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Operator
Good day and welcome to the NOAA Holdings Fourth Quarter and Full Year 2023 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. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, Please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Melo He, Director of Investor Relations. Please go ahead.
Melo He
Thank you, operator. Good morning, and welcome to NOAA's 2023 Fourth Quarter Earnings Call. Joining me on the call today are Ms. Wang Jingbo, our co-founder and chairlady, Mr. Xander Ng, our co-founder, director, and CEO, and Mr. Grant Pan, our CFO. Ms. Wang will begin with an overview of our recent business highlights, followed by Mr. Pan, who will discuss our financials and operating results. They will all be available to take your questions in the Q&A session that follows. Before we begin, please note that the discussion today will contain forward-looking statements that are subject to risks and uncertainties and may cause actual results to differ materially from those in our forward-looking statements. Potential risks and authenticity include, but not limited to, those outlined in our public filings with the ICC and the Hong Kong Stock Exchange. NOAA does not undertake any obligation to update any forward-looking statements, except as required under the applicable law. In addition, today's call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. Lastly, this call should not be interpreted as a solicitation to sell or purchase any interest in any NOAA or NOAA-affiliated products. Please also be aware that the link to a live webcast with presentation materials is available on our Investor Relations website. With that, I would like to pass the call over to Ms. Wang. Please go ahead.
Wang
From product-driven to solution-driven service for customers, Helping us and our customers to maintain survival and development in a market environment full of challenges. We started in 2016. We took the initiative to withdraw Chinese residential and commercial real estate assets in advance. In 2019, we also withdrew products that were not listed. These two decisions won us the trust of our customers. In the past three years, our new CIO reports and CPI models have shown our potential every half year. And more and more, we have gained the attention of our financial advisors and customers. In the face of a very challenging economic and market environment, Moia mainly revolves around three aspects to prepare the organization well. One, to survive in the economic recession. Two, to continue to fight for the priority in the future slow recovery. Three, to build core capabilities that can rise when the opportunity comes in the future. Moia has positioned itself as a solid entry-level company to find the right balance in defense and attack. The so-called real estate is to continue to improve operating efficiency, ensure the quality of the employees, selectively reduce costs, and maintain continuous investment in the new market and new channels, firmly expand the international market, build a global product and service system, and develop technological capabilities. In the past year, our focus has been to strengthen Luoya's ability to provide financial management solutions to Chinese customers around the world. One of the key points is to improve the other asset products in Luoya overseas. We observed that the global other fund management companies are actively paying attention to the private wealth channels that have not been fully developed and actively promoting the possibility of its new door of financing as a first-class market. As a private wealth management company with a wide range of Chinese high-end professional investment and network of private wealth management companies, we believe that this trend is conducive to the development of Luoya in the international market. In 2024, we will continue to invest more in the global scope, from network construction to investment and product selection technology.
Melo He
I'd like to begin today's call by sharing some recent thoughts on the industry and macroeconomic landscape before I review our performance in the fourth quarter and full year and dive into our strategy going forward. Over the past year, the Chinese wealth management industry faced considerable challenges. Fundamental shifts are taking place across the sector that require a different strategy and approach to add to allocation for Mandarin-speaking high-net-worth individuals. NOAA's relentless focus on client needs spearheaded our transition from a product-focused model to a solution-driven approach over the past year, ensuring our ability to increase the resilience of clients' portfolios in a challenging market environment. Our proactive decisions to prematurely exit the domestic real estate in 2016 and non-standardized single-county private credit products in 2019 earned us significant trust from clients. Our semi-annual CIO house view and CCI model continue to reflect our strategic foresight over the past three years, which resonated strongly with clients. We adopted a three-pronged strategic approach to navigate this challenging market environment over the past year. Firstly, we're laser-focused on ensuring our resilience and adaptability through economic downturns. Secondly, we are actively accumulating strength to emerge as a leader in the forthcoming recovery. And finally, prioritizing the development of our core capabilities to position us for future growth when opportunities arise. NOAA is a company built on both pragmatism and ambition, allowing us to strike a careful balance between fortifying our position and seizing new opportunities. By enhancing operational efficiency, retaining top talent, strategically calling cuts while simultaneously investing in new international markets, channels, technologies, and the development of a global product and service matrix, we are ideally positioned to help clients traverse this market. Over the past year, we've strengthened our full suite of wealth management products and services for mentoring speaking clients globally. One key focus has been expanding our ability to offer clients alternative investments on a global basis. We're also seeing global fund managers increasingly focusing on underserved private wealth channels to fuel primary market fundraising. As a leading private wealth manager, recognize our expertise in alternative investments and extensive network of Mandarin-speaking professional investors. This trend presents enormous opportunities for NOAA. Going forward, we'll be amplifying these strategic global investments. This includes expanding our service network, bolstering investment research capabilities, and significantly enhancing product selection and technological infrastructure. These investments will solidify our foundation as a leader, enabling us to meet growing demand among clients for globally diversified wealth and asset management services.
Wang
In terms of financial data, the total revenue of the company in 2023 is 33.2 billion yuan, which is the same as the growth of 6%. The total domestic business contribution is 18.8 billion yuan, which is 56.8%, which is the same as the return of 18.1%. The total domestic savings income has contributed 13.9 billion yuan, which accounts for 73.9% of domestic business income. The total overseas business contribution is 14.3 billion yuan, which is the same as the growth of 73%. The total income ratio has increased from 26.5% last year to 43.2%. 7.7 billion yuan in assets and 8.4% in returns. 4.7 billion yuan in domestic business and 30.3% in returns. 4.7 billion yuan in stock and 99.4% in domestic assets. 3.0 billion yuan in overseas business and 80% in returns. This is mainly due to the growth of overseas AOM and AUM. In 2023, the total growth of domestic insurance and economic business in the whole year was 1.6%. Don't let new business income contribute. New business income accounted for 88.9%. Foreign insurance, trust and other comprehensive service income increased by 301.5%. The total number of active customers in overseas comprehensive business income increased by 376.3%. In the past year, we have increased the digital investment in insurance and the comprehensive service system. Our technology team has continuously activated the technology system with services all over the world. It is also the first time in the Hong Kong market to realize a digital investment. Looking at our financials for the year, NOAA generated total revenues of RMB 3.3 billion, an increase of 6% year-on-year. Our domestic business contributed RMB 1.9 billion, an increase of 18.1% year-on-year.
Melo He
and accounting for 56.8% of the total revenues. Within revenue from our domestic business, revenue generated by legacy distributed products was RMB 1.4 billion, accounting for 73.9% of the domestic revenue. Our overseas business generated RMB 1.4 billion, a significant increase of 73% year-on-year. driving overseas revenue contribution from 26.5% of the total net revenues last year to 43.2% this year. Of revenue generated from new business and products in 2023, our overseas and domestic business accounted for 68.1% and 31.9% respectively. Breaking it down by segments, our wealth management business generated RMB 2.5 billion in 2023, an increase of 13.1% from last year. Within wealth management, domestic business contributed RMB 1.4 billion, a decrease of 11.7% from last year, which was primarily composed of RMB 0.9 billion in revenue generated by legacy distributed products, accounting for 67.7% of the domestic wealth management revenue. Our overseas business contributed RMB 1.1 billion, a 71.3% increase year-on-year. Our asset management business generated RMB $769 million in revenue during the year, a decrease of 8.4% from last year. Within asset management, our domestic business generated RMB $469 million, a decrease of 30.3% from last year, which was primarily composed of RMB $467 million in revenue generated by next distributed products, accounting for 99.4% of the domestic asset management revenue. Our overseas business contributed RMB 299 million, an increase of 80% year-on-year, driven primarily by growth in overseas AUA and AUM. On the comprehensive services side, revenue from domestic insurance products increased by 1.6% in 2023, of which 88.9% was generated by new businesses, Revenue from overseas insurance, trust, and other comprehensive services surged 301.5% from last year. In tandem, the number of active overseas clients for comprehensive services also grew by 376.3% year-on-year. Over the past year, we continue to make upgrades to our technology stack aimed at improving client experience globally. We are working with leading insurers to streamline our underwriting process across markets globally. We were the first broker in Hong Kong to launch a fully online underwriting process and allow clients the option to make insurance premium payments through our Hong Kong nominee account, which was a significant enhancement for client experience. Operating profit for the year came in our RMB 1.1 billing with an operating profit margin of 33.3%.
Wang
Our most important work is to improve the service and experience of customer software products through finance and technology systems. 在程序服务中带动新业务线索的生成。 在法人客户方面,我们2022年推出的微小私库SARS平台, 在2023年已累计服务了近6000家中小微企业和金融机构, 同比提升了28.9%。 2023年全年,私库活跃客户数同比增长73.7%, 客户存量超过60万人民币。 在国际财管方面,我们最重要的工作是在香港和新加坡等 At the end of 2023, there will be 89 private bankers in Luoyang, Hong Kong and Singapore. The growth rate will be 15.6% and we plan to build 200 overseas private bankers in 2024. At the end of 2023, Luoyang's international customer base will exceed 14,900 people and increase by 14.2%. The total number of customers in cash management products will reach 3,093 and the growth rate will be 19.1%.
Melo He
Looking at our domestic wealth management business, we continue to carry on the strategy to focus on first-tier and core cities in China. Through our ongoing organizational restructuring, we decrease the number of offices we have, from 77 to 44 by the end of the year and further relocated resources to 18 core cities as of now. As of the end of 2023, the number of domestic relationship managers decreased by 7.6% year-over-year and 12.6% sequentially to 1,163. On the domestic wealth management front, our primary focus has been on strengthening the service capabilities of our relationship managers and enhancing the user experience of technological upgrades to our stack, allowing us to continuously generate new leads from ongoing client services. The small treasury platform for corporate and institutional clients we launched in 2022 now serves nearly 6,000 clients, a 28.9% increase from last year. Over the past year, the number of active clients it serves increased by 73.7% year-over-year. with average client AUA exceeding RMB 600,000. Turning overseas, our wealth management business continues to expand its presence as more relationship managers are brought on board in Hong Kong and Singapore. As of the end of 2023, we had 89 relationship managers onboarded, an increase of 15.6% sequentially. We're committed to further expanding our international RM team targeting a headcount of 200 by the end of 2024. As of the end of 2023, we had over 14,900 overseas clients, reflecting a 14.2% increase from last year. The number of clients who purchased our cash management products reached 3,093, a sequential increase of 19.1%, while the number of discretionary investment clients reached 803, an increase of 23 sequentially. 23% sequentially.
Wang
Agencies方面, In 2023, the International Online Stock Exchange will carry out 4 years of 2A business. We hope that through the product system of Shaft Foods and Loya, we can support the business development of EAM multi-stakeholder customers. So far, we have signed 9 A-end customers. We hope that in the future, we can open a sales platform that does not rely on the Loya financial team through the International Online Stock Exchange, and with the construction and layout of our global network points, our goal is to serve 300 EAM and multi-stakeholder customers overseas.
Melo He
We continue to expand the product offer through our Overseas Wealth Management Act, providing an expanded array of solutions for clients, businesses, and agencies. The number of overseas active high net worth clients reached 4,629 in 2023, a significant of 38% increase from last year. Total transaction value during the same period reached US dollar 3.3 billion, up 83.4% year-on-year. The number of active clients for our U.S. dollar mutual fund products reached 3,130, up 72% year-on-year, with transaction value of U.S. dollar $1.2 billion up 110.1% from last year. On the 2B side, we have successfully onboarded more than 230 overseas corporate and institutional clients, which resulted in transaction value of overseas mutual funds reaching approximately US dollar 200 million. On the two agency sides, our overseas online wealth management business began trial operations in late 2023, aiming and empower EAM and family offices clients with the SaaS platform integrated with our full suite of products. As of today, we have signed nine agency clients with a long-term target of serving 300 EAMs and family office overseas markets.
Wang
At the management level, Gefei's asset management total is 1546.1 billion, down by 1.6%. Among them, RMB's AUM is down by 4.8%, reaching 1185.7 billion yuan. The main reason is that the management team is actively conducting the withdrawal of RMB's private equity fund assets and the decline of some secondary market products. At Gefei's international level, we put our full effort into the construction work of perfecting global investment products. The overseas AUMs that actively manage products have reached $5.8 billion, with a growth of 76% in comparison. The total AUM ratio has also increased from 20.7% to 23.3%. The overseas AUMs that include retail products have reached $83.5 billion, with a growth of 10.2% in comparison. In terms of the market, in addition to traditional PEVC products, we have also gradually introduced infrastructure, GP share, S-基金私募信貸等策略產品取證更加完善同時我們近期也開啟了主動管理的美國房地產47基金的募集專注於投資美國南部陽光地帶的市交出租公寓資產採取佔據機構類地產價值鏈條中上游的開發策略截止2023年末海外私募股權一級市場基金AUM達到了40.3 億美元同比增長4.7%二級市場方面 We have strengthened the selection, coverage and line-up of the top hedge fund managers overseas. Currently, there are 10 of the top 50 hedge fund managers in the world. In addition, there are 10 of them in the process of banning. While we are improving the diversity of managers and product strategies, we have also actively increased the price of structuralized products. Because some of the customers provide structuralized products with the characteristics of本金保护, which meet the needs of asset base configuration. In terms of asset management, Goldford's total AUM was RMB 154.6 billion in 2023, a decrease of 1.6% year-on-year. RMB AUM decreased by 4.8% from last year to RMB 118.6 billion.
Melo He
This was primarily driven by exits from RMB private equity assets and decline in the net asset value of some RMB public market products. Internationally, we'll continue to enhance our global investment product matrix. Overseas AUM reached US dollar 5.1 billion in 2023, an increase of 7.6% from last year, driving from an increase in its contribution to total AUM from 20.7% to 23.3%. Overseas AUA, which include distributed products, reached US dollar $8.4 billion, an increase of 10.2% year on year. Beyond traditional PE and VC products, we have gradually expanded our alternative offerings to include infrastructure, GP stake, PE secondary, and private credit products to provide a more comprehensive product matrix. We also recently launched a series four of our actively managed U.S. dollar, U.S. real estate funds, focusing on development opportunities in the suburban rental apartments in the U.S. Samba area. This fund is well positioned as an upstream player within the institutional real estate value chain. As of the end of 2023, a U.N. for overseas private equity and other primary market funds reached U.S. dollar 4 billion an increase of 4.7% year-on-year. Turning to public markets, we intensify the screening, coverage, and inclusion of top hedge fund managers globally. We have launched 10 of the global top 50 hedge fund products, with 10 more in the due diligence process. While enhancing the diversity of fund managers and product strategies, we are simultaneously expanding to include structured products with principal protection mechanisms. In 2023, the transaction value of overseas public markets and structured products reached US$180 million, an increase of 95.9% from last year. 在公司治理方面,我们在2023年底完成了公司管理层的传承和优化,将总事局主席和首席执行官的职责分离,任命英哲先生为首席执行官,同时我将继续担任总事局主席。
Wang
This decision is to improve our organizational capability, promote collective decision-making, and promote Luo Ya's successor plan to create more opportunities for Luo Ya's management. As a co-founder, Mr. Yingzhe started from the beginning of Luo Ya's establishment. He played a key role in the establishment and development of Gefei. He has a deep understanding of Luo Ya's operation and the corporate culture of the company as the center of customers. During Mr. Yingzhe's journey, I will continue to provide him with good support and continue to be responsible for the strategic direction of Luoya. I will invest more time in the management of the board of directors and the management of the company. Today, we also invited Yingzhe to participate in the Q&A session with investors. From the next quarter, we will start with CEO Yingzhe and Pan Qing to do quarterly performance reports for everyone. I will continue to participate in the follow-up Q&A session. Next, please let Pan Qing introduce you to the full details of 2023. Thank you, everyone.
Melo He
Lastly, we announced a change to our leadership structure last year by separating the roles of chairperson and CEO. Mr. Tanner Ng was appointed CEO while I will retain my position as chairwoman of the board. This decision will enhance corporate governance, organizational efficiency, promote collective decision-making, and facilitate NOAA's succession plan and generate opportunities for NOAA's deep bench of management talent. As a co-founder, Zender has been part of NOAA's journey since the beginning. He played a pivotal role in building Oktober as a management and possesses a deep understanding of NOAA's operations and our client-centric company culture. I'll firmly support Zender in his new role while continuing to steer NOAA's overall strategy and be responsible for board management and corporate governance. Please also kindly note that our CEO Zender and CFO Grant will be reporting quarterly results starting from next quarter. I will still take part in the Q&A sessions. I would now like to turn the call over to Grant to go over our financial results in more detail before opening the call to Q&A where Jenner and myself will also participate. Thank you, everyone.
Jenner
Thank you, Melo. Thanks, Chair Lady. I'm sure most investors are already very familiar with Mr. Xander Yin and will welcome him to join our future earnings releases and also meetings and calls with our investors. 2023 was a challenging year for China's wealth management industry. China's post-pandemic economic recovery proved to be a little slower than initially anticipated, as housing and local government debt problems remained widespread and persistent. driving domestic capital markets and growth. The performances of China's domestic market share, Asia market and Hong Kong stock market also took some heavy adjustments, impacting the issuance of new investment products domestically. The new issuance of mutual fund products, for example, in the domestic market fell 22.7% throughout the year. On a contrast, in 2023, the Dow Jones Industrial Average Index rose by 13.7%, with the S&P 500 index and MSCI World Equity Index up over 20%. On the alternative side, global fund managers are increasingly focusing on underserved private wealth channels to fuel primary market fundraising. According to McKinsey, as of June 30, 2023, the total AUM in private markets reached US$13.1 trillion, growing nearly 20% per annum. since 2018. The sharp divergences in economic and capital market conditions between onshore and offshore markets have created considerable challenges for high net worth clients. While demands for global asset security and diversification, insurance products and other defensive driven strategies continues to grow. As a leading wealth management company recognized for its expertise in alternative investments and extensive network of Chinese professional investors, these trends directly align with our strategic transition from a product-based to a solution-based offering and our ongoing investment in overseas products and services. In this context, we deliver solid financial results and our business has proven again to be resilient and adaptive in the face of challenging market environments Net revenues for the year continue to grow, along with a healthy operating margin of 33.3%. Combined with our asset line model generating strong operating cash flow and ample cash on balance sheet, we're extremely confident in the resilience of our business and ability to thrive even in complex economic conditions. With that, let's get into the details of our quarter four and entire fiscal year 2023 financial performance. Quarterly, net revenues came in just shy of RMB 800 million, a 6.6% increase sequentially. Net revenues for the year was RMB 3.3 billion, up 6.3 year-over-year. In terms of breakdown of net revenues for the year, one-time commissions were RMB 1.1 billion, up 60% year-over-year, primarily due to strong distribution of insurance products. Recurring service fees, a key stabilizer in revenue mix, were RMB $1.8 billion, slightly down 4.8% year-over-year due to a decrease in onshore EVM resulting from changes in NAV and structure products. Performance-based income was RMB $137 million, down 55.5% year-over-year, mainly due to the underperforming domestic capital market and limited exit opportunities. And other service fees were RMB 258 million, up 23.4% year-over-year, primarily due to more value-added services provided for our clients. Breaking down net revenues by region, overseas net revenues of the year were RMB 1.4 billion, increased by 73% year-over-year, accounting for 43.5% of total net revenues. We've been following our clients' demands and made significant progress in expanding our international presence in 2023. Managed to recruit over 100 oversea relational managers as of today. At the same time, we'll continue to enrich our product offerings and enhance cooperation with top global primary and secondary market funds, managers, and insurance companies. driving an increase in overseas transaction value and AUA by 83.4% and 10.2% respectively. In 2023, we officially launched our office in LA and are actively exploring the opportunities of rolling out services and products in many other places in the world, such as Dubai and in Japan, probably Southeast Asian nations. With respect to transaction values, We distributed RMB 16.5 billion products during the quarter, down 8.1% year-over-year and 25% quarter-over-quarter. By region, transaction value for RMB products in the quarter was RMB 10.7 billion, down 17.4% year-over-year and 30.5% quarter-over-quarter. while transaction value for U.S. dollar products increased by 12% year-over-year and down 13.4% quarter-over-quarter to U.S. dollar 828 million. Total transaction values for the year reached RMB 74.1 billion, up 5.4% year-over-year. Breaking this down by region, the transaction value for RMB products was RMB 50.3 billion, down 13% year-over-year, while the transaction value for U.S. dollar products increased 83.4% to U.S. dollar $3.3 billion, driven by U.S. dollar cash management and structured products. As of the end of year, our oversea U.M. grew 7.6% year-over-year to U.S. dollar $5.1 billion, accounting for 23.3% of the total AOM. Operating costs and expenses increased by 9.2% during the year, primarily due to the low base effect created by COVID lockdowns in 2022, which curtailed both marketing activity and business traveling, as well as increasing in terms of travel this year in support of global expansion. Combined with our strategic cost controls, operating costs kept reasonable and in line with revenue growth. Expecting to operating costs for the year were a number of one-time expenses that would generate cost savings over the long term, or the continued urbanization of China. Chinese high network investors increasingly migrating to first-tier cities. We have been consolidating teams and resources in smaller cities to nearby hubs, mostly capital and first-tier cities, and international regions accordingly. We expect to benefit from consolidations of these networks to save approximately RMB 10 million annualized going forward. We also looked closely at improving human capital efficiency. The total headcount decreased by 10%, 10.4% overall in 2023, most of which were stemmed from mid and back office personnel, which decreased by 17.2%. This will save RMB 64 million annualized going forward At the same time, we're allocating resources and firmly implementing overseas talent developments. Total overseas headcount increased by 16.1% to 426 in 2023. Operating profit during this quarter was RMB 221 million, effectively flat when compared to the same period last year and down 11.3% sequentially. Operating profit margin during the quarter improved on a year-over-year basis to 27.6%, a decrease compared with the previous quarter, as we'll typically have more marketing and client activities during the fourth quarter. Operating profit for the year was RMB 1.1 billion, a slight increase of 0.9% year-over-year, while operating profit margin for the year remained at a healthy level of 33.3%. Total other income for the year was RMB 111 million, increased by 82.2% year-over-year, mainly due to optimization over capital management and currency mixes. This was partially offset by non-cash investment losses from certain balance sheet investments due to mark-to-market adjustments. Non-GAAP net income during the quarter was RMB 234 million, up 56.7% year-over-year. and RMB 1 billion during the year, a slight increase of 1% from the last year. Turning to the results of each segment during the year, net revenues from wealth management were RMB 2.5 billion and net revenues from asset management were RMB 766 million, accounting for 75.26% and 23.3% of total net revenues respectively. On the client side, as of the end of quarter, we had 7,369 diamond card clients, down 2.8% year over year and 1.2% quarter over quarter. However, the number of black card clients, higher tier clients, increased by 8.8% year over year and 1.7% quarter over quarter, reaching a total of 2,289. The total number of diamond and black card clients was 9,658, slightly down 0.3% year-over-year, primarily due to a sluggish equity market and downbeat investment sentiment. That being said, we're still confident to capture more market share by continuing enhancements in our global product service offerings and achieving a 1% market share in high net worth individual wealth management market as a goal. Overseas registered clients at the end of the year increased by 14.2% year-over-year to 14,929, and overseas active clients of the year increased by 38% year-over-year to 4,629, as we continue to build up overseas presence. Turning to our balance sheet, we have maintained a healthy liquidity position with our current ratio at 3.8 times, and our debt-to-asset ratio at 17.8% with zero interest-bearing debt. We have RMB 5.2 billion cash and cash equivalents, providing ample resources to support our global expansion plans and make improvements in shareholder return, which the board has always considered as a priority. Therefore, I'm very delighted to announce that based on our strong and clean balance sheet and strong liquidity position, And after considering the necessary investments associated with Global Expansion Plan, the Board has approved an annual dividend of RMB 509 million for 2023, which is equivalent to 50% of the year's non-GAAP net income attributable to NOAA shareholders, in accordance with a capital management and shareholder return policy announced last quarter. In addition, the Board has also approved a non-recurring special dividend for the year of RMB 509 million in total for 2023. Thus, the amount of total shareholder returns for 2023 in the form of cash dividend will be RMB 1 billion, equivalent to 100% of 2023 non-GAAP net income, subject to final approval of AGM in June 2024. At the current market value, our recurring payout plan provides a very attractive dividend yield of over 10%, and the total payout plan with the additional special dividend will yield over 20% for shareholders. In summary, we believe that the share price of NOAA is significantly undervalued to its intrinsic value. We remain extremely confident in our long-term growth prospects. We're also committed to improving our return on equity and to creating more values for shareholders through enhanced shareholder returns. Once again, we sincerely appreciate all shareholder support for your ongoing trust. Thank you for listening, and I'll now open the floor for questions. Operator?
Operator
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. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Helen Lee with UBS. Please go ahead.
Wang
Thank you very much, Mr. Guan, for mentioning Paixi and Fenghong. I have two small questions. The first question is that I see the number of cities has dropped to 44, and the number of financial institutions has also dropped to 1,252. Is it because of the closure of some offline doors, so there is a loss of people, or is it that we take the initiative to lay off people? In the future, what is the plan of this domestic financial institution? So let me translate my question. So this is Helen from EBS. Two questions, if I may. First, the number of covered cities declined to 44, and RM declined 11% in the fourth quarter. Is it because of loss of RM from branch closure, or are you laying off RM? And what's your future plan for the onshore business in terms of RM? And my second question, at last year's open day, you talk about structural product and hedge fund product. which could be a driver for one-time commissions going forward. What's the penetration rate of this product, and what's your product strategy this year, and what's the business outlook for 2024? Thank you.
Jenner
Thank you, Helen. I think I will take the first question, and then I'll ask Mr. Yin, our CEO, to add something about our entire strategic layout. So to your first question, Helen, I guess it's probably a result of both. One is obviously the consolidation of networks. Obviously, some of the relation managers choose to not leave the smaller city and work in the hub city. So there's still a little bit of a commute between the hub city and the original city. So there's some natural loss, but it actually doesn't account for too much of the decrease. And two is really, you know, obviously the optimization. We're increasingly improving the threshold in terms of assessment efficiency of these arms. So naturally for the arms, they have to reach a higher threshold, if you will. to be continually to remain in the team. But we're actually actively adjusting the structure, obviously, with the heavier investments on the global side, overseeing IRMs. We're probably also emphasizing, you know, on the overall comprehensive capabilities of the skill set of the IRMs. Mr. Yin, do you want to add something? It's about our city rhythm here and the talent number rhythm.
Yin
Okay. Indeed, as our Chairman just said, in 2024-2023, in the process of economic decline, we need to build more energy and core capabilities. Therefore, we will further optimize the layout of the cities, from the original 80-odd cities to the 18-odd cities now. Then this process is also accompanied by the transfer of our customers. Because at present we have observed a very important phenomenon. That is, our high-tech customers are gradually transferring to our core cities in China. They are from the original Baiqiang County or some of the more developed districts. Then gradually transferred to China's core cities. So we need to invest more resources in the core city to serve these customers. These are two points. One is according to the needs of customers. The second is according to our own needs in such a macro situation, we need to further to focus on this strategic layout in the core city. So this strategic layout has actually already produced an effect, that is, our business efficiency, you can see that it has been significantly improved. In such a market, under a very challenging environment, it can still maintain a speedy development of business. The second one is that just now the financial market has been slightly reduced. The main reason is that we have gradually optimized some low-performance personnel since the beginning of the fourth quarter last year. In the past, it was a relatively more expansive approach. Under such a market environment, it is also a situation where we want to improve efficiency. More core resources are invested in core high-performance personnel. In other words, in terms of financial people, Grant, so I will take the translation for gender.
Melo He
So in terms of the optimization of our domestic network, you know, we always adhere to the strategy of following the footstep of our clients. And, you know, over the past few years, we have noticed the trend of handleworth individual and clients to, you know, relocate from lower tier cities where they basically accumulated their first bucket of goats to core cities and first tier cities. and our strategy follows them. And also, on the other hand, given the current challenging macroeconomic condition, we need to concentrate and reallocate our core strengths and resources to improve operational efficiency. Therefore, in the fourth quarter last year, basically limited some of the underperforming RMs and professionals. So this is quite different from our expansion strategy in the past. So now we are more focusing on allocating our strength and resources to the individuals with high performance. And in fact, the top performers over the past year Basically, their KPI and the AUM or transaction value per head has increased more than 30% over the past year.
Wang
In terms of the product, we have gradually improved our product line for structural products and telecommunications products overseas. But the penetration rate is still relatively low. But we can also see that in the first quarter, our structural products have been greatly improved. We think this future still has a lot of potential, and it meets our customer needs. Including our overseas full-time entrusted accounts, many customers are still relatively low-risk products. We think these customers are likely to turn into So in conclusion, in the past few quarters, we have rather focused on consolidating our domestic network. So you can probably see that
Melo He
the speed of the RM headcounts domestically, the decrease of the headcounts is actually slower than the decrease of the number of cities we consolidated, which means we are currently still under further evaluation for our workforce. So in terms of your second question, on the penetration rate for hedge fund products, structure products, and cash management products, So we're not seeing that the penetration rate for hedge fund and structure product is still very low. However, in the first quarter this year, in 2024, the penetration rate for structure product, especially with the principal protection mechanism, has been increasing. And we are also seeing the potential of clients whose wallet with us is currently in cash management related product. as the interest rate is starting to, or is expected to trend down in the future, we see the opportunity to convert these wallet shares into other alternative investment products, including hedge fund and structure products. Helen?
Wang
Very clear. Thank you.
Operator
As a reminder, if you have a question, please press star and one to be joined into the question queue. The next question comes from Peter Chong with J.P. Morgan. Please go ahead.
Peter Chong
Okay, thank you for the opportunity to ask me a question. My first question is about the special policy. I think this is a great improvement for shareholder feedback. I want to ask what are the considerations behind this special policy? Then consider that the cash on our asset balance sheet is still very strong. In the future, let's see if we still have some repurchase plans or some long-term shareholder repayment plans. This is the first question. The second question is about our investment in the fourth quarter. The investment in the fourth quarter has a loss of about 50 million RMB. My first question is about the dividend. I wish to chat with the management. What's the rationale behind on the special dividend payment for this year? And given that we still have a very strong cash balance on our balance sheet, looking ahead, do we have any share buyback plan or other, say, long-term shareholder return plan? My second question is about the investment income in the other income in our PML. There's 54 million investment losses in fourth quarter due to investment losses.
Jenner
uh losses i wish to understand what's the rationale behind and what are the underlying investments thank you hey thank you peter i'll take the first question uh and nara and zander will jump in as needed uh so for the uh special dividend um you know after uh ample discussions with our investors and we have Basically passed on the message to the board will continue to anticipate strong cash flows from our future operations and by after carefully evaluating the capital need for global expansions And really not any I guess clear target for heavy capital utilization would believe that to the right time to return to our shareholders with heavier ratio in terms of special dividend, in the form of special dividend. I guess with the depression, Chinese ADS share price mostly actually not too much associated with the fundamentals. We don't believe stock repurchase actually adds too much value at this point. We obviously will not exclude that option going forward, but for this year, would prioritize on the cash dividend payout in the form of special dividend. This is what I would like to add to the special dividend payout. And then in terms of investment, we actually have an investment that everyone should be familiar with, a market-based investment. It is also a relatively large financial investment institution. Our adjustment on the valuation is pretty much on par with the market. Thank you very much. That's very clear. Thank you very much. This concludes our question and answer session.
Operator
I would like to turn the conference back over to Mr. Grant Pan for any closing remarks.
Jenner
Okay. Thank you very much for, you know, our shareholders and Ellis for continued trust and support. And this will conclude today's annual release. And if you have further questions, we have arranged one-on-one sessions. I'll be very happy to share more insights with you. Thank you.
Operator
The conference has now concluded. Thank you. Thank you for attending today's presentation.
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