Noah Holdings Limited

Good day, and welcome to the NOAA Holdings Limited Third Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. Should 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 would now like to turn the conference over to Jingbo Wang. Please go ahead, sir.

Jingbo Wang Thank you.

2020 is a new beginning. After 30 years of construction, Shanghai has become an international financial center characterized by RMB. More than 50% of the RMB assets held by foreign markets are distributed in Shanghai. Shanghai has become an open RMB asset allocation center. 2020 is also the 15th anniversary of Loya Control Group's start-up in Shanghai. We are grateful for the development and support of this city. From the risk event of 618 last year, Weiguo announced that the non-standard transformation has been five seasons so far. Thank you for the team's efforts and the support of the market. I am honored to report to you, dear shareholders and analysts, that this season has been a satisfactory performance. The standardization of products and the active number of customers have created a new high. Customer confidence has been restored and strengthened. The team is in good spirits. It can be said that our strategic transformation has achieved a step-by-step success. Next, I will report on the overall performance of Weiguo in the third quarter of 2020. 2020 is a new beginning. After 30 years of development, Shanghai has developed into an international financial center specializes in RMB-oriented asset allocation.

Currently, more than 50% of the renminbi assets held by overseas market entities are here, making the city an open renminbi asset allocation center. This year, 2020, also marks NOAA's 15th year of inception and NOAA Holdings' 10th listing anniversary on the New York Stock Exchange. NOAA was founded in Shanghai. We're still headquartered here. We're grateful for this great city's development and its support for us as a firm. It has been five quarters since the Kensington incident last year and our transformative shift from single counterparty private credit products into standardized products. We thank our team for their efforts and the market for its support. Today, I feel honored to report our satisfactory achievements in the third quarter to our shareholders and analysts. Both transaction value of standardized products and the number of active clients reached a record high. Clients' confidence are restored and Tim Morrell is good. It is evident that our strategic transformation has reached a successful milestone. I would like to first brief you on NOAA Holdings' overall performance in the third quarter of 2020, the development of our major business segments, the growth targets as well as investment strategy. Then I would like to share my opinions on macro and regulatory landscapes. Then Grant will present the financial results for the third quarter, followed by a Q&A session.

Luo Ya has started from the third quarter of 2019, giving up non-standardized products and accelerating the release of non-standardized products, turning to standardized funds. After five quarters of adjustment, with the customer's trust and support for the team's hard work, the total revenue of the third quarter reached 287.8 billion RMB, which increased by 122.2% and 34.2% in return, and has returned to the highest level in 15 years. We have established a deep partnership with 18 companies in China. Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Zhe Yin, Zhe Yin, Zhe Yin On September 30th, Zhe Yin Finance Team's loss rate is still at the lowest level of 2.3% of the industry. In the smallest unit economic model of finance service customers, we began to direct the team's cooperation from single finance service to the iron triangle model, ensuring that the core customers such as black cards and diamonds have a small group to provide services for them, and continue to improve service quality and work efficiency. At the 2021 Strategic Welfare Conference held in October, Starting from the third quarter of 2019, NOAA seized the offering of non-standardized single counterparty private credit products, accelerated the redemption of these products,

and transformed to full-scale public securities products. After five quarters of transformation, with the strong support of our clients and the continuous efforts of our team, transaction value for the quarter reached RMB 28.8 billion, up 158.3% year-on-year and 34.2% quarter-on-quarter, marking one of the highest quarters for transaction value in the past 15 years. among which the transaction value of standardized products reached RMB 20.8 billion this quarter, up 18% year-on-year and up 16% quarter-on-quarter, a historical high. The transaction value of onshore and offshore mutual funds reached RMB 14.1 billion, up 206.3% year-on-year and up 18.6% quarter-on-quarter. We have established close partnerships with 18 out of the 20 mutual funds in China. For secondary market equity funds, we raised Renminbi 6.3 billion, which grew nearly tenfold the young year and up 25.6% quarter on quarter. We also maintained our leading position in private equity products this quarter with a transaction value of Renminbi 7.2 billion. up 107.7% year-on-year and up 183.1% quarter-on-quarter. It is worth mentioning that Gophers S Secondary Fund Series 5 received commitments of RMB 1.5 billion in the quarter and has become our client's preferred featured product in terms of both scale and performance. In the third quarter of 2020, NOAA achieved net revenues of RMB 859.1 million Up 14.9% quarter-on-quarter and achieved a non-GAAP net income attributable to shareholders of RMB 301 million, maintaining the record high level of last quarter. Overseas revenue was still soft due to COVID-19, but was offset by the increased onshore revenue. We're confident in meeting our full-year non-GAAP net income guidance. Due to impact from the pandemic, the net revenue of our overseas business has achieved RMB 158 million. down 30.2% year-on-year and down 14.6% quarter-on-quarter, accounting for 18.4% of the group's total net revenues. In the third quarter of 2020, the number of active clients, inclusive of mutual funds clients, rose to 20,509, up 105.9% year-on-year and up 39.5% quarter-on-quarter, reflecting the restoration of client confidence. Specifically, there were 17,536 onshore and offshore active mutual funds clients, up 167.6% year-on-year and up 42.1% quarter-on-quarter. Moreover, as of the end of September 2020, there were 944 black card clients, up 7.9% year-on-year and up 4.9% quarter-on-quarter. As of September 30th, The turnover rate of elite relationship managers remained at the industry's lowest level of 2.3%. In an effort to upgrade the model of relationship managers serving clients, we have transformed the single relationship manager service model into a teamwork-based iron triangle model, ensuring that there is a dedicated team providing services to our diamond and black card core clients, continuously improving our service quality and operational efficiency. At the 2021 Group Strategy Meeting held in October, the company as a whole established a client-centric growth strategy to further improve client service experience and to better reach and serve our high net worth clients. We have also implemented a new talent strategy to continuously recruit and invest in new talents and relationship managers.

各资产管理端,截至2020年9月30日受持续主动退出另类信贷基金的影响, Gefei's AUM is 1,557 billion yuan, which is 11.8% lower than before, and 2.3% lower than before. The AUM of Shimoku Fund and Public Market Fund is 10% and 2% higher than before. Overseas asset management is 254.6 billion yuan, which is 16.4% higher than before, which is slightly higher than the previous quarter. According to Shimoku Fund's new regulation, Gefei began to establish a direct sales system for Shimoku Fund managers, which supports the direct sales management work of many managers under Gefei. Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi For asset management, as of September 2020, GoFors AOM stood at RMB 155.7 billion, driven by continued voluntary early redemption of single counterparty credit funds.

Down 11.8% year-on-year and down 2.3% quarter-on-quarter. The share of PE and public securities funds in total AOM increased by 10.3% and 1.6% year-on-year respectively. The overseas AOM was RMB 25.5 billion, accounting for 16.4% of the total AOM, a slight increase from the previous quarter. According to the new regulations on mutual funds distribution, Gopher has started establishing a direct GP sales system to provide support for its direct sales management of various fund managers. Gopher is expected to further expand its PE force size in the future. As the size of Gopher's force expands, we will continue to promote our ecological collaborations with leading VPPE partners. The reform of the Chinese capital markets including Scitech Innovation Board, aka the star market, and registration-based IPO system will play a long-term role in improving the performance of leading primary market funds, consequently benefiting many clients. In addition to the continuous development of PE funds, Gopher will also improve its R&D and investment research to circle around the purpose of creating value for our clients. To expand the AUM of PE funds is a key strategy to provide differentiated investment solutions for our high and ultra-high net worth clients by focusing on generating absolute returns for them through multi-strategy funds. The scale of Gopher's target return multi-strategy funds increased 571.4% a year in 2020. 2020年在管理方面我们启动了全面的业务变革,核心是把落下15年来对行业的深度理解和线下运营经验数字化,

Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi

In terms of company management in 2020, we have initiated a comprehensive business transformation by digitalizing NOAA's 15-year-long industry knowledge and offline operations experience to improve the precision and efficiency of our daily operations. We're committed to focusing on KYC, know your clients, KYA, know your agents, and KYP, know your products, in order to digitally understand client needs, identify the ability and type of relationship managers, as well as label fund products, in order to accurately matching the three. Digitalizing our compliance capacity based on KYC, KYA, and KYP is also our key focus. 2020 is the turning point of the wealth management industry in China. China's wealth management industry has bidden farewell to the era based on implicit guarantee and entered into a new stage of standardized NAV-based assets, testing the all-round capabilities of financial institutions. We believe that in the new era of transparency and fair competition, the industry will develop faster after adjustments. Institutions that survived the transformation will capture higher market share as a result. China's personal and household savings have reached RMB 100 trillion. The overall AOM of private banks has reached RMB 14 trillion. There are more than 800,000 high net worth private bank clients. Yet, 80% of the total investable assets still remain in the savings account or haven't been managed by wealth managers. This deep and broad market competitive landscape is still fragmented and we expect the market consolidation and the formation of major players in the industry to be completed around 2025. Meanwhile, an industry transformation will be preliminary completed through digitalization of operation capacities and industry research-based investment capacities. NOAA is currently at a key turning point We need to build a process-oriented company with a clearer organizational structure and methodology. Conduct a digital transformation to make information more accessible and transparent. Use KYC, KYA, and KYP to improve the quality of the services offered by relationship managers to clients. Accuracy and efficiency are the two key words.

2021年我们提出了以数字化基本功为基础,实现未来有品质的增长。 Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi In this competition, we understand each other's spirit deeply. The most important thing is not where we come from, nor how strong we are, but we have the determination to fight to win, and the action to fight to the end. The four founders of Luoya, Wang Jingbo, Ying Zhe, Wei Yan, and Zhang Xinjun, have successfully completed the 66-kilometer competition. After deep thought, they decided to give up their identity as founders of Luoya, and give up their mentality as founders, and re-apply to Hong Kong. Looking ahead to 2021, we have proposed to achieve high quality growth in the future based on digitalization

and set challenging goals in key dimensions including high net worth client base, AUM, transaction values and revenue targets. We plan to invest no less than 3% of the annual total net revenues in the R&D of client user interface and technology respectively. As we celebrated our 16th inspection anniversary and 10th listing anniversary on the New York Stock Exchange on November 10, 2020, we raised the theme, one vision, one heart and one battle. Noah's four founders, more than 100 core management, and 15 black card clients departed from Zhangye, part of the Gobi, to walk along the road that the legendary monk Xuanzang of the Tang Dynasty had covered to rewind Noah's founding journey once more. It's clear to us that this is a journey of exploration and refinement for the brave. It is also a tough growing process in which both the team and individuals need to work hard and challenge ourselves. Noah's staff and clients spent two days walking 66 kilometers in the Gobi Desert, resembling Noah's determination to start a new undertaking. That journey represented one promising company with endless future having united one group of hard workers in order to pursue one new dream from one new beginning. During the challenging journey to the Gobi Desert, Everybody deeply understood the spirit of Gobi. It didn't matter where we came from or how strong we were, but that we were all determined to challenge everything and win victory and take action to go all out and work hard. At the recap camp meeting on the Gobi journey, the four founders of NOAA, myself, Ying Zhe, Wei Yan, and Zhang Xingjun, decided to let go of our titles as founders and reinvent ourselves collectively by being elected again. Today, we have also announced a share-buy-back plan approved by the Board of Directors. Based on our confidence in the company's development and long-term value, we have been granted permission to install a two-year, maximum $100 million share-buy-back plan. We thank the shareholders for your patience and support. Now, let's welcome our CFO, Gwen Pan, to present the third quarter financial results.

Thank you, Chair Lady. Thank you, Sonia, for calculating. Hello, everyone. We're very excited to share with you the strong financial results for the third quarter of 2020, marking a very successful transformation arising from resumed client trust and confidence of the economic outlook. We're also very happy to report that we're ahead of schedule to deliver the full-year non-GAAP net income guidance amidst a very volatile and challenging environment this year. Net revenues for the third quarter of 2020 were RMB $859 million, up 2% year-over-year and 15% quarter-over-quarter. Non-GAAP net income for the quarter was RMB $301 million, marking a total year to date. Non-GAAP net income of 2020 of RMB $864.2 million, achieving 96% of full-year guidance. By revenue contribution, we achieved one-time commission revenue in the amount of RMB $194.8 million, Compared with RMB $150 million in the same quarter last year, up almost 30% and 53.5% quarter over quarter. Considering this growth is achieved with very little contribution from overseas insurance due to the COVID-19 situation, we're very happy to see the full recovery of capability of providing the right products to our clients. As mentioned by Chair Lady Wang, what's truly encouraging for us is to see the record number of active clients reaching 20,509 this quarter, up 105.9% year-over-year and almost 40% quarter-over-quarter. The growth was fueled by increased activities in both conventional products and mutual funds distributions. We believe this indicates a restored client confidence and a sign of resumed rapid business growth. Total transaction values of financial product were distributed during this quarter was RMB 28.8 billion, an increase of 122% from a year ago, among which RMB 20.8 billion were public security products or standardized products, also a record high for this category since listing. After five quarters of transformation, Public Security Product has fully replaced non-standardized single counterparty credit funds and became the number one one-time commission contributor. At the same time, PE Products, NOAA's specialty, also had good distribution momentum and recorded RMB $7.2 billion, a 107.7% increase, supported by leading GP's products, as well as Gopher's own PE secondary fund that recorded RMB 1.5 billion of fundraising. The recurring service fees in third quarter were RMB 560 million, up 8% year-over-year and 18% quarter-over-quarter, contributing to 65.2% of total revenues. The growth of our accumulated distributed products as well as the high quality of our assets under management continue to provide strong revenue streams Another key attribute of the growth was back-ended management fees arising from accelerated redemption of the credit products. Total performance-based income for the third quarter of 2020 was RMB 70.5 million compared to RMB 42.4 million for the same period last year, up 66% year-over-year. The main drivers for strong performance-based income were Private equity products as well as private security funds were placed for our clients, demonstrating our increasing capabilities in product selection and also investments. Operating profit for this quarter was RMB 340.72 million, up 48.2% year-over-year and 8.7% quarter-over-quarter. Operating margins stood at 48.4%, even with decreased government subsidies. Total compensation cost was down by 8.2% year-over-year this quarter, but up by 9.6% quarter-over-quarter due to relation manager commissions arising from increased distribution values as well as continued recruitment of senior executives and relation managers. By segment, net revenues from the wealth management business were IMB $627.7 million, up 15.7%, and 15.6% quarter over quarter, which contributed to over 73% of total net revenues. And the net revenues from the asset management business amounted to RMB 222.4 million, down 7.5% year over year, but up 22.4% quarter over quarter. Our lending and other business continue to contract as we are now in the process of restructuring that segment to form a digital and technology-powered wealth management ecosystem with new channels, new platforms, and new products, including the new comprehensive services called NOAA Digital Intelligence on the backdrop of the evolving regulation as well as industry digitalization. On the balance sheet side, as of September 30, 2020, the company had RMB $4.6 billion in cash and cash equivalents Improved from RMB 4.2 billion in the last quarter. We'll continue to maintain very healthy financial position with no interest-bearing debt on our book. And our healthy cash flows also allows us to announce a two-year up to U.S. $100 million share buyback plan today, which reflects our continued confidence in our business and China's wealth management and asset management industry in the future. As Chair Lady mentioned, We just celebrated our 10th listing anniversary on New York Stock Exchange, and we believe this quarter's strong performance marked just the beginning of the next exciting chapter for NOAA. I'm very proud that as a firm, we have demonstrated resilience when facing such a major strategy shift and a huge environment pressure of 2020 by continuously delivering strong financial results quarter by quarter. In all key metrics, including top-line net revenues, bottom-line, Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Now we open the floor for questions. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. And our first question will come from Ethan Wang with CLAS. Please go ahead.

Thank you, and good morning, Benjamin. I have two questions. The first is on our four-year guidance. Just wondering if our four-year guidance is too conservative because based on our first three quarters results, it seems like will really kind of increase our FOIA guidance a bit. So we're gonna have, so the fourth quarter revenue, if we think about like a reasonable growth from last year, then our FOIA guidance should be higher. How should we think about it? That's my first question. And my second question is on the regulations. Two parts, can we get an update on the latest development of fund advisory licensing? and the second is on the internet deposit because things like regulators have recently tightened the grip in this area. So we need to back our business down the road and what's our latest plan for our deposit business. Thank you.

Hi, Ethan. Can you repeat the last half of your question about the internet deposit?

It seems that regulators have recently tightened on this internet department. PBOC, Financial Stability Board, went out to state some irregularities in this area. So will this affect our business? Because previously we were saying we plan to go into this business. Does this affect our plans?

Thank you for your question. I'll take the first question and Chair Lady Wang will address the second. For the first question, I believe when we actually gave the full year financial guidance at the beginning of the year, obviously the outlook for 2020 was quite uncertain. We believe that we made a, I would say reasonable, I wouldn't say it's overly conservative, I believe at that time it was still pretty challenging. Looking ahead of the road ahead of us, especially knowing that the gate to Hong Kong wouldn't be open very soon. So we'll be missing a pretty big chunk of revenue from the overseas insurance. So we don't believe that target was set too overly conservative. And we're lucky to see a very strong financial performance in the third quarter, but remain calm for the rest of the year. In the industry, we do experience some sort of seasonality in the fourth quarter because of holiday season as well as the fund uses for institutions. So we still maintain the same guidance, although we're very confident that we'll be able to at least get to the very high end of that range, a little bit exceeding that particular guidance. So I'll let Chairlady Wang take the second question. Wang Zong, there is a change in the current monitoring environment, a situation in the three seasons as a whole, and there are some actions related to the bank tightening of online deposits. You can share with Ethan.

I would like to say that the core of our online deposits is to be able to serve old and new customers. Although the country does not have regulations, we have put more than 70 customers, in fact, the products they can invest in are relatively few. We hope to keep these customers and provide services for them. So we also posted this online payment, but the scale is not large. Mainly serve some unique customers. For this headquarter signage, we have also reported it. Now wait for supervision approval. But our feeling about the market is that in fact, now all of our things can be done. The core of the headquarter signage is to ask the customer to collect the fee. But because Loya's customers are still relatively large, high-quality customers, Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Okay, no problem.

And our next question will come from Yu Yan with BICC. Please go ahead.

管理層早上好,我是BICC的去年,然後我這邊有兩個問題。 第一個問題我們看到三季度我們的Private Appetite這款產品的銷量也是很好。 And then the second question is, we've seen some restrictions on the internet in recent years. We've seen ants being affected. Will we also be affected by some negative effects?

Thank you. Thank you, Mr. Xue. The first question is, the overall PE sales in the third quarter are really good. I think on the one hand, it's what we just talked about. The first is the increase in active customers, including the whole industry. Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Last year, in the second half of the year, it has actually started to transform. On the one hand, from the point of view of supervision, we can see that the country did not particularly encourage this part of the work. On the other hand, I think the ant section is not very much of a comment on our side. But we can see that the country is still in this area, in this area that must be taken into account, in this area of the actual economy. Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi

Our own credit is mainly based on loyal customers and real estate. It has nothing to do with this. These months, the scale has gradually become very small. So in general, we think our rhythm is better. It's also about understanding and monitoring.

The first question is the sales of PE products.

PE products, what I want to say is that there will be a fund-raising new rule this year. We feel that after this new rule comes out, we should still be Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi Okay, thank you.

Our next question will come from Bethany Poon. Please go ahead.

Hi, good morning, management. Thanks for taking my questions. First, congratulations on a strong result. So I have three questions. So first is regarding your goal for management fee. We saw that the management fee has been picking up quite consistently in the past few quarters. So in the latest quarter, by our calculation is 192 basis points. So just wondering if there's any particular drivers behind and whether the management sees this as a sustainable trend. And second is also regarding Gopher. So we noticed that the AUM for the public securities under Gopher, the growth has been muted in the past few quarters. So just wondering what's the reason behind and what's the outlook there, and also if the management can share the outlook on the overall global AUM, like when you expect for a turnaround, maybe sometime into next year. And lastly, just wondering if there's any update on the canceling settlement plan in terms of your clients' acceptance so far. Thank you.

Thank you, Stephanie. Let me translate the question first.

I think the management scale of Gefei is still being adjusted. You can see that we are continuously withdrawing in terms of credit and real estate funds. In the past five seasons, the withdrawal scale was close to 500 billion. So we are still satisfied overall. The main thing is your direction of adjustment. You need time, including the adjustment of the team. The construction of the team also needs time. I think the most work Gefei has done in the past five seasons is the establishment of research teams. Weiguo Wu, Hong Li, Wing Shan Ng, Melo Xi

我们已经看到这个增长的契机了吧。 然后我补充一下就是,Daphne, your question on the go for management fee. First of all, it keeps going up once we're actually having a thicker layer on private equity, which actually comes in with the higher management fee than the credit products that have little management fee, recurring management fee. and two is the increase this quarter actually still has a little to do with the continued exit of some of the credit products that have back-end management fees. We expect that to, at least the increasing in the PE products will continue to bring in healthy management fee flow. And in terms of the CamSync update, we have, you know, as of the, November 13th, the first batch day for the settlement plan, we have two batch dates. As of the first batch day, we have signed about 240 contracts with our clients, so one-third in terms of number of people, and it's almost 30% as well for the total amount outstanding. So it's about $1 billion in dollar amount and about 240 in number of holders. and the second batch comes along at the end of the year, which will be the end of the settlement plan. We expect that to be probably going to be around 50% to 60% total number of people to be conservative.

Okay, thank you. Sorry, can I just clarify the 50% to 60% is just for second batch or total number of cash?

Total number of clients. Usually it also coincides with the amount. So it's about 50% to 60% and 50% to 60% of the dollar value. So that's on the conservative side. If we are being a little bit optimistic, I think it's probably in the range of 70% to 80%. We'll see.

Okay, got it. Thank you.

Okay. Thanks, Daphne. Okay.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Grant Pan for any closing remarks. Please go ahead.

Okay. So thank you, shareholders and analysts. Very excited to be able to deliver these results for you. And we'll have, obviously, one-on-one calls afterwards, so we could probably talk a little bit in more details. So see you in a bit.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.