Noah Holdings Limited ($NOAH)

Good day. and welcome to the Noah Holdings Limited First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Doreen Chiu, Investor Relations. Please go ahead.

Thank you, and welcome, and good morning, everyone, to Noah's First Quarter of 2026 Earnings Conference Call. Joining me on the call today are Ms. Wang Jingbo, the Co-Founder and Chairlady. Mr. Zander Yin, the Co-Founder, Director and CEO; and also Mr. Grant Pan, the CFO. Mr. Yin 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&A sessions that follows. And please note that the discussion today will contain forward-looking statements that are subject to risks and uncertainties. That may cause actual results that vary materially from those in our forward-looking statements. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC and the 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. Yin. Please go ahead.

[Interpreted] Investors and analysts and thank you for joining Noah Holdings First Quarter 2026 Earnings Conference Call. As we start 2026, the pace of Noah's transformation has become clearer than ever before. In the first quarter, we observed 3 increasingly visible trends. First, our profitability structure continues to improve, with operating margin reaching one of the highest quarterly levels in recent years. Second, our domestic business is regaining momentum in core investment and asset allocation with both active clients and transaction value achieving double-digit growth. Third, our overseas business continues to advance in line with our strategy of proactively adjusting our revenue mix, while a new operating model-driven by globalization and AI gradually take shape. Before going into a more detailed review, I would like to share 2 milestones in our global footprint that we recently achieved. Our Japan office officially commenced operations on May 4, and our U.S. broker-dealer license has completed the final approval process with key team members set to officially join in June. These 2 developments mean that our network is entering a new phase, moving from license deployment to operational execution. Next, I would like to share our progress from 4 perspectives: financial performance, domestic business, overseas business and AI strategy. We recorded net revenues of RMB 626 million, up 1.8% year-over-year and down 14.7% quarter-over-quarter. The sequential decline was mainly due to a further decrease in contribution from the insurance business as well as a seasonal decrease in performance fee income from overseas private equity products following concentrated year-end recognition. However, on the profit side, benefiting from our disciplined execution in cost control, organizational streamlining and expense management. Operating profit reached RMB 236 million, up 27.1% year-over-year. Operating margin was 37.8%, marking one of the highest quarterly levels in recent years. Non-GAAP net income was RMB 134 million. It is important to note that this quarter's strong margin performance benefited from continued optimization in our business mix and further release of additional organizational efficiency. We expect full year operating margin to remain in a healthy range above 30%, although quarter-to-quarter fluctuations are natural due to product mix and expense timing, this quarter also marked our 62nd consecutive quarter of non-GAAP profitability since listing. This is the discipline we have maintained across multiple market cycles. Quarter, our active clients reached 10,742, up 21.8% year-over-year. Transaction value reached RMB 23.3 billion compared with RMB 16.1 billion in the same period last year. In our domestic business, transaction value of RMB-denominated mutual fund products reached RMB 9.9 billion, up 131% year-over-year while transaction value from RMB-denominated private secondary products reached RMB 5.3 billion, up 61% year-over-year. Noah Upright recorded net revenues of RMB 208 million, up 63% year-over-year, mainly driven by a doubling in public fund transaction volume as a result of structural opportunities in the A share market together with a rapid recovery in RMB-denominated private secondary fundraising. This series of changes shows that when we refocus our resources on products and investment capabilities with genuine long-term value, the operating performance of our domestic business improved structurally. At the same time, we have become even clearer about the strategic direction of our domestic business going forward. For our domestic business, we will continue to focus on the secondary market and building asset allocation capabilities with key priorities, including public mutual funds, private secondary market products, AI-driven client operations and Noah Upright Fund Distribution platform capabilities. We will continue to drive the enhancement of our operations in these areas. We believe the domestic wealth management industry is gradually moving away from the past stage, which was driven by real estate and nonstandardized products and returning to a true long-term era centered on investment research and asset allocation. As of March 31, overseas registered clients reached 20,373, up 11.9% year-over-year. Overseas AUA was USD 9.6 billion, up approximately 5.9% year-over-year. Transaction value of U.S. dollar-denominated products was USD 1.15 billion for the quarter, broadly flat year-over-year. Our overseas client base and AUA continue to grow steadily and the pace of our revenue mix adjustment is consistent with the view we shared during our third quarter earnings call last year. Over the past few years, we have continued to build our presence across key regions, serving global Chinese clients, including Hong Kong, Singapore, Japan, Canada, Europe, Australia and the United States. What we are seeing more clearly is that global Chinese clients are entering a new stage. Their assets, families, identities, education and next-generation planning are becoming increasingly globalized. In the past, serving global Chinese families across multiple jurisdictions, languages and generations was a business that relied heavily on individual experience and was extremely difficult to scale or replicate. For the first time, AI makes it possible for this kind of service to be globally coordinated in a systematized, platformized and scalable framework. This is why we believe one of our most important long-term positions is not only to be a wealth management institution but also becoming a global wealth management platform, serving Chinese high net worth families around the world. Over the past 2 decades, the logic to drive growth in the wealth management industry was clear but linear. One more relationship manager meant more revenue. One more client relationship meant more assets. This logic worked well in the past, but it also meant that the industry's expansion was structurally constrained by labor costs and overall management of the organization. Our view is that AI is fundamentally changing this equation. It is not simply adding another efficiency tool. It is redefining the front office structure of the wealth management industry. In the past, wealth management was primarily driven by a single RM model. Today, we are gradually forming a new model, driven by the collaboration of 3 front office engines. First, AI-enhanced relationship managers. RMs remain the most important long-term driver of strong client relationships, but AI is significantly enhancing their ability to cover clients. In the future, RMs focus more on deep client engagement rather than repetitive process work. Second, AI wealth management department. This is a new type of front office team that we are actively building. The AI wealth management department does not rely on traditional headcount expansion. Instead, it uses AI to drive client operations, content services, allocation support and global collaboration, enabling a lighter organizational structure to serve broader client needs. Singapore is the first fully developed testing ground for this model. Over the past quarter, AUA in Singapore grew by approximately 192% year-over-year and revenue generation per capita reached 8.5x. This is the first validation that without materially expanding the number of relationship managers, AI can elevate individual service capacity, breadth of coverage and professionalism of asset allocation by an order of magnitude. Third, AI plus Ecosystem expansion. We believe the future of wealth management will not belong only to the internal RM systems of large institutions. More and more independent financial advisers, family offices and external professional firms need a platform that can provide a global asset supply chain, an AI workbench, a compliance foundation, global execution capabilities and brand credibility. We are gradually building this ecosystem. We believe these 3 engines will together form our growth drivers going forward. And the future competitive landscape of the wealth management industry will no longer be defined simply by who has more RMs but by who has stronger AI capabilities, who has a more complete global compliance network, who has deeper customer context data and who has more replicable platform-based service capabilities. This is our most important strategic vision for 2025 to 2026. Based on this strategic vision, we have made substantive progress at 3 levels. First level, enhancing organizational efficiency. Last year, while maintaining stable net revenues, our total headcount declined by approximately 11% compared with 2024. In the first quarter of this year, headcount further declined by approximately 3% quarter-over-quarter. Behind this is the gradual embedding of AI into key areas such as client interaction, content generation and operational processes, enabling the same revenue scale to be supported by a more streamlined organization. This is the first direct evidence of returns on our AI investments. Second level, productization of operating capabilities. Our AI RM platform officially went live in the third quarter of last year. It covers client research, generation of allocation recommendations, service recordkeeping and content output and is being integrated in parallel across our 4 booking centers. AI is no longer just a back-office tool. It is becoming a collaborative partner for our RMs. Third level, reconstruction of the operating model itself. AI is not a PowerPoint concept for our organization. It has already become a new operating system that can generate real business results and has the potential to be replicated globally. Supporting these AI capabilities is the global platform foundation we have already built, our 3 global platforms, ARK, Olive and Glory, support client and account execution, asset management and insurance, trust and inheritance services. And our 4 booking centers in Shanghai, Hong Kong, Singapore and the United States, together form our compliance and execution infrastructure. Going forward, our long-term AI build-out will continue to advance across 4 dimensions: clients, relationship managers, products and governance. Remainder of 2026, our work will continue to focus on the 3 priority areas, clearly set out by our Chairlady in her 2025 letter to shareholders. First, expanding our overseas client base; second, further growing our global asset allocation capabilities; third, continue to optimize the revenue structure of Olive, our asset management business; and lastly, deepen AI applications in our core operating processes and gradually expand global collaboration capabilities within a compliant framework. As of March 31, we held RMB 5.13 billion in cash, cash equivalents and short-term investment maintained a healthy balance sheet with 0 interest-bearing debt. The Board announced a dividend proposal for approval at our shareholders meeting, including a special dividend that brings the total payout to 100% of full year 2025 non-GAAP net income. Subject to approval at the June 11 meeting, the plan will be implemented. This would extend our shareholder return framework for a third consecutive year based on 100% of non-GAAP net income. We will continue to invest in globalization and building AI capabilities while maintaining financial discipline. We're still in the midst of our transformation. The short-term pressure points are visible, but the logic of our long-term operating model is becoming clearer than ever before. The first quarter is not the destination. It is more like a starting point where our new operating model is beginning to be validated. We are evolving from a traditional wealth management institution into an AI-driven global platform serving Chinese families around the world. This process will not happen overnight, but our direction is becoming increasingly clear. Thank you. I will now hand the time over to CFO, Grant to review our financial performance in greater detail.

Thank you, Zander, and good day to everyone joining us. The first quarter of 2026 marked a solid start to the year and continued progress on transition toward a more investment led and quality-driven global wealth management platform. I would like to highlight 3 key messages. First, while total revenue remained stable, the quality of revenue mix improved meaningfully driven by strong growth in investment-related fundraising fees and performance-based income. Second, disciplined cost management and structural efficiency initiatives delivered substantial operating leverage. Operating profit increased significantly and operating margin expanded further. Third, reported net income was affected by nonoperational volatility. This mainly reflected mark-to-market accounting adjustments on a specific listed investments recorded under income from equity affiliates, excluding that specific mark-to-market impact, non-GAAP net income would have reached RMB 216 million, up 28% year-over-year. For the first quarter, total net revenue was RMB 626 million, up 1.8% year-over-year. This stability was achieved despite a deliberate 49.9% reduction in insurance-related revenue as we continued to optimize our business mix. Onetime commissions were RMB 113 million, up 5.9% quarter-over-quarter. Within this, commissions from newly raised investment products increased to RMB 53 million, up 46.1% year-over-year and 41.6% quarter-over-quarter. Recurring management fees were RMB 379 million, down 3.4% year-over-year and 2.5% quarter-over-quarter. Performance-based income reached RMB 100 million, up 253% year-over-year, primarily driven by strong realization from RMB-denominated private secondary products. Overall, the quarter further demonstrates our continued shift towards a higher quality investment-led revenue structure. Our lean operating model continues to deliver measurable financial results with AI increasingly serving as a structural driver of efficiency. Total operating costs and expenses declined to RMB 389 million, down 9.2% year-over-year and 18.1% quarter-over-quarter. As of the end of the quarter, group headcount was 1,726, down 10.4%, leading personnel costs to decline 12.2% year-over-year to RMB 267 million. This reflects productivity gains rather than business contraction. Our AI strategy focuses on improving output per capita and operational efficiency. AI-driven tools now support client engagement, automated reporting suitability processes and routine workflows that previously required manual intervention. This enables us to scale global operations when maintaining disciplined cost control and service quality. SG&A were RMB 103 million, down 10.8% year-over-year and 35.1% quarter-over-quarter. Total operating cost and expenses were RMB 389 million, down 18.1% compared to last quarter. As a result, operating profit increased to RMB 236 million, up 27.1% year-over-year. Operating margin, therefore, expanded to 37.8% compared with 30.3% in the first quarter of last year. Excluding government subsidies, operating profit was RMB 236 million, up 33.7%. These results highlight the stability of our platform and financial benefits of our structure optimization. Below the operating line, investment, interest and other income totaled RMB 19 million. Interest income remained RMB 32 million. Investment income was negative RMB 2 million. Foreign exchange loss was RMB 6 million, and contingent expenses was RMB 3 million. Share of losses from equity affiliates was RMB 65 million. As a result, non-GAAP net income attributable to Noah was RMB 134 million with a margin of 21.4%. Total transaction values reached RMB 23.3 billion, up 44.8% year-over-year and 37.5% quarter-over-quarter. U.S. dollar-denominated private secondary products reached USD 293 million, up 161% year-over-year when RMB-denominated private secondary products reached RMB 5.3 billion, up 61% year-over-year. This fundraising momentum directly supported the growth in investment-related commissions and reinforce our strategy. As of the end of the quarter, group AUM was RMB 140.2 billion and AUA was RMB 233.5 billion. Total AUM and AUA at the group level declined, yet our U.S. dollar-denominated base continued to grow. Overseas AUM reached USD 6.2 billion, up 5%, and overseas AUA reached USD 9.6 billion, up almost 6% year-over-year. Total Diamond and Black Card clients reached 9,029. Overseas, Diamond and Black Card clients reached 1,781, up 3.8% quarter-over-quarter, reflecting continued traction in overseas markets. Our balance sheet remains strong and highly liquid. As of the end of the quarter, cash and cash equivalents were RMB 4.3 billion and short-term investments were RMB 834 million. Total assets were RMB 11.6 billion and total liabilities were RMB 1.7 billion. Our asset liability ratio remained low at 14.5%, and our current ratio was 4.8x, providing ample flexibility for growth and shareholder returns. We believe our current market valuation does not fully reflect the strength of our balance sheet, the resilience of core earnings and the scalability of our operating model. With shareholders' equity of about RMB 9.9 billion, the company is trading at roughly 0.5x book value when delivering an annualized return on equity of approximately 5.4%. In our view, this does not adequately reflect an intrinsic value of long-term earnings potential. And since the beginning of 2020, we have repurchased 2 million ADS for approximately USD 20 million, representing about 2.7% of outstanding shares. And since launching the program, shareholder return in 2024, we have cumulatively repurchased 3 million ADS or USD 35 million, plus we have declared to distribute 100% of our non-GAAP net income as dividends for the third consecutive year. These actions reflect management's confidence in the company's intrinsic value and our commitment to enhancing long-term shareholder returns. So in summary, the first quarter reflects disciplined execution of our strategic transition. Revenue quality improved, operating leverage strengthened and AI-driven productivity gains continue to enhance structural efficiency. When reported earnings were influenced by nonoperational volatility, the underlying trajectory of our core business continues to improve. With the fortress balance sheet, a leaner and more scalable operating platform and continued capital returns through share repurchases, we believe the company remains fundamentally undervalued relative to its intrinsic strength and long-term earnings potential. So we remain fully committed to disciplined execution, prudent capital allocation and sustainable long-term value creation. Thank you, everyone. And we'll now open the floor for questions.

Thank you, Mr. Grant, and thank you, Mr. Yin, for the presentation. And operator, please open the floor for questions.

[Operator Instructions] Your first question today comes from Calvin Leung from Citi.

[Foreign Language] Let me quickly translate my question. and this is Calvin Leung from Citi. Last Friday, China tightened the regulations on cross-border brokerage businesses. What is the management's view on the evolving regulatory landscape on this front? And what is the potential impact to Noah's domestic market business? Considering a few offshore brokers who are signed by regulations regarding the unauthorized brokerage businesses what is management's take on the compliance risk and domestic market going forward?

[Foreign Language]

[Interpreted] Let me do the translation. The CEO -- we confirmed that the company has paid attention to this news. However, we have to emphasize that this is not exactly a new happening, but more like a reinforcement of an existing rules that has been introduced to the market a couple of years ago. However, we would like to emphasize that the company has been always complied to legal requirement under different jurisdictions. And particularly for the overseas account that have been opened is all under the complied requirement under, say, for example, in Hong Kong would be all the KYC requirement and all that. And also, about the money transfer into this investment account is from legitimate financial institute operate or under HKMA's regulation, that all the money transferred in the investment account is from those validated financial institution. But having said that the security business, the revenue contribution to the company is rather small. So all in all, we don't see any impact or basically with no much impact to Noah for our business model. And we must once again think that all of our operations under different jurisdiction has been always complied to the legal requirement.

[Foreign Language]

[Interpreted] The Chairlady further supplements on the answers. The company has been paying huge attention to this newly executed rules and situation. And we've been immediately reviewed our internal procedure according to the SFC requirement. And we are very comfortable to say that we are fully complied with the legal requirements. And that is not only in Hong Kong but across Singapore, U.S.A., all of our booking centers. So different from -- or slightly different from these securities online platform, what we serve is the global Chinese high net worth. So it's a slightly different from the business model and having said that security business is only contributing less than 1% to our total revenue. And we further emphasize, again, all the money transferred to the investment account are from overseas banks, none, zero of the money transferred into the investment account is from China Bank. So she's slightly optimistic that maybe this could be a chance for Noah because we have been always compliant to regulations.

[Foreign Language]

[Interpreted] So iARK, which is our app for security trading in the company. And all the operational system and also the technical supporting systems are all placed in overseas market and overseas like in Hong Kong. So -- and also for iARK, we have 0 employees that basically refers to iARK in the domestic market. So again, we are fully compliant to the requirement of SFC and CSRC.

[Foreign Language]

[Interpreted] And further, the company is already reviewing the referral requirement for the business from domestic to overseas according to the legal requirement. Calvin, I hope that answer your question.

Your next question comes from Peter Zhang from JPMorgan.

[Foreign Language] This is Peter Zhang from JPMorgan. And I have 2 questions. First is, we noticed wealth management product transaction volume has picked up sequentially in the first quarter, which is a really good trend. We are wondering what's the operating trend in second quarter? Do we see continued strong investment sentiment in our clients? And how is the client demand for domestic and overseas products, investment products? Secondly, my question is on the cost side. We have a really good cost control in first quarter. I'm wondering whether management can share what's the full year guidance for our headcount growth and operating expense trend.

[Foreign Language] Doreen?

[Interpreted] Yes. Thank you, CEO. So back to Peter's question, appreciate for what you've asked, so what we will want to answer the question divided into 2 parts, which is the domestic market and also the overseas market. We must admit that for investment sentiment, a lot of time is affected by the entire market situation. And that's why we've been seeing that in 2025 and 2026 until now, the investment sentiment has been a lot improved compared to 2 years ago. However, what we've been really doing is not just, I mean, getting business according to the market situation. So what we've been doing is really try to promote the idea that we've been helping clients to do the wealth management, which is to diverse their assets into different classes and different products so that they can have a better portfolio. And then we have been seeing the progress in the domestic market. And for overseas market, one of the things about being a wealth management company is the ability to getting the good products. And according to the CIO report and also in the market -- I mean in the current market condition, AI has been a very important idea for investment ideas. And that's why we have different products that is AI-related from infrastructure to AI company. And that, we've been doing that and also, again, promote the same idea of helping clients to do their wealth allocation for a better portfolio. And that we believe that with all this good quality product on hand, we should see a better sales allocation as a result. And we must also emphasize that in terms of the selling abilities that now we've been using AI to support company or the RM to do the clients' risk analysis. So we've been promoting products according to the clients' needs that is more specified in some of -- during the March promotion like in the past, which, again, we believe that we should enhance the efficiency of our selling and ultimately, the selling results for the company.

[Foreign Language]

[Interpreted] So we -- when we review history of Noah, we've been talking about to protect our client assets before growing in 2022. And in 2023, it's about all the price entity in China that is growing overseas market. And since last year, we talked about AI. And for this year, we emphasized in the AI infrastructure product. What we've been demonstrating here is we are a real wealth management company. So what we are doing is about how to make sure our clients' asset can be well protected and ultimately have growth. And I mean, different from a lot of our friendly -- not exactly competitors but our peers, then I would say we always review how much profit our clients made every year. And that has been a very key KPI for our -- for the staff here. And so I mean, in a simple way of saying that the company couldn't control a lot of things like the market cap or if the size of the company can grow drastically. However, if we look at what we've been doing with our clients, when we look at with the profitability for over 62 consecutive quarters, when we've been looking at all the right decisions in the past, in history, we are confident that we've been able to keep up with the company and ultimately will be seen by the market.

So I'll take Peter's second question. We actually don't have a set agenda or set target for frontline teams, obviously, although we see a declining of number of RMs, but that's really driven by performance. So as you could see, we're still achieving much higher fundraising volume because of the higher quality and high efficiency. So we don't expect to have, I would say, intentional shrinking of the frontline team, we want to make sure, obviously, they're fully occupied and able to generate enough volume as CEO and Chairlady just mentioned, there might be opportunity given the current policy situation. At the same time, obviously, we are targeting mid-back office efficiency, especially with the tool of AI. We believe that many positions in the past that basically being performed by pure labor, pure hands are now being at least consolidated or merged into fewer positions. So that actually leads to a significant, I would say, optimization in mid-back office structure. But in the meantime, I think from the standpoint of whole year, although we don't expect to see a huge expansion of growth in headcounts, we are going to see some key fulfillment in key markets worldwide, although just a couple of people. And obviously, we'll continue to invest in AI and technology. Peter?

[Operator Instructions] Your next question comes from [indiscernible] from CICC.

[Foreign Language] I will translate my questions. This is [indiscernible] from CICC. I have 2 questions. First is a transaction value active client numbers and RM numbers for overseas business declined, could you please talk about the reasons? You mentioned overseas business has moved from a licensed setup to formal operations. What's the growth outlook for this segment going forward? And my second question is about AI. The AI wealth management department in Singapore has delivered much stronger revenue generation and client service efficiency. Could you please talk about how AI help RM develop their business?

[Foreign Language]

[Interpreted] So about your question about overseas business performance. We do see that a sequential drop in first quarter. However, when we look at the year-on-year, we still see a growth as reflected that. We believe that is a normal performance across different quarters various changes. And about how AI has been enhancing our RMs. So I guess, we've been slightly touch based on the current way of doing business. We are now trying to be more focused and more accurate in picking products to certain clients. So we've been able to distinguish a high level of clients so that will be more efficient in terms of suggesting products to our clients and allocate the resources that we have on hand. And also, we have introduced [indiscernible] rewarding system since late last year. And that is more like a reward system we've been providing certain rewards to our clients. That, again, we focus on high-quality clients and that as a whole means that our selling methodology could be better allocated in terms of our resources. As you may aware, we've been basically through the license in Hong Kong. And in Singapore, we have different types of license under the regulatory of MAS, and we're currently applying for asset management license as well. So back to your question about the U.S. market, booking center license, and again, it's one of the important steps to complete the development of we are having a very important strategic booking centers for the company. And after the license being granted, we are now working on the details of reapplying business in that market, and that we believe is going to be a very important strategic move for the company.

[Foreign Language]

[Interpreted] The Chairlady now doing a public -- not announcement, but suggestion to all our analysis, when you are doing the analysis of the company, may be no longer we should use the RM as the indicator or number of RMs as the indicator. The company needs business size in the future. But what we've been trying to suggest that because of the enhancement of AI, so all the human RMs been supported in the first hand. And secondly, we have built up the AI + Wealth Management department. As in the CEO's presentation, we've talked about how this AI plus Wealth Management been able to do or to support -- to take care of our clients, but without enhancing more human resources on that. And also, what we've been further development is AI plus Ecosystem, that is more like a referral business to cooperate with different types of professional individuals in the market. That should help us to get clients under the AI plus Wealth Management system. So as using Singapore as an example, yes, Singapore is not an easy market. It's small but competitive. And it's really difficult to hire the right RM. The cost will be very high. And that's why we've been using AI as a testament when we started in this market. And we have found out that we have been getting very good results from that market. And that as mentioned, we have a 191% growth in AUA in first quarter. And that's why we've been going forward to try to apply the same system into different overseas markets as well. I mean, ultimately, we would like to apply that in the domestic market, too. However, some limitation of the historical structure and also because of the different AI system, that may be slower. However, we should expect that the AI application to different overseas market should be bringing results to the company in the near future. Is there any more questions?

Thank you. There are no further questions at this time. This concludes our question-and-answer session. I would now like to turn the conference back over for any closing remarks.

Thank you. Thank you, everyone, for joining us today, and please feel free to reach out the IR team for any further questions. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]