Noah Holdings Limited (NYSE: NOAH), a leading wealth management service provider in China, reported its third-quarter earnings for 2024. Despite a year-on-year revenue decrease of 8.8%, the company saw an 11% sequential increase from the previous quarter. The earnings call emphasized Noah's strategic pivot towards international expansion, particularly highlighting the growth of its overseas segment, which for the first time contributed over half of the group's total revenues. The company's total revenues reached RMB689 million, with overseas revenues up by 28.9% year-on-year, now accounting for 55.1% of the total.
Key Takeaways
- Noah Holdings' total revenues for Q3 2024 stood at RMB689 million, with a year-on-year decrease but a sequential increase from the previous quarter.
- The company's overseas revenues grew to RMB377 million, making up 55.1% of total revenues.
- U.S. Dollar Assets Under Management (AUM) increased by 16% to $5.6 billion.
- Operating profit was reported at RMB241 million, with a solid operating margin of 35%.
- Cash reserves are robust at approximately RMB4.8 billion.
Company Outlook
- Noah Holdings is focusing on becoming the go-to wealth management platform for Mandarin-speaking investors globally.
- The company plans to continue enhancing product offerings, expanding its international presence, and improving online service capabilities.
Bearish Highlights
- Domestic revenues have dropped by 32.6% year-on-year due to limited new business activities and lower recurring service fees.
Bullish Highlights
- The company's international expansion strategy is paying off with substantial growth in overseas revenue.
- Noah has successfully launched new brands and services tailored for overseas Mandarin-speaking clients.
Misses
- Despite the international gains, the company's overall revenue has seen a decline compared to the same period last year.
Q&A Highlights
- CFO Graham Pan emphasized that transformation is a key driver of Noah's growth.
- CEO Zander Ng noted increased activities and interest among offshore Mainland China clients.
- Ng also reiterated the importance of advising clients on investing in global beta returns as a crucial asset allocation strategy.
In summary, Noah Holdings is navigating a challenging domestic market by aggressively pursuing growth opportunities abroad. The company's shift in strategy towards serving Mandarin-speaking clients internationally appears to be bearing fruit, as evidenced by the robust growth in its overseas revenues and AUM. Noah Holdings' leadership expressed confidence in the company's transformation and its ability to adapt to the evolving financial landscape. With a strong cash position and a clear focus on international expansion, Noah Holdings is poised to continue its efforts to cement its position as a leading wealth management platform for global investors.
Full transcript - Noah Holdings Ltd (NYSE:NOAH) Q3 2024:
Conference Operator: Please note this event is being recorded. I would now like to turn the conference over to Mello Shi, Senior Director and Head of Global Capital Markets Group.
Please go ahead.
Mello Shi, Senior Director and Head of Global Capital Markets Group, Noah Holdings: Thank you, operator. Good morning, and welcome to Noah's Q3 2024 earnings conference call. Joining me today on the call today 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 our recent business highlights, followed by Mr. Pan, who will discuss our financial and operational results. They will all be available to take your questions in the Q and A session that follows.
Before we begin, I'd like to gently remind everyone that we'll be hosting a corporate open day in Hong Kong on the afternoon of December 6. The event will host analysts and investors and feature today's executive management team as well as others who will offer insights into the wealth management needs of our target client base, discuss global investment allocation strategies and showcase the progress we have made with our competitive global investment product offerings and comprehensive service matrix. Event registration is required to attend in person. A link to register was included in the press release announcing the event we issued last week. The event can also be viewed live via webcast or replay on our IR website.
Please feel free to reach out to our IR team should you have any questions about how to register or watch the event online. In addition, please note that the 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, those outlined in our public filings with the SEC and Hong Kong Stock Exchange. Noah does not undertake any obligation to update any forward looking statements, except as required under applicable law. With that, I would like to pass the call over to Mr.
Zander Yin. Please go ahead. Thank you, and good morning or evening to everyone. Similar to last quarter, we'll share our financial results and domestic by domestic and international segments, followed by an overview of our growth strategy for both. As noted on last quarter's call, we're actively pursuing the strategy of refining the domestic market, while expanding internationally.
Domestically, we're strategically deploying sales personnel to specific independent and licensed business units. We're leveraging Noah Upright Fund Distribution, whose core strategy is to focus on developing an online first business model complemented by offline services to allocate RMB assets globally. In the insurance brokerage segment, lower insurance brokerage is focusing on building a commission only agency team. In the asset management segment, Gopher Asset Management is focused on managing exits in the primary market and cross border products in the secondary market. At the group level, we are establishing a dedicated business development team to engage more effectively with high network clients through investor education and cross industry partnerships.
The evolving regulatory environment requires us to adjust each business unit to adopt a distinct service model to ensure compliance and improve operational efficiency. Globally, we launched new brands to serve overseas Mandarin speaking clients this year, including our wealth management arm, ARC Private Wealth, asset management arm, all of the asset management and global insurance trust and comprehensive services arm, lowering family heritage. At the same time, we are accelerating our expansion into global markets by gradually rolling out our wealth management services, targeting key markets such as Southeast Asia, Japan, Canada, the United States and Europe. We target 3 client segments, high network families and companies that recently relocated overseas or are preparing to do so secondly, Mandarin speaking individuals or businesses who have immigrated abroad for less than 5 years thirdly, Mandarin speaking settled immigrants who have resided overseas for a prolonged period of time. Our strategy focuses squarely on addressing the diverse needs of these client segments by offering a tailored range of products and services.
Turning to our financials for the quarter, total revenues were RMB689 1,000,000, a decrease of 8.8% year on year, an increase of 11% sequentially, primarily due to a 32.6% year on year decrease in revenues from Mainland China, which was partially offset by 28.9% increase in revenues from overseas. Revenues from overseas increased 35.3% sequentially as well. Similar to last quarter, I will use each business unit as the primary framework for updating investors on their performance and operations. Following my remarks, our CFO, Mr. Graham Pan, will provide an analysis of our overall financial performance.
Internationally, we continue to enhance our product metrics to better serve our clients and improve our online service capabilities. During the quarter, we launched several products tailored to the 3 key client segments I mentioned earlier. During the Q3, net revenues from overseas were RMB 377,000,000, an increase of 28.9 percent year on year and 35.3% sequentially, accounting for over 50% of the group revenue for the first time, primarily due to an increase in revenues from offshore investment products, while U. S. Dollar AUA and AUM increased by 5.7% 16% year over year, respectively, as well as increased distribution of overseas insurance products.
Hong Kong, Singapore and the United States have been designated as the primary overseas booking centers for ARC Wealth. These booking centers not only service existing clients, but also facilitate engagements with new clients in Southeast Asia, Japan, Canada and other regions. As of the Q3, we had 146 overseas relationship managers, including the direct sales team from Hollys Asset Management, an increase of 89.6% year on year and 29.2% sequentially. Overseas AUA, including 3rd party distributed products, reached US8.7 billion dollars a 5.7% year on year increase. As of the 3rd quarter, ARPU Private Wealth's total registered clients exceeded 17,200, an increase of 20.9% year on year.
Specifically, the number of accounts opened in Hong Kong reached 17,038, an increase of 19.8% year on year. In Singapore, we had 735 accounts, a substantial increase of 168.2 percent year on year. In the U. S, we have served over 1,000 clients cumulatively. Additionally, the number of discretionary investment clients reached 10 12, an increase of 55% year on year.
IARC is our online wealth management platform that offers money market mutual funds and securities trading. During the quarter, it generated revenue of $8,000,000 an increase of 190.7 percent year on year. Following the launch of iARC app in Singapore, our service capabilities for Singapore local clients improved significantly. We expect North Singapore to reach breakeven point by the end of the year. During the Q3, the number of overseas active clients reached 3,139, an increase of 37.4% year on year.
Total (EPA:TTEF) transaction value during the same period was US1.1 billion dollars an increase of 15.8% year on year. The number of active clients in US dollar mutual fund products reached 2,691, an increase of 53.1 percent year on year, with the transaction value of mutual funds reaching US494 million dollars an increase of 83.7% year on year. Overseas transaction value for corporate and institutional clients reached $88,000,000 in the 3rd quarter, an increase of 57.1% year on year, while the AUA reached $213,000,000 an increase of 70.4 percent year on year. On the international asset management front, we launched our new asset management arm, Olive Asset Management to provide clients with actively and externally managed overseas alternative investment products, as well as mutual fund products. During the Q3, transaction value of U.
S. Dollar private equity products reached $152,000,000 a significant increase of 46.7 percent year on year. Transaction (JO:TCPJ) value of U. S. Dollar private secondary products, including hedge funds, structured products and term deposits, reached $395,000,000 Excluding term deposits, the transaction value of hedge funds and structured products reached $93,000,000 the highest since 2023, up 21.5% year on year and 17.1% sequentially as we continue to enhance our public product matrix public market product matrix.
As of the end of the quarter, AUM for overseas products reached US5.6 billion dollars a 16% year on year increase and accounting for 26.3 percent of the total AUM, compared to 22.8% during the same period last year. AUM for overseas private equity and other primary market funds reached US4 $300,000,000 a 19% year on year increase. To provide comprehensive services for Hanover families overseas, we launched the Glory Family Heritage brand, which offers identity planning, global insurance, trust services and other integrated solutions. This segment generated total revenue of RMB145 1,000,000 in the 3rd quarter, an increase of 42.4% year on year and 40.1% sequentially. Glory is actively exploring new business models as well.
We are expanding our team of licensed commission only agents and establishing new client referral models for external agency channels, where we have already made significant progress. We recruited over 30 commission only agents during the quarter, with more than 1 third already contributing revenue. Regarding external agency channels, we have achieved a breakthrough from 0 to 1. We are targeting 3 types of institutions with a range of value add services and professional capabilities for their clients, including cross industry institutions, professional service agencies and licensed financial institutions. To date, we have signed contracts with 19 external institutions, which have already begun to contribute to revenue.
We have also gained valuable insights from this model and will focus on its further development moving forward. Domestically, we remain committed to our refining operations approach. We are ensuring compliance to effectively reduce costs and are focused on selecting products that can safeguard clients' interest in the long term, emphasizing investor education and foster deep engagements with our clients. In the Q3, net revenues from Mainland China contributed RMB312 1,000,000, a decrease of 32.6% year on year and 8.8% sequentially. This was primarily due to limited new business activities and decreases in recurring service fees from RMB investment products and revenues from domestic insurance products.
Noah Upright, which offers mutual funds and private secondary products, generated total revenues of RMB108 1,000,000 in the 3rd quarter, a decrease of 21.7% year on year. During the Q3, the transaction value for RMB mutual funds reached RMB5.2 billion, a decrease of 60% year on year, but an increase of 4% sequentially. Transaction value of RMB private secondary products amounted to RMB786 1,000,000, a decrease of 55% year on year and 35.7% sequentially. These changes were primarily due to adjustments in our product strategy. Gopher Asset Management achieved total revenue of $181,000,000 in the 3rd quarter, a decline of 17.3% year on year.
In the primary market, Gopher's investment team continues to focus on exits for existing investments. Himing successfully achieved over RMB6 1,000,000,000 in the primary market exit so far in 2024. Strategically, we are enhancing daily supervision and management of portfolio funds and projects, exploring diverse exit strategies and improving dividend payout from the underlying assets to improve DPI. Additionally, the investment team is proactively expanding the buyers market by pursuing exit opportunities through asset acquisitions or secondary fund transactions. In the secondary market, private secondary products managed by Gopher primarily focused on deploying RMB to invest in onshore cross border ETFs with the goal of capturing beta returns from the global market.
This product series generated transaction value of nearly RMB 100,000,000 during the quarter. Total revenue from Glory Insurance Brokerage Onshore during the quarter was RMB9 1,000,000, a decline of 89.9% year on year. The decrease was primarily due to adjustments made to the sales team and product selection strategy. We're also establishing a commission only agent model. In terms of product selection, the focus is on medical and retirement related services.
With the new sales team structure and new product mix, we expect this business to take a bit longer to ramp up. In summary, through our strategy of refining the domestic market, while expanding internationally, we're making significant progress. As we establish a global client service model, we're seeing significant demand for our overseas services among overseas Mandarin speaking clients. Our new vision is to become the preferred wealth management platform for global Mandarin speaking investors. I would now like to turn the call over to Grant to go over financial results in more detail.
Thank you.
Graham Pan, CFO, Noah Holdings: Thanks, Nelo, and thank you, Xander. And greetings to everyone joining us today. Globally, the 3 major U. S. Stock indices reached historical highs in 2024, with the NASDAQ Composite up 25% this year and 80% since the end of 2022.
Our clients have benefited from a forward looking global CIO house view, which began recommending clients allocate funds to QD products, especially linked to U. S. Equity in 2022. We believe the overseas wealth management needs of clients remain adequately addressed. Therefore, we continue to actively expand our international businesses by increasing the number of local branches, strengthening our local relationship manager teams and enhancing our online services capabilities to improve the quality of our offerings.
Now, let's get into the details of our financials. I'm very pleased to report that our 3rd quarter results have regained positive trend, with net revenue reaching RMB684 1,000,000. While this is still weaker, 8.8% compared to the same period last year, it does reflect an 11% increase sequentially comparing to last quarter despite significant market pressures. This increase is mainly driven by the growth of our overseas businesses. Overseas net revenue in the Q3 reached RMB377 1,000,000, a year over year increase of 28.9 percent, accounting for 55.1 percent of total revenue.
Specifically, revenue from U. S. Dollar denominated investment products reached RMB191 1,000,000, up 42.5 percent year over year and 40% growth sequentially. Revenue from overseas insurance products was RMB145 1,000,000, up 42.4 percent year over year and 44% growth sequentially. Revenue from U.
S. Dollar liquidity products increased significantly by 190% year over year, an impressive growth from online wealth management on IR platform. These figures underscore the strong performance of our overseas business this quarter. By revenue type, one time commissions increased significantly by 28.5% quarter over quarter, primarily due to the recovery in overseas insurance. Recurring service fees declined 13.8% year over year and were relatively flat sequentially, mainly due to the aging of RMB denominated AUA and AUM.
In contrast, revenue from overseas investment products continues to grow as we expand our international presence. Performance based income was notably stronger this quarter, reaching RMB61 1,000,000 primarily driven by the successful exits of certain U. S. Dollar PE products. Our total transaction values in the 3rd quarter was RMB14.3 billion.
As of the end of this quarter, U. S. Dollar denominated transaction values increased 15.8% year over year to U. S. Dollar 1,100,000,000 As a proportion of total transactions, US dollar denominated products are growing and now account for 54.6% of total transaction value, compared to 31% during the same period last year.
As expectations of the Federal Reserve rate have strengthened, we have observed a continuous trend of clients shifting from liquidity products to investment opportunities. In the Q3, the transaction value for U. S. Dollar alternative investment products, which includes private equity, private securities and private credit products, increased significantly by 36% year over year and a 6.1 percent sequential growth to US245 $1,000,000 As a proportion of total transaction value and total U. S.
Dollar transaction value, alternative investment products increased to 12% and 22%, respectively. We're pleased to see these products increasingly contribute to our ongoing management fee revenue. At the end of the Q3, our U. S. Dollar AUM grew significantly by 16% year over year and 4.6% sequentially to US5.6 billion with the US dollar denominated AUA growing by 5.7 percent year over year and 1.9% sequentially to US8.7 billion dollars This reflects our ability to capture a larger share of clients' U.
S. Dollar wallets for investment products. Moving on to the income statement. Our ongoing cost control initiatives continue to yield positive results. Total operating costs and expenses for the quarter were RMB443 1,000,000, a decrease of 11.6% year over year and 8.1% sequentially.
Compensation benefits decreased by 22.7% year over year as we further improved human capital efficiency by reducing overhead costs with the proportion of middle back office down now below 50% of total headcount. Selling expenses and general and administrative expenses declined significantly by 26.1% year over year. Government subsidies, notably, are expected to decrease this year, with only RMB37 1,000,000 received year to date. Despite the reduction in government subsidies, operating profit for the quarter remained consistent when compared to the same period last year and saw a notable sequential recovery of 80% to RMB241 1,000,000. Our operating margin has come back to 35%.
We also know that net income this quarter was impacted by certain factors, including the decrease in interest income on the RMB1 1,000,000,000 dividend payout from substantial payout earlier this year, the decline in domestic interest rates and the reallocation of some cash to short term investments. Additionally, the U. S. Dollar's depreciation against RMB during the quarter led to a foreign exchange loss of RMB44 1,000,000. Obviously, the future appreciation of the U.
S. Dollars, if any, is expected to mitigate this impact. Tax expenses were notably higher during the quarter, primarily attributable to the withholding taxes on dividends payout. That being said, our non GAAP net income still increased significantly on a sequential basis to RMB150 1,000,000. As of the end of the third quarter, our year to date net income has reached RMB418 million.
In terms of clients, as Xander mentioned, we maintained a stable total of 9,420 Diamond and Black Card clients at the end of this quarter. Meanwhile, our overseas client base continues to show robust growth with more than 17,000 overseas registered clients, up 20.9% year over year and 3% sequentially. The total number of overseas Diamond Black Card clients rose to 1556. Overseas active clients also reached 3,139, a 37.4 percent increase year over year. Turning to our balance sheet.
While our cash and cash equivalents by the strict classification decreased to RMB3.4 billion this quarter due to the RMB1 billion dividend payout earlier this year. We maintain a robust liquidity position taking into consideration of short term investments and long term investments. With some reclassification, our total cash reserves totaled around RMB4.8 billion, essentially unchanged from the previous quarter if we exclude the impact from the RMB1 1,000,000,000 dividend payout. Our current ratio has improved to 4.4 times and the debt to asset ratio has dropped to 14.9 percent with no interest bearing debt. At the end of August, we also announced a $15,000,000 share repurchase program and I'm pleased to see the subsequent rebound in our stock price.
However, despite this rebound, we still believe our stock remains undervalued and doesn't truly reflect the growth prospects, robust balance sheet positions and cash reserves. It also fails to capture our special bond with Mandarin speaking high net worth investors around the world. We plan to carry out the repurchase program at appropriate times once the trade window opens, reaffirming our commitment to delivering value to our shareholders. In conclusion, 2024 is a year of significant transformation for Noah in every aspect, as we actively deploy a more customer centric sales model and deepen our international expansion effort. Transformation is embedded in our corporate DNA and has been a key driver of our growth.
We recognize this journey will be very challenging. And we're confident that these strategic initiatives are not just about weathering the storm, they're about unlocking new horizons for long term development and growth. Once again, thank you all for your question and support. We'll now open the floor for questions.
Conference Operator: We will now begin the question and answer session. The first question today comes from Chi Yao with Morgan Stanley (NYSE:MS). Please go ahead.
Chi Yao, Analyst, Morgan Stanley: Hi, good morning. Thanks for taking my question. Management, this is Xiao Huang from Morgan Stanley. I got a question. Obviously, we are observing quite some excitement on the equity market since September.
So a lot of the momentum we think is very much retail driven. So we're just wondering to what extent as a wealth management provider, NOLA can participate in this rising sentiment of equity market and how does that impact our revenue and profitability. So relating to that, how should Nova advising the clients on the app and acquisition side on this environment? Thank you.
Mello Shi, Senior Director and Head of Global Capital Markets Group, Noah Holdings: So thank you, Chiao, for the question. So with regard to the financial performances, obviously, the major policy was rolled out at the end of September. So our Q3 financial results were largely not impacted by the recent policy changes and the rebound in the soft market. In terms of the client sentiment, we're seeing more activities interest among our offshore Mainland China clients definitely. In the past, we have seen that the investment sentiment and confidence among our clients towards Asia market was very low or very weak.
But at least right now, we're seeing a rebound in trading activities and interest. But from a house view, CIO house view perspective, we still strongly believe that to advise clients to use their R and D assets to invest in global beta returns, which is still one of the most important asset allocation advice that we give to clients, because we think that the policy still needs time to be implemented and the fundamentals or the economic fundamentals still need time to show whether we'll be improved. And since we're a wealth management company, we are not a trading driven strategy, rather we are more taking a long term asset allocation view. Therefore, we haven't really changed our CIO how to. But that being said, we still have enhanced our product shelf on the R and D side.
Although we're still advocating to advice clients using QDI and QD LP products to invest globally, we have definitely introduced some of the R and D exposure products as well recently.
Conference Operator: Your next question comes from Peter Chong with JPMorgan. Please go ahead.
Peter Chong, Analyst, JPMorgan: Thanks management for giving me this opportunity to ask a question. This is Peter Zhang from JPMorgan. I have two questions. So my first question is, we have been doing this refining domestic operation and expanding internationally strategy. And I think during the past few reporting quarter, our domestic revenue has been under pressure while overseas revenue have been improving and the total revenue has improved sequentially in Q3.
I'm just wondering, can we say that we have passed this period where Noah's value has been under pressure and going forward, our revenue trend can be stably improving and on domestic and internationally, what do you think will be the largest or most important driver for our revenue outlook in the next, say, 1 year or so? And my second question is a follow-up question due to the earlier question. I'm just wondering, have we observed any trend in customer behavior or activity like what products are clients mostly purchasing in Q4 after this big stimulus in Mainland China? And with this improving client sentiment, can we say that our the revenue trend in 4th quarter can be improved sequentially from Q3? I will stop here.
Thank you.
Graham Pan, CFO, Noah Holdings: Thank you, Peter. And I think it's probably a little bit yes and no to your question. Maybe it's a little bit too early to say that revenue growth trend has come into a turning point. As we know, the market has been changing drastically, especially after the election. But I guess it's safe to say the structure of our growth probably has come into shape that more resources and more expansion efforts are going into the international expansion.
So, in terms of accumulation of U. S. Dollar denominated investment opportunities, probably it's going to be more dominant in the future periods. But especially with the recurring management fees and carry, the structure of both sides probably would not stay the same or identical to the last quarter. But obviously, we're hoping that we'll be able to accelerate the transformation, but at the same time also remain very patient, so that we don't deviate from the overall strategy.
So, I will let Zander take the question about the Asia market.
Mello Shi, Senior Director and Head of Global Capital Markets Group, Noah Holdings: Thank you. Thank you, Peter, for the question. So I think Grant pretty much answered the first part of the question. And regarding your second point of question, as a follow on to the first question, so I think our overall view is that it's still quite difficult to see the effectiveness of the recent policies and also the continuation of these policies and to really make a decision on whether this is short term or mid term or long term driven. But we are seeing a trend among our clients or investors that they are they have been increasingly willing to communicate with us more.
So I think at this critical point, this time window, we have the privilege of seeing more opportunities to engage with clients on 1 on 1 meetings, doing providing more asset allocation advice and insights and also to, I guess, to drive more client transaction and also help them to reshape their portfolio allocation. So we still continue to provide long term asset allocation advice and basically in 3 different perspectives. So first is to provide a safety net, which includes the different protection and inheritance tools for our clients globally. And secondly is the we call it cash management or cash flow portfolio that provides different liquidity and long term inflation protection investment tools. And thirdly is to pursue growth strategy through private equity, venture capital and also AI related investment opportunities.
So also in this process, we need our different business units to provide each of their featured product and services through a client centric mindset. But as we mentioned before, this is a pretty much a new sales model and we're still undergoing our transition period. It has been a few quarters, but we're still trying to work out the best way to improve efficiency under this new model. And we believe that as we gradually figure out the new sales model, it would be reflected in our future financial performance. Peter?
Peter Chong, Analyst, JPMorgan: Thank you, Mangan, for the explanation. Really helpful.
Mello Shi, Senior Director and Head of Global Capital Markets Group, Noah Holdings: Thank you for the question, Sue.
Conference Operator: This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.
Mello Shi, Senior Director and Head of Global Capital Markets Group, Noah Holdings: Thank you all again for participating in our Q3 earnings call. And just another gentle reminder that we will be hosting our annual corporate open day in Hong Kong on December 6. So please don't hesitate to register or contact our Investor Relations team for further details. Thank you again.
Graham Pan, CFO, Noah Holdings: For those of you in the States, Happy Thanksgiving.
Mello Shi, Senior Director and Head of Global Capital Markets Group, Noah Holdings: Happy Thanksgiving.
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