 100 institutional clients to now over 2,500 accounts online.

And we have been noticing that even the small to medium enterprises, especially when they are export oriented, they do have kind of US dollars waiting to be managed.

And we actually noticed that some of the Treasury teams, they don't usually have a large team that will be able to help them to talk to overseas banks and institutions, they just basically lack the capability or visibility of what's available to them and what they could actually subscribe to.

So we -- with the Small Treasury function that there will be to easily have more access to the US dollar-based products.

And also, the fourth line is obviously continuing to build on the insurance, overseas insurance, trust services and heritage services, especially when the clients are now more seriously looking at how to make sure that they have meaningful presence in their overseas operations. So there are kind of bundles of opportunities on the overseas side.

Hopefully, did that cover your question?.

Thank you very clear. .

Thank you..

Dear investors and analysts, you can now use the raise hand function when selected, you can turn on the microphone to ask a question. And please mute yourself after the question. Thank you. If there are no further questions, then the conference has now concluded. Thank you all for participating. Have a nice day or a nice evening. Thank you..

Thank you very much everybody..

Thank you. Thank you everyone. Bye-bye..

Bye-bye..