Q2 2021 Noah Holdings Ltd Earnings Call
Okay.
Good day and welcome to the Noah Holdings Limited second quarter 2021 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone 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 MS. Jimbo Wang CFO. Please go ahead.
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But today's teleconference agenda I work for us to report on that with the overall performance in the second quarter of 2021, the development of major business segments and the progress of our key strategic projects next I will walk you through those changes and strategies from product driven to client oriented than they were in.
Quite honestly F O. Mr. Cheng passed to introduce the quarterly financial information followed by a Q&A with a continuous adjustment of regulation the compliance cost of the financial industry has increased while compliance has become a matter of life and death for financial institution after an eight quarter transformation.
No. It has not only distributed zero, new non standardized of private credit products, but also 100% completed the early or are scheduled redemption of private credit assets.
And in this quarter things the transformation Noah has exited renminbi 32 billion of private credit products and completed distribution to clients in the first half of 'twenty or 'twenty, one with the promotion of the NOAA Triangle service model, we achieved the fastest growth in our diamond and black card clients think that transformed.
Asian with a strong support of our clients and the efforts of all of our employees. We have completed the transformation and maintained our youngest steady growth in the second quarter.
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In the second quarter of 2021, no one reported net revenues of 900 million year on year increase of 23%, while the non-GAAP net income attributable to shareholders reached 340 million are younger increase of seven 5% as of June 30th Noah has real.
Total non-GAAP net income of RMB 800 million, representing 6161, 7% of the full year guidance ahead of planned progress in terms of core business.
Transaction value in the second quarter was RMB 25 billion up 16.
16, 6% year on year, specifically the transaction value of private secondary market funds will be $7.7 billion up seven 6% year on year mutual funds were going to be $9.4 billion down 13, 3% year on year affected by the overall market performance.
It is worth mentioning that the inflow of private equity fund of funds managed by Gopher was RMB six 5 billion coupons five times that.
The same period last year, our performance in the overseas sector also rebounded well this year. The net income of the overseas sector, what do I mean, the 230 million young year increase of 23% overseas and would be $27.9 billion up seven 4% over the end of the first quarter of two.
2021 accounting for 17.1% of the group's total AUM.
At the beginning of this year, we once again decided to focus.
Our high net worth and ultra high net worth clients and our core client base I'm glad to report that as of June 30 is 2021, Noah has 6386 Diamond card clients, an increase of 12, 3% in the first half of 2021.
For.
1482, Black card clients, an increase of 18, 7% in the first half of 'twenty 'twenty. One this is the fastest growing quarter of diamond and Black Hawk clients since Noah's transformation.
Core clients action has continued to improve young yet in the second quarter of 'twenty 'twenty. One the total number of active clients, including new shows on owning clients exceeded 20000 young year increase of 38%.
Number of active clients, excluding mutual fund only clients increased by 39% younger than in the second quarter. The number of active clients of mutual funds increased by 36% yeah.
No one is committed to the transformation from product driven to client oriented.
The supernova relationship managers communications quantitative fund the completion rate of the monthly communication between our relationship managers and clients has reached 98% by serving our core clients within Europe, Noah triangle, So there's motors and through our digital transformation, we can provide superior products and services.
The right clients and right time on the premise of better insight into client needs in.
In the past relationship managers provided by product sales now the change is to adhere to screening and identifying accredited investors and here too comprehensive and higher compliance spend it and meet clients key wealth management needs in the correct way.
Other wealth management headquarters, we on my hand established clients identification system to accurately identify clients proposed client business strategies and formulate plans.
While on the other hand, we improved talent density in local branches through the address identification screening training and examination of wears rose nowhere triangles, so as to realize the transformation from sprinkler irrigation to drip irrigation of a client oriented.
Philosophy helps us serve our clients more accurately and efficiently.
With new blood coming our frontline talents are undergoing the survival of the fishes. The process all the time in 2021 no. We're ramped up the recruitment of relationship managers, adding nearly 200 new team members in the first half of the year the turnover rate of elite relationship managers maintained and inger.
<unk> of 147% during the transformation. We have also made a new organizational design for our wealth management segment from the past organization or structure of focusing on product promotion to today's new organizational structure and business scenario is focusing on client experiences and needs as well.
Customized solutions.
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As of June 30th 2021.
And what's really being our.
$165.9 billion stabilized and recovered we have achieved the milestone of the deal and now standardized private credit products. We feel very lucky that this has also given us time and space for reform.
Actively managed funds have posted varying degrees of squares of which the.
Public Securities was <unk> 11, 1 billion, an increase of five 5% over the end of the first quarter U M. A private equity was renminbi 127, 7 billion an increase of four 8% over the end of the first quarter Gopher.
<unk> target strategy products are also amount of key strategic focuses of the group as of July 16.
Gopher fund one gross one and balanced one have achieved the target investment return and outperformed the comparable market indices prudent products have also been lunched P. E coli investment in S. M series six will also be launched soon.
The series five focusing on growth and material contracts, while partially giving consideration to the layout of some early project has completed its investments ahead of schedule.
Like the group's growth was transformation is also client oriented firstly Gopher has established an investment research team of 39 members.
Who governs the phone research department, the macro strategy team the credit rating department and corresponding industry team.
Secondly, gopher in Davis to delve into the client portion of investing in Gulf of products.
Based on client need Covid.
So with portfolio management reports have been revised and optimized with more detailed unreadable content, which have obtained positive feedback from clients. So as to drive the governance, a photo management data and create a digitalized investment management process and systems.
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In the second half of 2020, one we will continue to expand the a S. A S R jeans and improve the quality of client marketing activities.
We built multi level, nor triangles centered on clients with one account representatives plus one fulfillment representative plus several solution representatives for collaborative teamwork.
Our account managers are responsible for client origination, providing comprehensive asset allocation services to clients and maintaining client relationships.
As product experts responsible for providing clients with product introduction evolution F. I S delivery excellence are responsible for providing clients with integrated portfolio reports and interpretation services.
We will implement matrix management from the group to local branches, making sure that each layer.
Its own duties from strategic planning to market planning and from quality control compliance quality control so as to improve the quality of deliverables.
The transformation, we are implementing is to make organizational design with clients at the center Butte, new business scenarios with survival as a bottom line identify evaluate and distribute values based on data and promote the implementation of transformation with organizational capacity building.
Information follows the method of easy first difficult later from the group two business segments, we will determine the transformation milestones and key inspection points at each stage I specify the transformation that we will see adhere to the philosophy of client in future oriented.
Given the inevitable how much its validation of standardized products, our services must be more targeted and client oriented at the same time, we will pursue long term sustainable development give us short term interests and strive to become an industry leader in terms of compliance business operation.
Taking survival as the bottom line.
We will input thinking framework methodology and management actions for capacity building.
In terms of human resources, we were based on the evaluation on the value created and distributed by the employees.
There was new wrenches qualification system have been released and implemented the ranking of employees have been completed through post the Wayne Hudson post the matching posted determination by responsibility salary determination by post post the salary linkage et cetera, no encourage us to wait movement of rent.
Kings and posted rotation.
We have established a classification system for professionals.
Covering the whole talent management lifecycle of selection education incitement to retention and retirement.
Broadening the broadening the Korean development channel of employees and optimizing the salary system.
Tuesday.
Of our staff and key posts have benefited from the salary increase at this time, which contributed.
Which contributes to encouraging and retaining core employees and driving the growth and development of all employees and.
The midterm employee experience survey in 2021, 83% of employees believed that the company's objectives emissions are clearer than last year.
There's a transformation has also deepened our understanding of the business.
We provide financial product products, mostly for high net worth and ultra high net worth clients provides family Trust insurance family office and other services around client motivation conduct marketing events based on client emotions.
Various claims activities in line, but their needs and make structural changes centered on empowering the front line all of which are based on compliance and digitalization are busy.
We believe that with the planning of Noah's New headquarters buildings, all client reception interface and visiting experience will be greatly improved in the future. We also plan to comprehensively improve and rejuvenate our brand image to show a side of Noah with more energy and wants to better serve our clients.
And further empower our frontline.
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Langton unsustainable development have always been how high but I know what this is.
Thinking about development Committee Noah Holdings.
Established the group's sustainable development structure to enhance the ESG awareness in.
In May 2021, Noah released a declaration on carbon reduction we are committed to the principles of sustainable operation to actively engaged.
Possible investment in such short medium and long term carbon neutrality goals.
Currently nearly two thirds of the newest employees are female I also signed the women's empowerment principles of U S women, creating opportunities for women to hold management positions and how.
He more women improve economic ability.
Look forward to a better tomorrow for sustainable wealth management and asset management industries now I was CFO, Mr. Pension will introduce to you the <unk> 'twenty one financial data in detail. Thank you.
Thanks, Tony and thank you chairlady.
Dear investors good morning, I'm very happy to share with you another solid quarter.
<unk> growth of cheaper cross revenue profit and transaction values over the comparable period from last year.
So very excited the robust growth in our client activities.
Especially a record high growth in black card clients benefiting from the continuous implementation of our upgraded client service model and digitalization strategy.
As of the first half of 2021, we also recorded non-GAAP net income of 800 million, which was ahead of schedule to meet the full year guidance of RMB, one two to one 3 billion.
Another notable milestone in this quarter is that we have successfully exited and more made for distributions to our clients all of the non standardized single counterparty <unk> private credit products within our AUM.
<unk> from unsettled portion of camps inflation problems that.
Distributions totaled over RMB 32 billion since the transformation started.
Second quarter of 2019.
We're also successfully settled with over 70% of our clients affected by attempting to them.
With this overhang removed we're pleased to see that our EQM is.
Stabilized and entered into a stage with steady growth.
Our efforts were also recognized by S&P global ratings.
He has recently lifted our rating outlook to stable for the next 24 months and then.
From our long term investment grade credit rating of BBB minus.
The chairman has pointed out.
After eight quarters of challenging yet effective transformations, we have successfully turned the corner.
Heading towards a new stage of growth.
Now please let me walk you through a more detailed results of this quarter.
Net revenues in the second quarter were RMB 899 million down 20.
26, 6% quarter over quarter, comparing to the last quarter.
But up 20% year over year.
One time commissions were RMB 246 million up 94, 5% year over year, driven by increased client activity and transaction values.
But also down 23, 6% quarter over quarter.
Recurring service fees were RMB two.
Two $500 million.
5% year over year, and 5% quarter over quarter, driven by steady growth in how are you performance.
Performance based income was RMB $122 million up 34% year over year and down 17% quarter over quarter.
Income from operations.
RMB $335.4 million during this quarter up 5% year over year, and down 33, 2% quarter over quarter and the operating margin was 37, 3%.
Looking at a six month period, we achieved net revenues of RMB two 1 billion in the first half of 2021 up 42% from the same period last year.
This was mainly contributed by a 16, 9% increase in one time commissions due to a strong growth in transaction values as well as higher than expected carry income achieved in the first half for you.
This impressive growth Europe.
Top line performance was backed by a robust client activities, especially Amar Black-hearted Diamond card client groups.
Black card clients grew 18% and 7% to 14.82 from 2020.
In our core client group, including Black Diamond card clients comparable with a traditional private banking group.
Increased by 13, 5% from 2020.
Totaling 7868 claims.
This shows that our strategy to invest heavily on this initiative has been working well and will continue to sponsor Diamondback Black card program.
To increase our market share of the ultra high net worth tier.
Our black card and Diamond card clients typically contributed to over 70% of total transaction values as long as AUM.
Over the second half of 2020 will continue to release.
Strategic spending budget to better implement and improve upgraded client service model.
<unk> continued to focus on the retention and expansion of our core Pas.
Over the long term.
Active clients in the first half also increased by 46% year over year to 32945.
<unk> total transaction value was RMB $52.1 billion or 16, 7% increase year over year compared to the first half of 2020.
Notably transactional value of long duration products, such as private secondary market fund products was RMB 26, 26 billion up 10% year over year.
In addition, the U M a private.
Equity fund.
On the advanced products managed by Gopher also increased by 13, 6% year over year. This increase in the volume of such products will also benefit us in the long term steady sources of recurring service fees.
Operating income for the first half was RMB 837 million up 45% from last year and operating margin was 39, 4% compared to 38, 6% from previous year compensation related expenses were RMB 970 <unk>.
$7.9 million up 44.
Four 6% from previous year.
Selling expenses also increased by 70% to RMB $182.3 million.
The increase in compensation as well as selling related expenses.
Reflection on efforts and talent acquisitions as well as resumed marketing activities as of year 2020 was impacted by the outbreak of COVID-19 when.
The marketing activities was revenue limited.
Non-GAAP net income for the first half was RMB close to 800 million up 40% year over year.
As for the first half segmented results net revenues from wealth management segment was RMB, one 5 billion up 43.
5% year over year accounting for about 70% of total net revenue.
Net revenues from asset management segment was RMB $526 million.
About 50% 51, 6% year over year.
Total AUM increased by one 2% from the previous quarter to RMB $855.9 billion and we have revised the khamsin related AUM.
Adjusted for the amount that has been settled.
Looking at our balance sheet, we have successfully closed the acquisition of a new office property.
And the related to the mountain has been reflected in the property and equipment.
Equipment section, we financed the transaction with cash on balance sheet and still have a healthy cash balance of RMB 12, 7 billion by the end of the quarter the.
The debt to asset ratio improved to 22, 5% from 24, 8% in the previous quarter and will continue to have no interest bearing debt.
Okay.
We're also very excited to join the group of prestigious investors and the recently closed a round of fund raising.
Capital in their work a market leader in global Fintech platform for alternative investments through this highly synergetic strategic partnership we look forward to improving our oversea product offerings to include more high quality global private equity and secondary market fund products for our clients.
So we will work closely with our capital to expand the international distribution channel for <unk>.
Gopher products.
Moreover, I would like to highlight our continuous efforts in ESG initiatives.
From our accomplishments mentioned by Chairlady, Wang will also establish an investment and product processes to incorporate criteria in relation to ESG, we hope to be able to offer more ESG related investment products to our clients in the near future.
In conclusion with the successful completion for standardized perhaps formation that started in the second quarter of 2019, we are well positioned to enter into the next phase of business growth will continue to invest in talent technology infrastructure to strengthen our competitive advantage.
And client servicing and product diversity.
Thank you everyone for listening I will now open the floor for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys if at any time a question that's 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.
Yes.
Yeah.
Our first question will come from Ethan Wang with CLSA. Please go ahead.
Thank you.
How was Europe.
What I find me Josh.
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I think one JV actually Jacob.
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Judy.
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And she will go to Europe.
We're starting to see.
Okay. So thank you mentioning I had two questions inflation.
Hum.
Thank you, it's COVID-19 transaction volume.
Mutual fund, we want to understand more on the retention rate size. So have you seen any no huge changes in retention rates or have you seen any large redemption.
On the second quarter and if possible can you give some color.
Good majors transaction born in a more neutral stance to learn and epic snowfall.
Your second question, we can't really state because we shouldn't be revenue neutral.
Temporarily halted at registration.
Residential when they stay flat.
So it doesn't upset our various states.
Thank you.
Okay.
Okay. Thank you.
Well the first question.
I think we didn't notice for a sort of slight slightly slowing down on the mutual fund distribution, probably about 13%, but as to the question of the retention such mutual funds.
We only notice about four days.
Slower a shorter income said retention period as of June 30th.
Total AUM mutual funds.
We'll keep it pretty stable.
The reason being is that I think how the clients purchased or Alan.
Allocated funds into mutual funds.
With Noah.
Not so much to the volatility of the market, but rather the prop.
Product to product sort of integral on where the need to park their funds. So I guess the behaviors are a little bit different.
From the retail market.
As you have pointed out we believe the entire market.
On the issue of house.
At least cooled down a little bit compared to the private periods prior periods.
Finally, you'd have them and do them I may or May also mean in Shanghai, where you want them to call phone can you just any change that this antigen Daiichi one trend, which we know well.
At the same time, the doses here, which I laid out how would you sort of saw habits. You go Hershey. If you don't know how easy it is and all that and not to do that.
Woman changing trade, so they'll find either a bathroom snow Israel has support of Jihad shotguns voyaging. So you could see that you well know me or she's in April he or she is under the Sunday times without legislation.
So the impact on the residential type of poverty funds to us is very minimal.
We didn't have at the peak probably in 2016.
Had about hundred billing them.
In our real estate related funds, but we have exited fully.
From that.
And in France in 2000, starting in 2017.
Tony We don't have anything that in the residential property type of investments are the only thing we're still holding yes in some of the equity type.
Real estate funds as well as the holding of several office buildings.
And Shanghai.
Sure got it.
Thank you.
Okay. Thank you Ethan.
Our next question will come from <unk> with Bank of America. Please go ahead.
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Oh, so I have two questions. The first one is regarding the distribution to our private equity and private.
Hedge funds and all that because we have seen the tightening of.
The tightening of IPO of Oh, Yeah, Oh, they tend to be volatile E impact.
That's the that transaction value of Europe E product as well as the accident.
Accidents of Europe.
<unk> product.
So you would see a big market volatility so they'll also impacted the distribution.
Fifth Street is hidden value of your hedge fund all that and the second question is about what E. B a supplement.
That's well known.
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Thank you.
Thank you and let me get the first simple question out of the way.
In terms of the settlement second quarter, well basically when clients came to us and ask for a little bit more time and negotiate for the settlement plan or usually you know obviously, we'll cope with that so there will be a you know here than some settlements are done.
During the second quarter, we had about additional 30 to 40 people.
That came to settle with us in the first half.
Of the year.
But obviously, we're not going to go ahead and do any.
Broad offering of any new type of a settlement plan, so they'll cam and take.
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And last year.
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Obviously you know.
Funds that you could also exiting path.
Through oversee listing as well as domestic listing but you know.
Just to say that the pressure recently of attention.
Increased uncertainty on the short term outlook on the capital market, but we hold the view that it's a the transformation.
From your economy from old economy, two new economy.
That cannot be reversed.
In terms, how the clients are allocating.
Well as the pricing you know their funds future, especially especially that you know.
A good portion of our clients actually.
Probably came from the so called traditional type of industry. So they have the earth as well as the demand to actually transform.
Their own enterprise as well as through investing into new economy.
Their exposure into the new.
Economy. So there may be short term volatility in such investments, but I guess, the long term outlook of how they would place and allocate their assets into the new economy that will not be reversed.
Actually looking at how today's China market for people to invest.
Obviously, the real estate is not an ideal target anymore.
Also as well as some of the so called now standardized products have been pretty much cleaned out by the regulator. So there's isn't much option for people to.
Making investments that's why although there are short term volatility.
The market continued to stand very active.
In the recent period.
And also in addition, our U S products, especially the profit that's being operated by our New York and Silicon Valley team are still deliver them pretty strong performance despite investments in our companies.
Companies in the states as well as some of the real estate projects that generating pretty strong cash flows for our clients. So are there product actually being very popular for the first half of year as we have mentioned that our the need the income and also operations for the oversea.
A portion of nowhere this year have actually seen a pretty strong recovery.
Okay.
Thank you very much.
That answer your question.
Oh I'm sure that just yet.
After the demo.
Again, if you have a question. Please press Star then one our next question will come from Yoga, a sudden with CIC C. Please go ahead.
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Ah Okay Watchman Tonight My classroom. So my first question is regarding the number of suppliers would you. Please give more detailed explanations on the reader of the exotic built of the black card and Donald gone with clients.
And the setting of the classroom regarding the relationship managers I wonder what's the number of the Orange side, the percentage of our elite relationship managers.
And we also see that the 10 older right of elite relationship managers was one 7% largely higher than the previous year and I Wonder what's the reason behind that yeah. That's my classroom.
Uh huh.
Thank you.
So let me first try to.
Breakdowns. Unfortunately.
The elite R M.
Actually it takes part about 30% of the total RM team for.
The second quarter that actually been pretty stable.
For the past quarters also.
In terms of the growth in cobalt.
Once I don't know which ones they call.
Okay I'll continue to also provide some insight.
Insight from my perspective, actually I'm, one of the project leaders.
In terms of the Black card environment, our card program, that's being established this year and we have done a few things aside from the Nova Triangle service model as well as the digitalization, who actually made additional investments and continue we will make additional investments in the second quarter.
In the second half of the year to greatly enhance the benefit system and loyalty program.
The black card and time on card program.
You may have noticed in the past few quarters that we have had.
Some very unique activities and also pretty exclusive activities.
For the Diamond Black card clients, including.
The snowboarding with a world champion enough. It was actually a full time employee of nowhere.
As well as a sort of close to worst scenario.
That said to host a group of Black card clients are in the summer palace things like that I think is actually part of systematic effort to make sure that they're not only receive the most suitable products are in financial products, but as well as they were.
We'll have a very unique client service experience with nowhere.
So obviously that type of investments helped our relation managers to be able to actually connect reconnect with their core client group very effectively.
And I think that's one of the strongest reason that we see a pretty big push in terms of the growth in our core client group, which is the market share that everybody in the industry as a target to increase so we're very happy to see that the strategy is working and will continue to invest.
Investing in that particular sector.
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Yeah, that's a good coaching Tanya if I can let you know typical European good okay.
Yeah, and Charlie they've made a very good clarification and this is probably the last time, we have this name so called reference to elite relationship managers.
I'll ask that our service model to our clients have a.
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Service providers to our clients in terms of nowhere triangle.
The service model so in the past that you know we.
Completely rely on one person.
To make the service the product recommendation to our clients that Europe, probably has passed we'll.
We'll continue to push forward.
The motto of servicing our clients with a full team with a product specialist.
With a service specialist as well as you know the chief relation managers, who actually if you look at our clients complete set of needs in terms of asset allocation and other service needs. So I think that's a very good clarification, that's where probably you know moving toward a more.
More complete service type with a team onto our clients.
So Europe with add on you wouldn't came a yoyo.
Hey, Chris.
Cuz.
Well that just yet.
This concludes our question and answer session I would like to turn the conference back over to Mr. Grant Pan CEO for any closing remarks.
Okay.
Oh by the way thanks, a lot for the promotion.
And thank you everybody on behalf of the company also cheerleading, one thanks for your time and are very happy and encouraged to see that you know after eight quarters of transformation.
We are actually heading towards a new stage of growth.
And our hope to continue to deliver strong results for investors. Thank.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.