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Operator
Good day and welcome to the NOAA Holdings first quarter 2024 earnings conference call. All participants will be in 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 Melohee, Director of IR. Please go ahead.
Denner Inn
Thank you, Operator. Good morning and welcome to NOAA's 2024 First Quarter Earnings Call. Joining me today on the call are Ms. Wang Jingbo, our Co-Founder and Chairlady, Mr. Xander Ng, our Co-Founder, Director, and CEO, and Mr. Graham Pan, our CFO. Mr. Ng will begin with an overview of recent business highlights, followed by Mr. Pan, who will discuss our financial operational results. They will all be available to take your questions in the Q&A session that follows. Before we begin, please note that this discussion today will contain forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from those in our forward-looking statements. Potential risks and uncertainties include, but not limited to, It was outlined in our public filings with ICC and the Hong Kong Stock Exchange. NOAA does not undertake any obligation to update any forelooking statements, except as required under applicable law. In addition, today's call will include discussions of certain non-GAAP financial measures. A reconciliation of 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 in any interest and interest in any NOAA-affiliated products. Please also be aware that a link to a live webcast with presentation materials is available on our investment relations website. With that, I would like to pass the call to Mr. Yin. Please go ahead.
Yin
Thank you, Melo. Good morning, founders and analysts of NOAA. I'm Yin Zhe. This is my first time as the CEO of NOAA Control to share and discuss the company's interests Thank you for your participation. As usual, I would like to share with you the views of Hongguan about the performance of the first quarter of 2024 and the development strategy of NOIA. In terms of Hongguan, during the first quarter, the domestic capital market fluctuated significantly, the real estate market continued to be weak, and the first-tier market was slowed down due to the influence of stage policy. We can clearly feel that the high-quality people are becoming more and more cautious in terms of investment. What is even more challenging is that in the past, there were some non-regulated wealth management companies that had capital pool businesses. High-quality domestic customers were seriously injured, and the supervision was getting more and more strict. Here, I would like to once again declare that Luoya has never done a business with capital pools since the first day of its startup. Without the wrong timing and to customers. So far, the net worth of the non-token-based equity fund and the RMB housing and real estate fund is basically zero. The continued inflation in the international market has caused the U.S. Fed to drop its forecast for the end of 2023. The high interest rate environment will continue for a longer time. Good morning, NOAA investors and analysts. I'm Denner Inn, and this is my first time sharing and discussing companies' performance as CEO of NOAA Holdings. Thank you all for joining us today.
Denner Inn
I'd like to start today's call by sharing our views on the macroeconomic environment, our performance for the first quarter of 2024, and the strategy we're deploying going forward. Domestic capital market continued to experience extreme fluctuation during the first quarter. The real estate market remains sluggish, while the primary market faced hurdles due to the periodic policy restrictions, resulting in a slow exit process. It's clear that high net worth individuals are becoming increasingly cautious with their investments. Adding to the challenge, some non-complying wealth management companies with capital pooling have collapsed, severely affecting domestic clients and leading to a stricter regulatory environment. I'd like to reiterate that since our inception, NOAA has never engaged in capital pooling, has no maturity mismatches, and does not offer high leverage financing options to clients As of today, NOAA does not have any non-standardized private credit products and R&B residential real estate funds. Overseas, persistent inflation over the past three months has cooled expectations for Federal Reserve rate cuts, indicating that a higher for longer rate environment is likely to remain in place. As a result, investors will continue to allocate capital towards cash management and deposits for a longer period of time. Mandarin-speaking clients are also strongly demanding for global asset allocations. With this trend continues, we're expanding our international RM team and actively increasing our influence and wallet share among overseas Mandarin-speaking clients.
Yin
Our new business strategy has achieved better results. In the first quarter of the new business revenue, overseas business contributions accounted for 77.1%, and domestic business contributions accounted for 22.9%. In total business revenue, domestic business contributions accounted for 3.5 billion, accounting for 53.1%. Of which, the total amount of business revenue accounted for 89.6%. Overseas business contributions accounted for 3.1 billion, which is equivalent to 4.5 billion. mainly due to the reduction of carry income brought by the project launched at the end of the same period last year. After removing carry income, the net income of overseas businesses increased by 22.4% in the same ratio. In terms of balance sheets, the wealth management balance sheet contributes 4.6 billion yuan, of which domestic business contributes 2.4 billion yuan, and overseas business contributes 2.3 billion yuan. The asset management balance sheet contributes 1.8 billion yuan, of which domestic business contributes $51.7 billion, a growth of 6.1% in total. In the first quarter of 2024, domestic insurance economic business revenue was $1,886 million, and overseas insurance and credit service revenue was $1.5 billion, a growth of 86.8% in total. In the first quarter, the number of active customers in overseas comprehensive business increased by 51.9%.
Denner Inn
Turning to our financials for the quarter, total revenues were RMB 654 million, a decrease of 19.2 year-on-year, primarily due to the proactive restructuring of our business. Our overseas business strategy has achieved solid results, contributing 77.1% of the revenue generated from new businesses and products in the first quarter, while domestic business contributed 22.9%. By region breakdown, our domestic business contributed RMB 348 million, accounting for 53.1% of the total revenues. Within the domestic business, revenues from legacy distributed products accounted for 89.6%. Our overseas business generated RMB 307 million, a decrease of 4.5% year-on-year, mainly due to the carried interest earned from private equity exits in the same period last year. If we back out the impact from carried interest, overseas net revenue actually increased by 22.4% year-on-year. Breaking it down by segment, our wealth management business generated RMB $464 million. Within wealth management, our domestic business contributed RMB $235 million, while the overseas business contributed RMB $229 million. Our asset management business generated RMB 181 million. Within asset management, our domestic business contributed RMB 103 million, entirely composed of revenue from legacy distributed products. Our overseas business generated RMB 78 million. As we expand our portfolio of overseas private equity products, the number of active clients in U.S. dollar private equity and structured products reached 583 in the first quarter, a year-on-year increase of 97%. The value of capital raised for U.S. dollar private equity products, which generate long-term recurring service fee revenue, reached RMB $165 million. This grew U.S. dollar AUM to $5.2 billion, a year-on-year increase of 6.1%. In the comprehensive services segment, Domestic insurance brokerage business generated RMB 19 million in revenue, and revenue from overseas insurance trusts and other comprehensive services were RMB 150 million, a year-on-year increase of 86.8%. The number of active clients in the overseas comprehensive business increased by 51.9% year-on-year. Operating profit for the first quarter was RMB 121 million, with an operating profit margin of 18.7%. With an operating profit margin of 18.7%,
Yin
Internationally, from Hong Kong, Singapore to the United States, our strategy is to increase our financial team, to increase the influence and share of our Chinese high-end customers. As of the end of the first quarter of 2024, Noya Hong Kong and Singapore have a total of 91 financial institutions, with a net growth of 225% and a net growth of 2.2%. At this stage, due to the fact that our international R&M team is relatively small, We have too many international financial service customers. We need to improve our customer service and response. Our main job at the international channel is to expand the international financial team. This year, our goal is to expand the team to 200 people. With our investment in the international channel, by the end of the first quarter, NOIA international registered customers exceeded 15,700 people. with an increase of 17.1%. The current management of the product, the total number of customers reached 4,108 people, with an increase of 89.4%. The number of customers who make asset management in Noya with full commission reached 873 people, with an increase of 167%. In terms of asset management, our main work in China is to work with GP, partner and back-end companies to strengthen the strength of exit in the first-level market. In the second-level market, we focus on QDII and QDLP products to help customers acquire beta profits in the global capital market through RMB configuration. Internally, since 2022, we have greatly improved the quality and quality of goods and products of overseas products. We insist on the strategy of the big white-chip manager with a detailed strategy to select flagship products. During the first quarter, U.S. cash management products accounted for 8.4 billion U.S. dollars, which increased by 49.4% and increased by 33.6% at the same time. At the same time, we have built a complete product evidence, and listed U.S. dollar products with high revenue in private sector and infrastructure investment, and continued to launch VC Founder Funds, and 47 of U.S. real estate funds. The volume of U.S. private real estate products has significantly increased, reaching US$1.7 billion during the first quarter, with a 21.3% growth rate and 81.3% return rate. By the end of the first quarter, overseas AUMs that actively manage products reached US$51.7 billion, with a growth rate of 6.1%. The total AUM ratio also increased from 21.2% has risen to 24.4%. The AUM, the first-class market fund of foreign private equity, has reached US$39.2 billion, which is a growth of 5.9% in total, including retail products and overseas AUAs, which has reached US$83.2 billion, which is a growth of 9.2% in total. We have observed that in recent years, the world's top GP has been focusing more and more on private wealth channels. and by introducing products that are friendly to individual customers and have good liquidity, to attract more private wealth and capital. Because of NOEA's brand image among high-end customers and the professional capabilities of private bankers in another asset category, we have been regarded as an ideal partner by other asset managers around the world. Our goal is to increase the US dollar's AUA from the current $800 billion
Denner Inn
In the wealth management segment, our domestic business objective is to ensure full compliance and steady operations. We have proactively reduced the number of branches in domestic cities from nearly 80 to 18, with plans to further narrow it down to around 10 core cities. We are firmly committed to reducing fixed costs and optimizing mid- and back-office personnel costs. Internationally, from Hong Kong and Singapore to the United States, our strategy is to increase the number of relationship managers and enhance our influence and wallet share among high-net-worth Mandarin-speaking clients. As of the end of this first quarter, Hong Kong and Singapore had 91 relationship managers on board, an increase of 225% year-on-year and 2.2% sequentially. Currently, due to the small size of our overseas RM team, Each overseas RM serves too many clients, and there is room for improvement in the quality and responsiveness in our client service. Internationally, our primary focus is on expanding the team of overseas RMs. This year, our goal is to grow the team to 200. As we continue to invest in our international infrastructure, as of the end of the quarter, we had over 15,700 overseas registered clients. an increase of 17.1% year-on-year. The number of clients who purchased our cash management products reached 4,108, an increase of 89.4% year-on-year, while the number of discretionary investment clients reached 873, an increase of 167% sequentially. In the asset management segment, Domestically, our primary challenge is to strengthen private market exits in collaboration with GPs and portfolio companies. In public markets, we focus on QDI and QDLP products to help clients generate beta returns in the global capital markets with RMB allocations. Internationally, Since 2022, we have significantly expanded the diversity and quality of our overseas products as part of our top tier GP partners and segmented flagship product strategy. During the quarter, the transaction value for U.S. dollar cash management product increased 49.4% year-on-year and 33.6% sequentially to U.S. dollar $840 million. At the same time, we have built a complete product matrix and launched high-yield U.S. dollar products to capitalize on high interest rate environments. These include private credit and infrastructure products, as well as actively managed VC fund funds and the fourth series of our U.S. real estate funds. Transaction value of our U.S. private equity products increased significantly. reaching $165 million in the first quarter, an increase of 21.3% year-on-year, and 81.3% sequentially. As of the end of the quarter, AUM for overseas products reached US$5.2 billion, an increase of 6.1% year-on-year, accounting for 24.4% of the group AUM, compared with 21.2% during the same period last year. AUM for overseas private equity and other primary market funds reached $3.9 billion, an increase of 5.9% year-on-year. Overseas AUA, which includes third-party distributed products, reached $8.3 billion, an year-on-year increase of 9.2%. In recent years, top global GPs have increasingly turned to private wealth channels for capital raising, and have been introducing more individual client-friendly products with liquidity features. Our strong brand image of multi-network clients and RM's expertise in alternative assets make us the ideal partner for those GPs. Our goal is to increase U.S. dollar AUA from the current 8 billion U.S. dollar to over 20 billion U.S. dollar in the next three to five years.
Yin
The domestic market is clearly slowing down due to the continued decline in domestic insurance fixed interest rates. Currently, our strategy is to focus on helping customers to solve the functionalities of the nursing and nursing and medical needs of parents. In the overseas market, the Hong Kong insurance market entered a fierce competition stage after the outbreak of the epidemic last year. Product synchronization is higher, In response to this challenge, we strengthened the atmosphere of the customer image, and cooperated with insurance companies to develop customized and exclusive products. In addition, we also launched a comprehensive solution of health insurance and B and C-end comprehensive solutions for Noya's corporate customers, which has improved our competitive advantage in differentiating products and professional services. During the first quarter, overseas insurance revenue increased by 86.8%. In terms of international channel business construction, it is our focus to serve high-end customers online and offline. At the international online payment section, we continue to enrich the product price of Fangzhou Answers App to expand our customer type. From C-end customers to B-end and A-end customers, we can provide different solutions. International online payment is growing into our new channel. In terms of international C-end customers, during the first quarter of 2024, the number of overseas active high-performance customers reached 2,745 people, which increased by 39.6%. The total revenue amount reached 11.6 billion US dollars, which increased by 50.7%. Among them, the number of active customers of the U.S. public fund reached 2,327 people, which increased by 65.2%. The revenue size reached 5.2 billion US dollars, In terms of B-end customers, A-end Agis customers, the international online bank started to run 2A business in 2023. We hope that through SaaS services and NOIA's product system, we can help EAM customers and their business development. As of now, we have signed 17 A-class customers. We hope that in the future, we can open up a sales platform that does not rely on NOIA's financial team through international online funds, and with the construction and layout of our global network, our goal is to serve 300 EAM and multiple customers overseas.
Denner Inn
On the comprehensive services side, domestic insurance business has slowed notably, mainly due to the continuous decline in fixed interest rates for domestic insurance. Our current strategy is to focus on insurance products that help clients address their parents' retirement, well-being, and medical needs. Overseas, the Hong Kong insurance market has entered into a phase of intense competition with highly homogeneous products following the COVID reopening. To address this challenge, we have strengthened client segmentation and collaborated with leading insurance companies to develop exclusive products and customized solutions. Furthermore, we have launched customized enterprise client solutions, such as employee benefit plans for our entrepreneur clients. This has enhanced our competitive advantage with differentiated products and professional services. During the quarter, overseas insurance revenue increased by 86.3%. 8% year-on-year. Serving high-net-worth clients through both online and offline channels is a key priority for us. We continue to further expand the range and types of clients that we can service through Inoa, our overseas wealth management app. This includes the offering of different solutions to clients, businesses, and agencies. Online wealth management is becoming our new channel for us in the overseas. The number of overseas active high net worth clients reached 2,745, an increase of 39.6% year-on-year. Total transaction value during the same period reached $1.2 billion, up 50.7% year-on-year. The number of active clients for U.S. neutral funds reached 2,327, an increase of 65.2% year-on-year, with transaction value of $521 million, up 52.7% year-on-year. Overseas transaction value for corporate and institutional clients reached $85 million in the first quarter, an increase of 143% year-on-year, with AUA reaching $187 million, a year-on-year increase of 58.5%. For agency clients, our overseas wealth management business began trial operations in late 2023, where it is empowering EAMs and family office clients with a SaaS platform integrated with our full suite of products. To date, we have signed 17 agency clients. Our goal is to develop an overseas online wealth management platform that does not rely on our team of RMs. Once our overseas infrastructure is firmly in place, we target to serve 300 EAMs and family offices with this solution.
Yin
Since the launch of Loya, we have been working hard to provide high-quality asset matching services to high-quality Chinese customers. During this period, we have established a long-term trust relationship with our customers, and through continuous investment benefits, we have continuously improved our customers' wealth management and investment ideas. As China's high-quality customers become more and more mature, and have a more internationalized vision. The deep trust between NOEA and our customers allows us to continue to serve them in the international market. We will do our utmost to create a personalized service model for Chinese customers around the world, and combine our gradually improving global product pricing, so that NOEA can attract overseas customers China and high-end customers, while providing them with global wealth management solutions, are more advantageous than overseas local institutions. We will also gradually, in the form of a new capital model, in the absence of a large number of early investment, build business bases in the key overseas markets highly concentrated by Chinese and high-end investors. Since inception, we have dedicated ourselves to providing high-quality asset allocation services to Mandarin-speaking high-net-worth investors. We have built enduring trust-based relationships with each of our clients
Denner Inn
and continuously enhance our understanding of wealth management and investment through ongoing investor education. As Mandarin-speaking high-net-worth investors become more mature and globally orientated, the deep trust-based relationships we have built domestically will allow us to continue serving them as they look overseas. We are dedicated to building a personalized service for them, which, when combined with our expanding global product portfolio, will give us a significant advantage over local institutions going forward. Our asset-light approach to expanding into key overseas markets with high concentrations of Mandarin-speaking high-net-worth investors and wide array of product services will ideally position us to serve not only our existing clients, but also build a new local client base. 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. Thank you, everyone.
spk00
Thank you, Mel. And thank you, Xander. And greetings to everyone joining us today. As Xander has mentioned, the first quarter of 2024 is impacted by continued volatility in the global capital market, shifting expectations around Federal Reserve interest rate cuts have created turbulent conditions in equity and bond markets around the world. As the U.S. dollar strengthened, equity and gold prices moved in tandem, reflecting the complex environment that investors continue to face. Effective risk management and global diversified portfolio have become crucial to successfully navigating this environment. Domestically, the A share market experienced extreme fluctuations as well, which negatively impacted investor confidence, promoting them to take a more cautious and risk-averse approach to investment and further diversify their portfolios. This created substantial challenges and impacted the financial performance of China's wealth and asset management industry. During the first quarter, 43 listed security brokerage firms saw total revenue and net profit decline by 20% and 30% from the same period last year. Some leading private banks were also affected with significant declines in commission income. In response to prevailing marketing conditions, we're strategically restructuring our wealth management operations, consolidating teams and resources from smaller cities to core cities, and pivoting operations and personnel towards global markets where demand for asset diversification is growing. These guiding operations this year are transformation and transition. While this transformation may bring short-term challenges, pressures, including temporary fluctuations on financial performance, we're confident that we'll lay a solid foundation for robust sustainable growth towards our globalization strategy and generate enduring value for shareholders. With that, let's get into the details of first quarter financial results. On the revenue side, we have seen a slight increase in net revenues from new transactions, with one-time commissions up 6% year-over-year. However, the decline in recurring service fees and performance-based income put pressure on total net revenues, which decreased 19.2% year-over-year and 18.8% sequentially due to seasonality to RMB 650 million in the first quarter. Net revenue from recurring service fees were RMB 417 million, down 12% year-over-year and 2.6% sequentially due to a decrease mostly in the onshore AUM resulting from changes in NAV and also exits from RMB-related investments. Performance-based income was RMB 14 million compared to earned the $83 million in the same period last year, primarily due to the successful exit of a private equity portfolio company last year. The bright side is that we're seeing increased interest towards U.S. dollar investment products. In light of the diminished expectation of a rate cut by the Federal Reserve, we're observing a strong and sustained demand from clients for U.S. dollar cash management products. It's worth also noting that the transaction value for overseas private equity and private secondary products, which could bring long-term recurring fees in the future, are also generating significant growth, increasing 21.3% and 70.6% year-over-year, respectively demonstrating the progress we have made in expanding our high-quality alternative investment product offerings. Looking at the financials, we can see clear growth in the overseas business. On an apple-to-apple basis, taking out the impact of performance-based income, overseas net revenues grew meaningfully by 22.4%, and the total overseas net revenues accounted for 47.2% of total revenues, up 7.2% year-over-year, underscoring the growing importance of a key revenue driver. With respect to transaction values, we distributed RMB $18.9 billion of products during the quarter, up 12.4% year-over-year and 14% sequentially. However, the immediate contribution on revenue is not yet evident, despite the high demand for U.S. dollar cash-managed products, and also the recurring revenue from private equity-related products will not take effect in the same quarter. but it does reflect the progress of continuing making and getting a larger share of a client's wallet. And the long-term benefits of the increased portion of alternative investment products to future management fees are also yet to be realized in the current term. By currency, transaction value for RMB products was RMB 10.5 billion, down 8.8% year-on-year, and 1.5% sequentially, transaction value for U.S. dollar products increased by 50.7% and 40.2% sequentially to U.S. dollar 1.2 billion. Overseas AUM grew 6.1% to U.S. dollar 5.2 billion, accounting for 24% of total AUM, while overseas AUA grew 9.2% year-over-year to U.S. dollar 8.3 billion, accounting for 24% of total AUM, reflecting our ability capture a larger share of clients' use of wallets. Operating costs and expenses experienced a slight year-on-year increase of 0.7% and a sequential decline of 8.8% due to our cost control initiatives. In details, compensation and benefits increased by 5% year-over-year and 29.3% sequentially This was primarily due to an increase in share-based compensation expense to motivate and retain core talents. As I mentioned last quarter, we're continuing to consolidate our network in smaller cities and further improving human capital efficiency by reducing overhead expenses. While the financial benefits of these optimizations may not be immediately apparent, we anticipate a gradual and noticeable impact on our cost savings in the future. Selling and general administrative expenses combined decreased 6.3% year-over-year and 47.9% sequentially, reflecting the progress our cost control efficiency improvement initiatives are already making. Operating profit during the quarter was RMB 121 million, a decrease of 56.4% year-over-year and 45% sequentially. Operating profit margin was 18.7% during this quarter, below our long-term target range of 30% to 35%, primarily due to the drag from domestic market revenues and periodical organizations restructuring. Total other income increased by 82.1% year-on-year to $55.3 million due to continued optimization of treasury management. Non-GAAP net income during the quarter was RMB 161 million, compared with RMB 239 during the same period last year. In terms of clients, as of the end of the first quarter, we had a stable total of 9,560 with diamond and black card clients. Specifically, the number of diamond card clients decreased slightly to 7,272, or the number of black card clients increased to 2,296. As our overseas expansion accelerates, the number of overseas registered clients continues to grow, increasing 17.1% year-on-year and 5.3% sequentially to 15,725. The total number of overseas Diamond and BlackRock clients, which require minimum investment with us of U.S. dollar 2 million and 5 million respectively, grew rapidly to more than 1,500. During the first quarter, the total number of active clients was 10,391, up 15% sequentially, of which overseas active clients accounted for 2,745, an increase of 9.1% sequentially. Turning to our balance sheet, we have maintained a healthy liquidity position with our current ratio of 4.1 times and debt-to-asset ratio at 16.6% with zero interest-bearing debt. We have RMB 5.1 billion in cash and cash equivalents, providing ample resources to support our global expansion plans and allocate to shareholder returns, which remains a priority for the board. As mentioned last quarter, NOAA declared annual dividend of RMB 509 million and a non-recurring special dividend of RMB 5.09 million for 2023, subject to final approval at our AGM on June 12, 2024. We expect to pay out dividends when approved before the end of July to Hong Kong stockholders and in early August to our ADS holders. We look forward to providing stable and sustainable returns to shareholders that will drive growth across our business. Looking ahead, our goal is to provide our clients with high quality and globalized products and services, restructuring our wealth management channels and realigning our operations and personnel that will allow us to sustainably capitalize on this growing demand. The strategy, the strategic transition towards overseas markets still in the initial phase of being built out and will take some time to mature but we're already beginning to see the progress we have made reflected in the performance of global business. When we will inevitably encounter bumps along the road, we're confident in our ability to overcome them and would like to express the sincerest gratitude to our shareholders' support. And thank you for listening. I'll now open the floor for questions.
Operator
We will now begin the question and answer session. To ask a question, you may press star M1 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 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Peter John with JP Morgan. Please go ahead.
Peter John
Thank you for the opportunity to ask me a question. My first question is that since March and April, we have seen the Hong Kong stock market rebound, and recently China has also introduced a real estate support policy. I would like to ask, in the past few months, have you seen the mood of our investors rebound? I want to ask, what are the needs of our customers now? This is the first question. The second question is, our income in the first quarter has dropped a little bit. I would like to ask the management to introduce the reasons behind it. And then, for us, for this year's uh, Then there is a small problem, which is that in the fourth quarter of last year, the National Bank of China and the Bank of China and the Bank of China and the Bank of China and the Bank of China and the Bank of China and the Bank of China My first question is about the investment sentiment. Starting from March this year, we noticed that the capital market in China Hong Kong has recovered. And recently, there's also some real estate supporting policy in mainland China. We are wondering whether NOAA observed any improvement in domestic investment sentiment. And many mentioned during the call that the demand for domestic insurance has declined. uh we're also wondering uh uh what what the kind of preference for other or their their interest in in terms of the uh products uh my second question is about the revenue outlook and the fee rate uh we we noticed that the first quarter revenue decline not driving the decline on your year basis uh commitment uh Can management explain what's the reason or drivers behind and what's our expectation for the NOAS revenue in 2024? My second question is about the theory for our product. In fourth quarter last year, domestic bank insurance channel experienced a decline in insurance theory as requested by the regulator. We will see potential theory decline for our domestic insurance sales and what's the potential impact. And apart from the domestic insurance, will we see any other theory a theory declining impact for our other product we are currently distributing. Thank you.
Yin
Thank you for the question. There are many questions. I will answer them one by one. The first question is about domestic investment sentiment. The Hong Kong stock market has rebounded in the first quarter, but overall, we haven't seen much recovery in investment sentiment and confidence. After the rebound, the investors themselves have established a long-term investment sentiment and point of view, not a short-term one. So, just like our previous CIO point of view, our entire strategy and advice to customers on asset configuration is actually based on strengthening overseas configuration. So, in such an environment, in fact, in the first quarter of rebound, we did not see that the customer's investment mood will have a great impact. But more importantly, in fact, it is still for us to firmly promote a business overseas in our business strategy.
Denner Inn
Let's go to the second insurance product. Thank you, Xander. And thank you, Peter, for the question. So I'll translate on the first question regarding the changes in recent sentiment among investors. So although given that we have seen, you know, some rebound in the capital markets or, you know, H-share or A-share capital markets recently. You know, I guess in summary, we haven't seen a significant shift or improvement in Hannaworth investors' investment sentiment. because, you know, building confidence is rather a long-term process rather than short-term. So the short-term capital market rebound will not immediately reverse the investment sentiment in that sense.
Yin
It also reflects the impact of the customer on the entire market. Because the drop in the fixed interest rate of insurance is actually a long-term trend, just like the long-term interest rate of domestic investment. The drop in the interest rate is also a trend. So customers in China do not have too many... It's a big investment opportunity. So we also made it very clear in the CIO's point of view that it's a small investment in China. Insurance is mainly based on insurance. So our current insurance is focused on the needs of customers' parents in China's pension.
Denner Inn
So the second question regarding the domestic insurance and I guess the slowdown in demand as well as the trending downward return or interest rate, I guess it's largely aligned with the domestic interest rate environment, which is also trending down. And I guess the slowdown in the client's sentiment towards domestic insurance is also a reflection of their investment sentiment in that sense. So right now, in terms of domestic insurance, we are more focusing on the products that will satisfy the retirement, the well-being, as well as the medical needs of clients and their parents, the type of product that will satisfy those demands.
Yin
After continuing to withdraw, the income of the management fee, AUM, has dropped. At the same time, we have increased our overseas business. For overseas business, our customer's interest rate for the dollar, now the trend of high or low, it is still in the cash management, it is more positive. However, due to the structure of revenue, the management fee has not yet been fully raised. However, we believe that the share of customers and the long-term trust of the customers is actually more important. So, first of all, the customers can be provided with a lot of product configuration on cash management, which can make the customers' wallets here more. This is also a very important reason for us to be able to transform in the future. In fact, in the first quarter, we are in the overseas private fund, which is this kind of long-term private equity, private credit products, which is still performing well. So the third question regarding the reasons behind the decline in first quarter revenue, I guess the first
Denner Inn
First aspect is that the decreasing recurring service fee or the management fee, mainly because of the active exit activities in our domestic portfolio and the fact that we did not really introduce new products in the domestic market. which drives down our domestic AUM, but I guess that's a rather active approach. And the second aspect is that, you know, although given we have achieved great improvement or progress in our overseas business and expansion, but given the current hire for longer interest rate environment and the product that fit into that environment. I guess the growth in overseas business is still not fully reflected in our current revenue structure, but we think that to capture and maintain clients' wallet share even through cash management and term deposit products is also very important because it is building for future growth when interest rates trend down, that we can translate these products into more fee-generating products like private equity and hedge fund products in the future. And thirdly, I guess it's the fact that the decrease in carry income and performance-based income because of the, I guess, the general exit environment compared to the previous quarter, I mean, the previous year.
Yin
In terms of the overall income and business prospects for 2024, our strategy is very clear. In 2024, we focus on ensuring security and documents in China. In terms of international, we are investing more. So, in terms of the overall business direction, we are actually adjusting our resource configuration and investing more overseas to make structural adjustments. In terms of overseas business, it does take time to get started. In the past, we used domestic foreign is The customer's long-term demand for investment has always existed. It won't stop investing because of the market's extreme challenges. The customer's long-term demand for investment has existed, and the customer's trust in us has established a good trust relationship in the past. As the proportion of overseas facilities increases, we believe we can serve overseas customers better.
Denner Inn
So I guess the fourth question regarding the outlook on 2024, I guess overall the strategy is rather clear, which is to ensure, you know, I guess safety and compliance in our domestic operation while focusing on deploying more resources and to expand our overseas business. But that process will probably take some time for our overseas business to fully accelerate. We have spent the past 20 years being able to build a rather complete system in the domestic market. And we're hoping that in the three to five years' time, we'll be able to complete our overseas business infrastructure. And additionally, I guess the client trust with us is, I guess, it's very long term. And the investment demand and needs of Hannaworth investors is also very long term. So as clients look more towards overseas asset allocation, we will be well-positioned to provide better products and services to them in the overseas and global markets.
Yin
There are two more questions. One is about domestic insurance supervision, and the impact of domestic insurance fees, and whether the fees of other products have decreased. In fact, the impact on us is relatively small. What is more important for us is to pay attention to the needs of customers and how to satisfy the value creation of the customer, so that the customer can make a reasonable asset allocation. This is our primary focus. As for the rate, in fact, the ups and downs of the market are not something we pay special attention to. And it has something to do with our business structure. Because we are different from many insurance and financial agent companies in the market. We give customers a comprehensive configuration and pay attention to the overall performance of customers. So our RM, our private bankers, also pay attention to a long-term process of creating value and relationship for customers. In other words, the rate of explosion will not have a big impact on our sales rate. As for other products, whether the rate will drop is actually related to the structure of the product. For example, if it is a cash management product, its entire collection structure will be relatively low. Then we also pay attention to other products, including private securities, private equity, etc. Whether it is domestic or overseas, it is relatively stable. But for us, what is more important is that Thank you, Sander. So the question regarding the insurance commission fee, you know, decrease. So I guess the overall impact on our business is rather small.
Denner Inn
especially comparing with a lot of the insurance brokerage business in the market where most of the brokers have high commissions but low base. Our RRMs are more focused on providing long-term value for our clients. And as a business, our primary focus is to satisfy our clients' needs and create value for clients and how to optimize their asset allocation and portfolio construction. So I guess the short-term or the fluctuation in the fee rate of a certain product is not the most, you know, aspect that we're worried about. In terms of other products' fee rate changes, I guess it's largely in relation to the nature of the products. For example, you know, cash management-related products, you know, naturally have a lower rate whereas the private market, including private equity and private secondary hedge fund products, the fee rate has been rather stable. But that being said, you know, we are still focused on, you know, optimizing our clients' portfolio and asset allocation, and we would rather lose a certain client than to, you know, lose money. So, you know, also going back to creating long-term value for our clients. So, operator, so please be noted that there is no more questions. Our chair lady... Wong would like to have a closing remark as well.
Operator
All righty. This concludes our question and answer session. I will now turn it over to management for any closing remarks. Thank you.
spk01
Could you hear us? During my 20 years of entrepreneurship, from the first day of entrepreneurship, I insisted on the common sense of finance. I insisted on the education of investors. I have experienced all kinds of market risks up to now. Basically, there are no residual problems and toxic assets. I think that the biggest risk in our industry is that the customers will go bankrupt. We are now going through this process. So our big strategy is to let customers grow and protect their assets. and take over more customers' wallets in the future, rather than pushing some products like in the past. For our team, the strategy is very clear, but we need a few seasons to adjust and execute. Now our biggest challenge is the management of our core management team, because we have been doing it for 20 years. We need to learn and familiarize ourselves with the operating model of the International Private Bank as soon as possible. But our core team is also very excited, because we have a lot of customers, 我们还有一些优秀的这个RM, 我们也在国际上招聘了一些RM, 能够参与到一个真正的国际竞争的私人银行, 对我们来讲是非常有意义的。 所以我们对未来还是很有信心的。 我就想讲这一点。 Thank you, Chair Lady. So I'll translate for Chair Lady's closing remarks.
Denner Inn
So we have noticed that there are a lot of, you know, not compliant so-called wealth manager in the China domestic market, you know, continues to default on their, you know, their private credit products, which, you know, has caused, you know, significant losses among their China worth clients. So I guess in our perspective, in the past 10 years, the China wealth management has experienced a rather fast-growing but not so healthy trend. growth period. So, you know, standing in today's time, we think that the largest or the biggest risk in the wealth management market in China is that the high net worth clients, you know, return back to poverty because of the wrongly allocated assets or the wrong asset allocation devices they got. So right now, our main advice to our existing clients is to hold on to their current wealth and portfolio so that they can preserve their wealth, which is driven for future growth when the opportunity is there. And internally, I guess the biggest challenge for us as we expand our overseas strategy is the, you know, I guess how fast we can get used to or be familiar with the operation of how global private banks operate. But that being said, we have a very talented core management team, and we do have some very global-minded and top-tier RM team. So we are still rather optimistic regarding our future growth, especially in the overseas market. Wang Zong, do you have anything to add?
spk01
No, thank you.
Denner Inn
So turning back to you, operator.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you all.
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