Half Year 2022 Hywin Holdings Ltd Earnings Call
Good morning, and good evening, ladies and gentlemen, thank you for standing by welcome to high win Holdings Limited's first half of fiscal year 2022 earnings Conference call. At this time all participants are in a listen only mode. We will be hosting a question and answer session.
After that managements prepared remarks, well turn the call over to the first speaker today, Mr. Ryan Ting Investor Relations arbiter of Pie. When please go ahead Sir.
Thank you operator, thank you all for joining today's call for high winds are audited financial results for the first half of fiscal year 2022.
Before we start I refer you to the Safe Harbor statement in the company's earnings release, which also applies to the conference call today as our management will make forward looking statements.
On the call with me today, our director and our C O Madam Wang and our CFO Mr. Lawrence Lock.
Minimal won't will review the company's performance for the first half of fiscal year 2022, Mr Law will translate for Madam Wang Yu.
You may refer to our financial results, our first half of fiscal year 2022 on the Companys IR website at IR dot hiring while it's become.
I will now turn the call over to director and CEO of Highland coatings bottom of Walden.
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Hi, everyone welcome to <unk> Holdings earnings call for the first half of fiscal year 2022 on today's call I will review, our first half results and update you on the significant progress across our business segments.
I will also share some highlights from our ongoing strategic transformation.
After that I will turn the call over to Mr. Lawrence Lark, our chief financial officer to provide greater details on the company's first half financial performance.
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In 2021, the Covid pandemic was still raging across the world. However, China achieved earlier economic recovery, thanks to its policies.
China's strong growth momentum became an important backdrop for the wealth management industry.
Based on statistics compiled by Mckinsey, China is now the second largest wealth management markets globally.
With household investable assets exceeding 330 trillion renminbi by 2025.
As a result high net worth individuals in China expect an expanding range of sophisticated and professional services from their wealth managers.
As high winds platform covers a full spectrum of asset classes and client services <unk> is well positioned to capture the long term wealth creation opportunities in China.
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In the first half of fiscal year 2022, we continued to benefit from diversification in our business mix and we delivered resilient financial results in the first half <unk> reported a net revenue of $881 3 million renminbi.
Increasing by one 4% year on year, which demonstrates our institutional resilience in a challenging and volatile external environment.
Operating cost and expenses were $792 9 million renminbi, increasing four 5% year on year. This increase reflected our continued investment and advisory capabilities and technology platform, which underpin our ambition to build.
A world class investment advisory and asset management infrastructure.
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As of December 31, 2021, our total clients reached 135000, representing a year on year growth of 12, 5%.
In the first half of fiscal 2022, the number of active clients increased 22% year on year to exceed 35, 4000, which is a new record high for us.
Client repeat investment rate for the trailing 12 months was 81, 6%, which was six three percentage points higher than the same period in 2020.
This is a key metric were high wind dominates the industry.
This continued growth of our client base and a strong client activity levels.
Underscoring our product sourcing capabilities and asset allocation expertise.
For the past 16 years high wind has been a trusted partner for Chinese clients, helping them navigate through economic cycles and capture investment returns.
Our insights into clients and foresight on the markets have cemented our position as a leading wealth manager trusted by Chinese clients at.
At the end of 2021 we held VIP clients conferences in 16 cities in China to marks our 16th anniversary.
Our in House research team was joined by economists and strategists from leading financial institutions to analyze trends and help clients position for the coming year.
And in March 2022 Highway will join hands with all partners VP Bank, and what breathing Asia and jointly launched a report on the private market investments space in the Asia Pacific region.
This report will shed light on the players in the private market space, including high net worth clients fund managers portfolio companies and financial intermediaries and off of guidance to our clients on this exciting market.
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In the first half of fiscal 2022 total client transaction value and our wealth management segment reached 37 5 billion renminbi, increasing three 5% year on year.
In response to the changing environment and the real estate sector, our asset allocation methodology and institutional risk management proved to be effective.
Transaction value from long term asset backed products declined by 37, 4% year on year to $13 7 billion renminbi, whereas the transaction value from short term asset backed products increased by 62% year on year to 16 now.
9 billion Renminbi, which was a calibrated rotation in our clients' asset allocation.
And as a result of our adaptive asset allocation and strong client stickiness, our business demonstrated resilience in this period.
We also made progress on the diversification of revenue mix.
The transaction values from hedge fund products and private equity products reached $2 97 billion renminbi, and 919 million renminbi, respectively, growing 440% and 296% year on year, respectively.
Meanwhile, as China's domestic Asia stock market faced volatility in this period the transaction value from mutual funds stayed largely flat at two 7 billion renminbi.
Notably we have been stealing clients towards long term investing principles and helping them allocate towards longer tenor private market products and extended investment horizon can help clients capture strong returns across market cycles.
Our product sourcing therefore continued to expand across asset classes.
And across strategies, which are the building blocks for constructing segmented and tailored portfolios for clients.
In the first half of fiscal 2020 to our asset management business continued to scale up with AUM growth up 74, 2% year on year, reaching $3 3 billion renminbi.
And 'twenty two we will continue to build up our family office offerings execute on our globalization strategy and expand partnerships with international asset management partners in order to enrich our global solutions for clients.
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By December 31, 2021 our distribution network has grown to 178, well servicing centers and 88 cities, including most of the top 50 cities in China ranked by economic output.
Our nationwide presence covers all of China's major world clusters, namely the young Z River Delta the Greater Bay area, The Bowl high economic rim, and central and Western China.
With penetration into lower tier cities, where the local wealth pools are sizable.
Going forward, Taiwan will use the bohai economic room, and the greater Bay area as our two regional hubs together with our 18th strategic cities, where we will focus on increasing our market share and building a brand power.
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Our talent base remained strong in the first half of fiscal 2022. The total number of relationship managers were 1600, and 43 1643, largely unchanged from the previous year prop.
Productivity improved significantly as the average transaction value per relationship manager reached $23 5 million renminbi growing seven 5% year on year.
The elite segments of our relationship managers continued to be highly stable with a turnover rate of less than 5% for the previous 12 months, which beats our peers in this important metric.
Meanwhile, we intensified efforts to nurture young talents.
Campus recruitment.
At leading universities in China.
We believe a strong middle back office support system is also crucial to efficiency gains and advisory quality. So we continuously adopt.
Best practices in 2020 , one the PPA Oc the people People's Bank of China published a code of best practices for the wealth management industry with clear guidance on professional standards, our training certification and Kpis regime half therefore incorporate.
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Technology, and Digitization are crucial enablers and high winds strategic transformation in December 2020 , one we appointed Mr. <unk> as our Chief Technology officer to accelerate our digital transformation.
Our collaboration with IBM also continued to yield results as we digitize our clients surfaces.
Our relationship managers portals, and our operational processes.
The high end mobile App, which is the client portal also continued to improve and client experience and service capabilities.
Daily active users of the App, so year on year growth up 40% in this period.
Our proprietary decision enable us system full relationship managers has achieved adoption rates of nearly 100%.
It is now supporting our staff across client acquisition client servicing and portfolio customization.
Now, 100% about tailored at the allocation of proposals are now constructed online and more than 80% of our businesses can now be digitally executed.
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We are also expanding and laying the foundation to expand into health care as well and help our two overarching goals for most high net worth families in China.
Our vision is to leverage our core wealth management business, while building out asset management and health management as to strategic levers to grow and monetize our high net worth client base.
As an opening shot in our entry into health care in late 2021, we launched the high wind Global Health Care Fund.
The objective of this fund is two fold.
Investing into global opportunities in healthcare and life Sciences on one hand.
Potentially introducing selective global cutting edge health management technologies and services for high net worth clients in China on the other hand.
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Over the past year, we achieved significant results across multiple fronts from diversification of revenue mix to the upgrade of our research and advisory platform to enhancing our talent management and performance delivery to the expansion of the highway ecosystem into.
New domains visa.
These achievements are rooted in our market leadership and our dedication to clients.
Our strategic direction is clear and we expect strong momentum to continue.
Looking forward, we will continue to enrich our Bozeman, our wealth management business scaled up our asset management franchise.
The main the Premier brand that high net worth clients in China Trust to guide them across market cycles and across borders.
We seek to unlock growth by expanding our boundaries increased profitability from cost discipline and drive efficiency through technology, creating sustainable value for clients and for shareholders is always our first priority.
Thank you all for your support and with that I would like to turn the call over to our CFO Lorence lock.
Thank you Madam Wang Thank you all for joining US today. Please note that unless otherwise stated all financial numbers presented today are in renminbi and comparisons are made on a year on year basis.
During the first half of our fiscal 2022 ended December 31, 2021 our total net revenues increased by one 4% year on year to $881 3 million overall, we believe the step.
Ability and our topline in this period is a testament to high winds resilience. Despite ongoing uncertainties in the macroeconomic environment, both in China as well as globally.
Revenues from the wealth management segments were $855 4 million remaining flat from the same period in fiscal 2021.
Revenues from the asset management segment, we're at 9.0 million up 35, 1% year on year as.
As we continue to strengthen our investment management capabilities and realize greater investment gains for our clients. We expect our asset management segment to continue delivering strong growth going forward.
On the cost and expenses side total operating costs and expenses for the reported six months was $792 9 million up four 5% year on year.
Amongst that compensation and benefits were $494 1 million.
<unk> was flat year on year and was in line with our distributed transaction value and the stability in our relationship manager team.
While our SG&A expenses were $294 7 million and 11, 4% increase year over year.
As we further built out our technology and our talent platform, while increasing our share based compensation expenses.
On the balance sheet side as of December 31, 2021 our cash and cash equivalents increased by nine 6% to $481 5 million.
Also as a result of our continued optimization. Our total account receivables was reduced to $561 1 million as of December 30, 121.
During this period, we also made an investment to purchase the office space about headquarter in.
In Shanghai, which we view as essential to the long term development of our headquarter.
We continue to maintain a healthy liquidity profile and financial position our liability to asset ratio further fell to 48% as of December 30, 121 compared to 53% on June 30th.
Overall, we believe this reporting period once again demonstrated pilots resilience in the midst of an uncertain economic environments, where there was considerable capital market Volatilities.
It was reassuring, though that during this half our customers continued to show strong demand for our services, our advisory and our investment products.
We believe our ongoing strategy execution, including our product diversification strategy, our platform strategy and our talent strategy will help us in capturing the dynamic opportunities in China's fast growing wealth management industry.
Thank you everyone. This concludes our prepared remarks for today and operator, we're now ready to take questions.
Yeah.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question rest of powerhouse.
When asking the question. Please state your question in Chinese first.
Then immediately repeat your question in English for the convenience of everyone in the call.
Your first question comes from the line of judging Sun from Orient Securities. Please ask your question.
Okay.
Hello, I'm talking to you from our own securities.
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In the first half of the fiscal year 2021 .
The performance of the fund the racy and the top nine will almost the same as compared to the same period of the.
Most of the year. So my question is what are the drivers for the growth of the company and long term.
Thank you.
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Let me translate this.
First of all in in the first half.
Fiscal 'twenty two.
Given that there was external market volatilities.
And changes in the regulatory environment.
There were also changes in the client demand.
And the underlying asset classes or sector allocation.
Alright, but.
What we saw was that client demand for asset allocation services as a whole.
Continue to be very strong for us.
So we acted ahead of the market and adjusted our asset allocation guidance that we gave to our clients.
And that's one point and then the other point that we wanted to make was in order to help our clients continuously capture returns from long term asset allocation regardless of market environment.
What we also did was we further expanded our partnerships with leading fund managers in the industry in order to increase our equities products long term equities products, including our especially our private equity products as well as some some of our secondary market hedge fund products, which as you saw just now we.
Presented.
<unk> grew 440% and 296% respectively.
And Furthermore.
Our in house asset management segments will also grow as we continue to strengthen our investment management and research capabilities and expand our asset management team.
So we believe that all of these going forward will create long term value over time.
As there will be further diversification in our wealth management product offerings as well as the growing scale of our client AUM, our client assets under management.
And we should therefore see our recurring revenues grow over time, as well, which will have a positive snowball effect that will benefit both growth as well as revenue visibility.
Operator next question please.
Okay.
Sure. Your next question comes from the line of Teng from Nomura. Please ask your question.
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Yes.
Thank you. Thank you for the question. So let me answer this one.
Yes, sorry please.
Okay.
Oh, Okay, Oh procedures are English version.
But I noticed the operating margin declined year on year risk personal across the country for over 50% of the revenue. So what is the company's kind going forward to increase operating margins and profitability.
Sure.
Yes. Thank you. Thank you very much for the question. So let me ask this one so.
So a couple of points, we can make here.
Number one right first let me emphasize that cost control and efficiency improvements continue to be a key priority for all senior management that hasn't changed that said this year. What we did was we strategically invested more in our people and our infrastructure in particular.
To strengthen our core platform and our technology.
Which we believe will benefit our long term profitability.
Second as we accelerate our Digitization strategy is we we discussed just now right. Our relationship managers. We believe we will be increasingly empowered by technology to improve their client acquisition efficiency as well as <unk>.
The overall client experience from clients, which we also believe will help us obtain high productivity.
From the relationship managers over time, so that our future growth will come with lower marginal cost as well as higher <unk>.
Margin.
And then the last point, we want to make is.
As our revenue mix will further diversify as we talked about just now at a greater portion of our revenue will be coming from longer tenor longer duration products, we expect to grow our recurring revenues and.
And our performance based revenues.
And higher recurring revenues in the long run should also benefit.
Both our revenue visibility as well as our profit margin over time.
Thank you and next question please.
Okay.
Your next question comes from the line of Sandy Mehta from evaluate research. Please ask your question.
Yes, good afternoon.
How much were your results impacted by the volatility.
Within the real estate investment products.
That's been happening in China, and most of it and there's most of the client churn or reallocation or teens investments with willing to real estate is that now behind you. Thank you.
Yes. Thank you thank you sandy.
I'll answer this question as well.
So I think youre right in pointing out that there was market volatilities and changes in the environment right in the overall macro microeconomic environment and.
And in particular relating to the real estate sector. So what we did right. In this period that was important was we had to act ahead of the market basically and and basically adjusted our asset allocation strategy and response right.
To the changing environment. So what we talked about just now in the in the main main part was that we felt that overall, our asset allocation methodology as well as well as our risk management methodology worked well. This this and this period as we guided our clients away from.
The some of this.
Underlying underlying <unk>.
Exposures, but directed them towards shorter duration and lower risk.
Asset backed products in this period and so we saw this as effective as to your question on whether the changes or the volatility in the underlying physical market or the underlying factor is is over I think it is.
It is perhaps premature for us to comment on that right, but I think what's important for US is that we are offering right a full range of assets right products that our clients right Ken Ken.
Just into in their portfolios and construct healthy and balanced portfolios that can capture returns in the longer run.
Thank you next question please.
Yeah.
Your next question comes from the line, Jeff Wong from T M. Hong Kong. Please ask your question.
Okay.
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And let me repeat my question in English. So this is Jeff Wong putting some investment my question is how do you see that competition coming from other competitor like things brokers and other independent wealth managers.
I think those international players entering China. Thank you.
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Okay, Let me translate for minimum Wong so our view on competition and the market is that firstly.
China's wealth management market is both a massive tam right both in massive total addressable market as well as a fast growing markets right. So our view is that China's wealth management market is not a one size fit all industry, but it is comprised of many.
Different client segments that is that should be served by many different tiers and types of financial institutions.
So for independent wealth management players like high win.
Really what the core value proposition that we can provide is that we can always start from our high net worth clients prospectus right understand our clients and provide tailored asset allocation services.
So we do believe that high net worth clients and family office clients in China.
Do see the value that a long term trusted adviser like hiway is able to provide.
And then there are foreign institutions or private banks in China. They.
They may be well established and their service model in their own right.
But they may not be STB local as we are.
For us high when we've been we've been in this business right and this wealth management business for over 16 years, So our clients long standing experience with us through the various macroeconomic and market cycles.
Our deep penetration into the various local markets in China, We believe will continue to serve as our competitive moat.
Thank you.
Question. Please.
There are no further questions at this time I would like to hand, the conference back to today's presenters. Please continue.
Okay.
One further question that this will be the end of our call. Thank you very much and we look forward to seeing and hearing from you guys on our next call. Thank you have a good day.
Hey, good idea.
Okay.
This concludes today's conference call you may now disconnect your lines. Thank you.
Okay.
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