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Edited Transcript of NOAH earnings conference call or presentation 25-Mar-20 12:00am GMT

Q4 2019 Noah Holdings Ltd Earnings Call

Shanghai Mar 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Noah Holdings Ltd earnings conference call or presentation Wednesday, March 25, 2020 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jingbo Wang

Noah Holdings Limited - Co-Founder, Chairwoman & CEO

* Qing Pan

Noah Holdings Limited - CFO

* Sonia Han

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Conference Call Participants

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* Daphne Poon

Citigroup Inc, Research Division - Associate

* Katherine L. Lei

JP Morgan Chase & Co, Research Division - Research Analyst

* Yuan Xue

China International Capital Corporation Limited, Research Division - Research Analyst

* Yushen Wang

CLSA Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello, and welcome to Noah Holdings Limited Announces Unaudited Financial Results for the Fourth Quarter of 2019 Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to your host today, Jingbo Wang. Please go ahead, ma'am.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [2]

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(foreign language)

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Sonia Han, [3]

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[Interpreted] For today's agenda, I will first share my views on the macroeconomy and then briefly summarize Noah's overall performance for the full year 2019, the development of our business segments and the gains and challenges during our transformation. Our CFO, Grant Pan, will follow with a detailed discussion of Noah's full year and quarterly financial performance. We will conclude the call with questions-and-answer session.

The past 2019 was a tough year for Noah, where the Camsing incident has tested the bottom line of our business ethics and operations. We didn't expect that 2020 poses an even bigger challenge or a more ultimate challenge, which tests our attitude as humanity when facing a crisis that's settling our lives. At this point, I'm very grateful for having experienced the Camsing incident in 2019, which has become a gift with a profound influence on Noah's strategic decisions. Because of the Camsing incident, Noah's management team reflected on how we started to listening to the voices of our employees and clients to understand their real demands, we're thinking more about the company's vision and business plan for the next 5 to 10 years. Therefore, we're able to reach a clearer consensus on what we should persist in our core strategy for the long run and what we should abandon immediately.

Starting from the second half of 2019, we determined to terminate single-counterparty nonstandardized private credit assets and fully entered the field of standardized products. Concurrently, we shifted our operations from offline to online. Such initiatives and efforts have fully prepared us to confront the difficult situation in 2020 when containment measures such as mandate travel restrictions and long-time telecommuting deployed to combat the sudden breakout of the global COVID-19 epidemic.

Next, I will go over Noah's 2019 performance. In 2019, net revenues for the full year reached CNY 3.39 billion, up 3.1% year-over-year. Non-GAAP net income attributable to shareholders reached CNY 1.04 billion, up 2.7% year-over-year. In terms of core operational results, the transaction value of financial products for the wealth management segment was CNY 78.5 billion. The AUM of our asset management segment continued to grow, reaching CNY 170.2 billion, among which private equity investments reached CNY 104.9 billion.

We distributed CNY 26.4 billion of standardized products for the full year, up 93.9% year-over-year. After we stopped offering single-counterparty nonstandardized private credit products, the transaction value of standardized products in the fourth quarter was close to CNY 10 billion, representing a significant increase of 580.8% year-over-year and 30.4% quarter-over-quarter.

We continued to optimize and upgrade Noah's mutual funds app, Fund Smile (sic) [Smiling Fund.] In 2019, the transaction value of mutual funds increased by CNY 16.4 billion, setting a new distribution record for single year and a single quarter. Considering the internal and external challenges we faced, we're satisfied about such achievements in 2019.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [4]

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(foreign language)

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Sonia Han, [5]

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[Interpreted] During the COVID-19 epidemic this year, transaction value of standardized products maintained an encouraging growth momentum. It demonstrates the initial success of Noah's paradigm shift on the product front. We will scale up investment to consistently refine IT systems and operational processes, so as to continuously optimize clients' experience.

Meanwhile, we have launched a new relationship manager compensation scheme that emphasizes on AUM-based compensation with an adjusted incentive plan to align the interest of relationship managers, Noah and clients. We believe such investment forms a win-win situation, enhancing client stickiness and relationship managers' loyalty to the company.

In 2019, Noah's high net worth client base continued to expand with over 35,000 active clients for the year, up 27.7% year-over-year, which included mutual funds clients. The number of ultra-high net worth clients, Black Card members with per capita assets under our management of over CNY 90 million also continued to increase, up 14.7% year-over-year for 2019.

On the wealth management segment, we have established a VIP center to serve super clients and continuously improve the conversion rate of Black Card clients. Thanks to the strategic transition to standardized products, almost all of our business has shifted from offline to online. During the COVID-19 epidemic, 100% of orders placement by our clients are made online.

With the development of our online business in addition to AUM, we have also studied Noah's clients by their behavior pattern and divided them into 3 categories: discretionary portfolio management; specific product-driven; and self-service transactions. We can see that the numbers of all 3 types of clients have increased.

For our overseas segment, net revenues increased by 25.4% to nearly CNY 1 billion accounting for 27.9% of the group's total revenues as compared with 22.9% in 2018. AUM reached CNY 24.8 billion in 2019, accounting for 14.6% of the group's total AUM, remaining flat compared with 2019 -- sorry, 2018.

With Noah's increasingly comprehensive service offerings, we are strengthening connections with our clients globally with an in-depth understanding of their intrinsic and long-term wealth management demands.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [6]

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(foreign language)

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Sonia Han, [7]

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[Interpreted] By the end of 2019, Gopher's AUM reached CNY 170.2 billion, among which our voluntary decision to cease offering single-counterparty nonstandardized private credit products caused a net decrease of CNY 10 billion in AUM. Our actively managed funds have achieved different levels of growth in AUM. Specifically, AUM of standardized products represented by the public securities product increased by 50.3% year-over-year, and the AUM of our multi-strategy fund increased by 31% year-over-year. We also achieved solid AUM growth in our conventional products, real estate and private equity.

For public securities products, Gopher focuses on large asset allocation and pursues low volatility and absolute return, which are high net worth clients' rigid demand. In 2019, the investment return of Gopher public securities flagship, FOF and MoM fund, was up by over 15%. Our quantitative FOF realized a 34.8% return with a low volatility of 3.8%. Among Gopher's multi-strategy funds, the smart beta index enhanced strategy Rayliant quantitative strategy fund has generated a return of 30.1% in 2019. Since its launch, this product has generated excess returns for 82% of its clients. All these performances reflect Gopher's continuously strengthened investment and management capabilities in the field of public securities products.

At the same time, I would like to clarify that our high net worth clients still have strong demand for our VC/PE and real estate products, which are also our featured products that traditionally had strong performances. We have built a stellar brand image in the market. Our product strategy shift to standardized products does not represent giving up on other advantages in these product tech categories. We will continue to optimize and deepen our operation in this area to enhance our advantages. Specifically, we will keep enhancing our brand and influence through collaborations with the best alternative investment managers and working with the best alternative investment team in the United States to strengthen our globalization approach.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [8]

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(foreign language)

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Sonia Han, [9]

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[Interpreted] In terms of operational efficiency, total operating expenses in 2019 were CNY 2.48 billion, up 4.3% year-over-year. Non-GAAP net profit margin was 30.6%, which included one-off expenses of CNY 163 million as a result of Camsing-related legal expenses. If excluding these one-off expenses, the net profit margin would have been 35.4%, showcasing great improvement in management efficiency. It reflects the efforts made by the management in streamlining our operations.

Noah always believes that talents and professionals are the most precious wealth of the company and has been screening elite relationship managers. Our elite relationship managers contributed to most of our revenue generation capacity while their turnover rate was only 4.1% in 2019, down 0.5 percentage points compared with 2018. We will continue to strengthen the professional capacities of our relationship management team and provide excellent investment advisory services to clients.

The goal of our transformation and new positioning is to be a platform company that provides comprehensive financial services to clients. With our advantage of serving high net worth clients, we are expanding our reach to a broader client base through the Internet. Both our products and channels are open to our partners.

Apart from Noah's direct sales team, opening channels is one of our core future strategies. We are continuously enhancing our internal resources through optimizing and recruiting relationship managers and constructing our VIP center, which serves super clients. Simultaneously, we are cooperating with bank's distribution channels and serving more independent financial advisers.

As part of its overall transformation strategy, the company has decided to further increase its

investment in IT infrastructure and online platform development. This will primarily consist of the major upgrades of Fund Smile APP (sic) [Smiling Fund APP] the construction of the global version of Fund Smile APP and the creation of a new SaaS system for institutional channels.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [10]

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(foreign language)

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Sonia Han, [11]

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[Interpreted] In 2019, the paradigm shift in China's wealth management space was well underway. Noah was determined to leave the old track and entered a worldwide recognized new arena. We believe that the wealth management market in China is full of new opportunities. We're facing new environment, new market and new clients as well as a refreshed market landscape and an upgraded mechanism of operation.

Most importantly, through crisis, Noah's core team has gained a more profound insight into the industry. We spend a lot of time and efforts in aligning interests of our employees and clients. We have repositioned the core management capacity of Gopher Asset Management to focus on comprehensive asset allocation, pursuing products with low volatility and absolute returns that are welcomed by high net worth clients. We expect huge market potential in this area. At the same time, we are delighted to see that with the elusion of implicit guarantees being broken and the reform on the financial supply side, the market has rapidly presented new clients' demand, which is even exceeding our expectations.

On the wealth management product and client front, previously, we have completely stopped offering private credit products. Our transformation has just matched clients' new demands. Therefore, our products received welcome reception and recognition. The transaction value of standardized products driven by clients' strong demand demonstrates promising momentum and the trend of our transformation, which further proves our strong pressure resilience and resistance.

We believe that a successful wealth management and asset management company shows 4 features: excellent performance; diversified products; broad distribution channels; and significant AUM scale. Not a single feature can be omitted. Noah has made many achievements in the past 15 years, the most important of which was the establishment of the product platform and direct sales channels that are open to the globe. In the coming decade, Noah will continue to understand clients' evolving needs, pivot around clients' interest and improved stability of our performance. In the meantime, we're opening up our channels to promote our products from direct sales to selling on a commission basis and to serving independent financial advisers with a goal of constantly expanding our AUM.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [12]

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(foreign language)

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Sonia Han, [13]

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[Interpreted] The COVID-19 epidemic has pressed the pause button on normal daily operations. Faced with this unexpected situation, we are deeply aware of the importance of online operations and the role of digital capacities in Noah's future development. Online transaction capabilities of standardized products will be the key area of our strategic investment going forward.

During the epidemic with diverse and sufficient leading product supplies, we have fulfilled the demands of our clients. In addition, we also introduced a variety of online investor education activities to enhance client stickiness. Such online activities have covered 560,000 people and help us enhance interactions and relationships with our clients during the epidemic. These practices during the COVID-19 outbreak also demonstrated the resilience of our business under sudden crisis. We also remain committed to our social responsibility and have donated cash and valuable medical equipment to Hubei province through Shanghai Noah Foundation at the beginning of the epidemic outbreak.

Finally, I believe the COVID-19 epidemic will eventually be contained and life will continue. We regard living as a minimum yet optimal strategy for ourselves, families and businesses. The epidemic is likely to accelerate economic recession, but Noah has already set the bottom line. We have a strong sense of crisis, and we are also firm optimists.

The Camsing incident and the COVID-19 epidemic have served as a wake-up call. We cherish the opportunities to implement fundamental changes to our work, life and spirit. Our perception of the financial industry, our families and our core values will all be recalibrated based on common sense and intrinsic quality. We will emphasize a family- and community-oriented diligent and healthy lifestyle instead of glorifying lavish entertainment. We also aim to become real person entrepreneurs to accumulate, to save costs and to contribute as much as we can with honesty, dignity, discipline, self-alert, fortitude and extraordinary perseverance as our core values. These values will allow us to overcome future challenges, rise above corruption and tasteless indulgence driven by basic instinct and restore order, reason, simplicity and space in our way of work and style of life. We're confident that such changes will enable us to remain focused on our long-term goals instead of opportunistic tunnel visioning and short-term results.

Having experienced this unprecedented epidemic, we are confident to become a better firm. We will reserve strength in the downturn for future development, just as we need to scorch before leap forward. We're examining our mission, vision, values and our organization as well as human resources KPIs through the crisis. We're determined to realize the overall enhancement in our operating concept and mechanism, human resources, technology, product and market.

In 2019, Noah entered the vast and competitive landscape of standardized products from a small market centering around alternative investments. Our rich experience in the industry, mature markets, relationship managers and clients and the management's in-depth understanding and knowledge of the wealth management industry and client needs, all enable us to provide superior services to high net worth clients. 2020 will be a new starting point for Noah, and we are confident in our development going forward. In the meantime, we firmly believe that Noah's transformation is in line with the development trend of wealth management and asset management industry in China.

With the gradual containment of the COVID-19 epidemic in China, we can say that we have not wasted this crisis.

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Qing Pan, Noah Holdings Limited - CFO [14]

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Thank you, Sonia, and thank you, Chairlady, for sharing her thoughts. And this is Grant.

Dear investors and analysts, good morning. Today, we're certainly witnessing lots of turbulences in recent world economy as well as the coronavirus pandemic. But when we do look back, the year of 2019 already showed signs of changing and challenging business environment that ranged from the Sino-U. S. trade friction, the Hong Kong situation and other geopolitical issues.

On top of the external headwind, we underwent a major transformation in our product and service strategy. This last quarter, which is quarter 3, we seized the offering of a major product category, the single-counterparty nonstandardized private credit. It's really a long name, so I'm going to refer that as SD credit, moving forward, products. That once accounted for as high as over 2/3 of the transaction values in last year. However, as Chairlady Wang has already mentioned, we managed to deliver solid financial results for the full year and achieved our guidance for 2019, reporting a non-GAAP net income of RMB 1.04 billion, up 2.7% and net revenues reached RMB 3.4 billion, up 3.1% year-over-year.

While this growth may appear modest comparing to our previous years, but considering the obstacles and changes we had to go through and overcome to get here, management is very happy with the firm's resilience and determination.

Now let me take you through quickly further details of financial results as well as performances for the fourth quarter. For revenues, management fees and performance-based income, which reflects our asset management and investment capabilities reached nearly RMB 2 billion for the year, up 2.1%. Specifically, management fees increased by 3.9%.

While on the other hand, we experienced pressure on the onetime commission revenue due to the discontinuation of the offering of SD products, transaction values decreased by 28% year-over-year to RMB 78.5 billion which led to RMB 924 million commission revenue or 9.4% lower than last year.

The transaction values for the fourth quarter, however, stabilized at RMB 13.2 billion following RMB 13 billion last quarter -- I mean, quarter 3 in 2019.

And I'm also happy to share that the upward trend in the transaction value is much more obvious in the first 3 months of 2020. Speaking of transformation to standardized products, the amount of standardized product distributed increased by 94% year-over-year to RMB 26.4 billion, showing a very positive sign for the client acceptance towards the new asset class. If we do an apple-to-apple comparison excluding SD products for both years, the transaction values for Noah's other products reached RMB 44.2 billion in 2019, increased by 28% from RMB 34.5 billion in 2018.

In terms of earnings for the full year 2019, we realized non-GAAP net income to Noah shareholders of RMB 1.04 billion, up 2.7%. Net margin remained flat compared to the previous year at 30.6%. But this number probably doesn't reflect complete or real picture of the effort and the results we had achieved in increasing our operational efficiency this year.

We did incur one-off expenses of RMB 163 million or 4.8% of the total operating margin can be attributed to the legal expenses that incurred on Camsing case as well as allowances made on accounts receivables in associating with Camsing. To elaborate on the real OpEx, strengthened policy and smarter traveling has cut our traveling confidence cost by 15% year-over-year. And as some of you may be aware, we commenced the consolidation and simplification of internal organization structure that brought down our total head count from -- by 13% from year of 2018.

When it comes to the balance sheet, as a result of continuous effort to increase the turnover of our assets, the balance of accounts receivables decreased by 11% year-over-year. To mind you, that's on the back of increasing revenue. Our current ratio stood at 4.5 with a debt to asset ratio of just shy of 20%. And our net assets reached RMB 7.87 billion, up 27.4% year-over-year. And we don't have any interest-bearing debt. I think it's fair to say that management's consistent effort in preserving capital is one of the reasons that we're able to afford a major transformation in the middle of a year as well as to withstand rainy or even stormy days, if you will, as witnessed by today's backdrop of a worldwide uncertain economy as well as coronavirus pandemic.

For this quarter, like I've mentioned before, the transaction value has stabilized at RMB 13.2 billion. But management also acknowledges that recovery to full capacity would take some time. Besides the share amount, we're more delighted to see the initial sign of success in the standardized products reached just shy of CNY 10 billion, up 580% year-over-year and 30% growth quarter-over-quarter, which sets a record in this product category for single quarter transactions.

So after the transformation took place in the third quarter 2019, we have raised a total of RMB 17.2 billion worth of standardized products for the 2 quarters in the second half of 2019.

Affected by temporary decrease in the total transaction values, the revenues for this quarter were RMB 781 million, down 5% year-over-year. But our revenues from onetime commissions continued to face the most pressure during the quarter 4 of 2019, recording a 33% decrease year-over-year. But if you compare to the last quarter, which is the quarter 3, we have recovered to RMB 160 million, actually, a 6% increase from the third quarter of 2019. This quarter's revenues from recurring service fees or management fees, if you will, and performance-based income increased by 14.6% year-over-year to RMB 530 million driven by our long-term dedication to strengthening our asset management and investment capability.

Recurring service fees increased by 4.5% year-over-year as a result of the continuous growth of AUM. It's also worth mentioning that out of the RMB 58 million performance-based income this quarter, about RMB 16 million out of that comes from standardized products managed by external managers. It reflects our ability to select outstanding products and create value and return for clients as a wealth and asset manager. And in compliance with the regulatory guidance, we actively reduced the lending business volume this quarter, resulting in a 16.3% year-over-year decline in other service fees.

Operating profit for the quarter was RMB 120 million comparing to RMB 160 million the same period last year. But again, I'd like to remind you that one-off expenses, as I mentioned before, our recording this quarter was about RMB 80 million. So actually, excluding that, we would have had operating profit of RMB 200 million.

The after-tax net income for this quarter was RMB 118 million. Non-GAAP net income was about the same number, RMB 117 million, representing a decrease of RMB 107 million year-over-year. In addition to the changes in net income itself, the difference also comes from non-GAAP reconciliations for the 2 periods, that includes fair value changes in equity investments as well as share-based compensation. That 2 amounts contributed around RMB 40 million to the difference.

As Chairlady has taken us through quite great details in business segments, so I would go light on segment-based analysis on this call. But just to highlight a few points. For the wealth management segment, revenues arising from the value-adding services that's classified as other revenues for the year were RMB 220 million, up 96% year-over-year, demonstrating our ability to satisfy our clients' comprehensive need for services other than purely financial products. And our asset management segment continued its trend of high net profit margin that was recorded at 50% for the year, 3% higher.

For the overseas business, net revenues increased by 25.4% to nearly RMB 1 billion for the year, accounting for about 28% of the group's total revenue. So it really reflects the progress and execution of our globalization strategy.

Lastly, about the guidance. I'd like to remind you that the guidance we put forward in the 6-K reflects our best estimate as of now of how the coronavirus pandemic would impact our business. The uncertainty remains depending on when the travel bans and normal social order will be restored at some of the overseas area. Because some of the overseas value-adding services we offer to our clients, for instance, insurance services, actually do require physical visits to the overseas area.

But from what we have seen so far in the first 3 months this year, we expect the impact on conventional financial product sales to be limited. And we're reasonably confident on the recovery or even moderate growth in total transaction values in 2020.

In the meantime, we're determined to make our transformation a long lasting success and will further increase our investments in building IT infrastructure, system, platforms as well as investments in talents. Our management has laid out a very comprehensive plan on these initiatives, and I estimate that investment will account for between 3% to 5% of the total net revenues.

And last, but not least, responsible investment has become a global trend. In China, regulators and institutions are also actively encouraging and adopting such approach. Noah has completed a series of ESG initiatives since 2014 and was included in the MSCI China Index and MSCI Overseas China Index in 2018. And in 2019, we have implemented ESG into our group's strategy development and corporate governance. We will continue pursuing sustainable growth in ESG in 2020.

Operator, that's the prepared speech part.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Ethan Wang with CLSA.

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Yushen Wang, CLSA Limited, Research Division - Research Analyst [2]

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Management, maybe I will ask the questions in Chinese first, and I will translate it into English. (foreign language)

Okay. So I have three questions. The first one is on wealth management segment. So on a Q-on-Q basis, we have seen that the transaction volume per active client has been on a declining trend. And so we think there may be two reasons. The first, maybe because of the increasing -- the relative fast increase of active clients. And second reason maybe from our strategy, we focus on the standardized products. But we want to hear more from the management on this issue, that will help the investors.

And my second question is on the Gopher Asset Management side. On a Q-on-Q basis, in the fourth quarter, the total AUM has declined. So we wonder the reason behind. So except for the credit products, the ARPU has also declined. So is there any special reason behind this?

And my third question is on the COVID-19 impact. The management has shared their view on this, but we want to understand more about the wealth management side. Because Noah has been focusing on the standardized products. And we understand that in the first quarter, this year, the domestic Asian market has been very strong. So have we seen any strong growth in the standard product sales in the first quarter?

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Qing Pan, Noah Holdings Limited - CFO [3]

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Thank you, Ethan, and thanks for translating your own questions as well. I'm going to take the first 2 questions, and Chairlady Wang will be adding a little bit more thoughts on the COVID-19 part.

So I think you actually pointed it out pretty accurately in terms of the average transaction value change in the fourth quarter. Yes, we do have more active orders, if you will, on standardized products in this quarter. So as you can actually see that our active clients for the quarter reached 15,000. But as the feature of the standardized product, the average purchases are probably not as high as the conventional. For example, the PE orders or some of the credit products. So that's one of the reasons.

But the active -- the level of activeness that we'd like to see is definitely shown in the sign. So that's a very encouraging sign as well.

In terms of the shift in Gopher's AUM, you're right. The majority of the shift actually contributes to our voluntary and actually accelerated repayments of the credit products. And the 2 decreases in, actually very slight decrease in PE and RE products are normal aspirations as we have recorded carry our performance-based income for this quarter. So one for the real estate piece and the other one is for the private equity piece.

So I don't know if it answered that, your first 2 questions. If it does, I can probably start on the third question in terms of the pandemic situation.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [4]

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(foreign language)

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Qing Pan, Noah Holdings Limited - CFO [5]

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Yes. Because we actually -- because the impact on the traveling, so we didn't hold the [Diamond Conference] that -- as originally scheduled. But I guess, we got lucky that the real strong performance in Asia market as well as the equity market really stimulates the passion of clients' investment need or demands during that period. So we're actually prepared to move lots of the conferences as well as knowledge sharing online that maintains the level of activity, especially interactions with our clients during that period. So it doesn't seem that the virus situation that impacted the level of activities between -- especially RM's interactions with the clients so much. And we're actually very happy to see the distribution or transaction value on to quite exceeding our expectations originally.

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Operator [6]

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And the next question comes from Yuan Xue with CICC.

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Yuan Xue, China International Capital Corporation Limited, Research Division - Research Analyst [7]

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(foreign language)

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Qing Pan, Noah Holdings Limited - CFO [8]

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Okay. Thanks, Mr. Xue. And let me translate your question first. The first question from CICC, Mr. Xue, is that for the wealth management segment, we do have probably higher decreased feed on operating profit than the deterioration on the net total revenue.

So the reason is really because of the one-off expenses that really was mainly attributed to the wealth management segment. So basically, the Camsing-related legal fees as well as some of the accounts receivables allowance was recorded in that particular segment. If we do exclude those amounts, the actual operating profit margin was slightly higher than the same period in 2018. So there was, basically, to be concise, there was a one-off expenses recorded in the particular segment.

In terms of the investments in IT infrastructure, so we have a pretty long stretch of discussions amongst the management. I guess, also thanks to the pandemic situation that people cannot travel. So we're able to log everybody in the boardroom to have extensive discussions on the strategic transformation. And lots of time actually attributed to the strategy on how to enhance our clients' experience, user experience as well as the RMs' user experience on the online platforms. And our main platform for the standardized products, it's called Smiling Fund APP as well as the continuing investments to enhance that. As well as once you deal with the standardized product, the transaction volume probably goes from 200 to 300 orders a day to now 20,000 or 15,000 a day. So we actually wanted to make sure that the infrastructure from the capacity standpoint as well as the security standpoint can handle that kind of transaction volume.

We're also actually been investing in the global version, if you will, Smiling Fund APP in Hong Kong. And we already started a team of 30 people and started the initial launch of that particular product.

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Operator [9]

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The next question comes from Katherine Lei with JPMorgan. .

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Katherine L. Lei, JP Morgan Chase & Co, Research Division - Research Analyst [10]

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So I have two questions. The first question is still on products. On your standardized products, can you give us more details on, say, for example, how is it different from the standardized product offered by like, say, China Merchant Bank (sic) [China Merchants Bank] or other like product manufacturers like the banks?

The second thing is that in terms of like, say, the subscription fee and then the management fee of this standardized product, how is it -- like can you give us more details on that? And how does it differentiate from like, say, the nonstandardized product that you offered before? So this is the first question.

The second question is still on the Camsing case. Can you give us some update on, like, say, what is the progress with the legal procedure? And then what should we expect that there will be like some kind of verdict from the court? And also that on client activities, like, can you give us some color on like, say, for example, what's the percentage of clients affected by the Camsing case have already placed new orders or their sentiment, and then also the RM reactions to this case so far?

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Qing Pan, Noah Holdings Limited - CFO [11]

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Thank you, Katherine. Give me a couple of minutes to translate that question for everyone. Sorry for this side. [Just one sec].

So for your first question, Katherine, let me address the first one is that in terms of subscription fee rate, the revenue structure from the standardized bond we have mentioned before, I guess, to give everybody on the call a background, is when we first started the transformation to standardized products in the third quarter of 2019, the main product we refer to is standardized bond funds. And for the standardized bond funds, typically, you would only charge management fee without subscription fees. So I guess, the total revenue side was slightly lower than the SD credit products. But right now, as we're actually developing quite a few products that would provide people with more -- a little bit more balanced portfolio. So basically, we have 50-50 or 20-80, we have a little bit of stock favor -- flavor in that particular product. So we're able to charge a distribution fee, classic 1% distribution fee. And depending on the manager, we actually are typically able to share about 50 basis points to 80 basis points with the managers. So basically, the entire product will have an increased sort of fee rate from 60 basis points to actually 150 or 170. So I guess, from that standpoint, the transformation in products will provide more gross profit to us on that particular category.

So in terms of the difference how it competes with our counterparties, CMBs, market standard products, I'm going to invite Chairlady to give us a little more insight on that.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [12]

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(foreign language)

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Qing Pan, Noah Holdings Limited - CFO [13]

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Okay. So thanks, Chairlady. So the main difference between our standardized product offered to the clients and also the CMB, also some of the banks' standardized products, one of the biggest difference is the holding period or holding duration. So average holding period for the banks' products is probably between 54 days, so basically less than 2 months. And for Noah's products that we offer to the clients, usually have a 3-year lock in period, 3-year lockdown period. So for 1 year's hard lock and 2 year's hard lock. So with that longer holding period, the clients actually are able to benefit from -- most people that -- most of the investors having difficulty in making money even with excellent fund is the wrong timing of entering and exit.

Because of the ability to actually provide that kind of longer holding period, the good managers, the top managers in the market are willing to work with us. And because of that, they're also willing to have a pretty good sharing portion of the management fee with us.

And if you look at the Gopher's AUM breakdown, about pretty good majority of that is actually assets with longer durations. For example, the PE has a 10-year holding period as well as the multiple strategy assets that actually doesn't have a defined period of holding. So usually, it's between 5 to 7 years on average. Also, we're changing the relationship manager's compensation scheme to be from onetime commission transaction-based to have more flavor on the AUM-based compensation scheme. So from the RM standpoint, they're more incentivized to sell longer period of products so that we actually have a cumulative effect on the AUM that actually serve their clients with.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [14]

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(foreign language)

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Qing Pan, Noah Holdings Limited - CFO [15]

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So in terms of the Camsing update. Because of the coronavirus impact, the pace of the investigation actually slows down a little bit. But like I've mentioned before, it has basically completed the stage of police investigation and have been passed to the district attorney. But I guess, the processing time will be lengthened a little bit because of the recent pandemic impact. But Chairlady also wanted to share 2 very encouraging data point. One is for the Camsing clients, about 30% of the client have made separate new orders with Noah and that total amount is about CNY 3 billion, so close to the entire, I guess, principal for the Camsing products.

And one other one is the Huishan Dairy client, The entire original principal for that investment is about CNY 500 million. And also, 30% of that group of clients have made separate new orders with Noah and the amount actually is also close to CNY 3 billion. But if you look at that, that's like 6x of what they had in Huishan products. So that really provides us with pretty encouraged sign of clients' continuous trust and satisfaction with Noah's services. Katherine, does that answer your question?

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Katherine L. Lei, JP Morgan Chase & Co, Research Division - Research Analyst [16]

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Yes. Can I follow-up with 2 more questions? Sorry. On the standardized product, what is your average ticket price of the standardized product? Because our concern is that would that be substantially -- would that have a difference with like, say, the other standardized product ticket size that are available in the market? So this is for one. Second one is that I'm not so sure if I have missed it in the announcement. What is your guide, profit guidance for 2020?

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Qing Pan, Noah Holdings Limited - CFO [17]

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Okay. Katherine, let me answer the guidance. Yes, we do have the guidance in the 6-K in the last paragraph forecast. That number is between CNY 800 million to CNY 900 million non-GAAP net income.

Okay. And in terms of the average transaction value ticket size and your concerns on standardized products, I'll ask Chairlady to give you a little bit more insight on that.

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Jingbo Wang, Noah Holdings Limited - Co-Founder, Chairwoman & CEO [18]

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(foreign language)

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Qing Pan, Noah Holdings Limited - CFO [19]

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So when our clients actually make their purchases online, they will go through the relationship managers and do some self-service-directed transactions on the standardized products. We're actually seeing that trend to continue in the future.

In terms of the average ticket size of standardized, obviously comparing to probably private equity or real estate in the past, the one-off order probably will appear lower. But in terms of frequency as well as the actual transactions that will occur, the total amount, we expect that to be higher. I think that's pretty evident, will be pretty evident when we have the quarter 1 results come in.

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Operator [20]

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And the next question comes from Stephanie Poon with Citi.

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Daphne Poon, Citigroup Inc, Research Division - Associate [21]

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So the first question is just wanted to understand more about the driver for your 2020 guidance. So more specifically on the transactional value outlook for this year. Do you expect that to actually drop year-over-year? And in terms of the product mix, I guess, standard product, we are seeing pretty good momentum. But won't you also talk more about the other products, for example, the PE product? What are we seeing on the momentum here? I guess, over the past two years, PE has been relatively muted because of the whole industry slowdown. But just wondering whether you expect any recovery or pickup in the volume for 2020. And also, like, what would be the overall AUM growth for this year? Do you still expect positive AUM growth?

And also, the next is about the operating margin outlook. As you mentioned, you expect to spend more on the IT build-out. Does that mean that operating margin, we should see a decline in this year? Or there's actually additional room for you to maybe cut the cost for headcount reduction, et cetera?

And lastly, also, I want to check on the management fee that we see in the fourth quarter. The management fee is still pretty high. Like, just wondering what's the drivers here, whether that is also because of the -- some early redemption of your primary credit deposits?

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Qing Pan, Noah Holdings Limited - CFO [22]

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Okay. Thank you, Daphne. Give me a second. So in terms of the guidance, the total transaction values are not only referring to standardized products, but the entire transaction value. We actually are reasonably confident or expect a recovery or even moderate growth than the total transaction value in 2019. So obviously, the main drivers come from standardized products. But that's not to say that we're going to, like we have mentioned before in the speech, that we're going to give up or move away or disregard clients' demand on private equity products as well as real estate products and other traditional popular products.

So as a matter of fact, we actually have already put out a schedule of top private equity managers as well as continuous efforts to find excellent projects on real estate and other alternative investments, if you will.

So I guess, the transformation, I want to clarify again, is moving away only from the single-counterparty credit products. We're still continuing to offer -- actually find good products for our clients to have, especially private equities. We actually will have a pretty good distribution of a particular big NIM in the first quarter this year already.

And also, in terms of total AUM for Gopher, because of the continued redemption as we plan to basically to reduce the balance on SD credit products for the year, so it will continue to come down. It will partly offset the growth in the total AUM in Gopher in 2020. So we expect that the AUM for Gopher to be flat with 2019.

In terms of the operating margin, like I mentioned before, we actually quite -- did quite a little bit of work this year, especially after the second quarter. We would have had an operating profit margin of around 35% to 36% if we didn't have the one-off expenses as well as write-off of accounts receivable, which we don't expect to have very unusual one-off expenses relating to this particular matter in 2020. So I guess, in terms of operating profit margin, I'm pretty comfortable to predict, should still be -- pivot around 30%, like we have done in the past. Obviously, if there is room for further improvement, we'll continue to do that.

I think one of the things that I like to mention is once the pandemic started after New Year's festival, Noah was the first one who comes out and say, okay, we probably want to plan for emergency. Well, we do have very healthy cash flows and profits, but we were amongst the first ones to actually exercise the nonpaid leaves as well as the senior management's waiver or even very significant reduction on their salary for the 2 months. So we're very cautious on the cost. I want to assure you of that.

And in terms of the operating fee, management fee for the fourth quarter. Yes, we did have a little bit of the management fee, sort of similar to third quarter in the back end. But the number is not very significant in the fourth quarter. So still, it's a continuous growth in AUM, especially the growth in standardized products. So the management fee rate might be low for this type of product, but the actual growth in volume for the standardized product is actually pretty significant, as we have mentioned in the speech.

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Daphne Poon, Citigroup Inc, Research Division - Associate [23]

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Yes, can I just quickly follow-up on the PE side? So you say that actually the both trend demand and supply is improving 2020 and that would drive the recovery in the volume or AUM.

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Qing Pan, Noah Holdings Limited - CFO [24]

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Right. Okay. Is that a question or a comment?

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Daphne Poon, Citigroup Inc, Research Division - Associate [25]

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It's a question, I just want to confirm.

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Qing Pan, Noah Holdings Limited - CFO [26]

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You wanted to confirm the PE also will grow? We have... can you repeat that part?

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Daphne Poon, Citigroup Inc, Research Division - Associate [27]

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Yes. So there is the recovery on both the demand and the product supply side for PE. Because I think the [issue there] were some also constraint on the supply side.

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Qing Pan, Noah Holdings Limited - CFO [28]

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Yes. I think we'll basically see the recovery on both supply and demand side. Well, the supply never went away. Like I've mentioned or shared earlier, that there's some seasonality in terms of PE's offering or doing their fundraising. So a little bit of randomness in that timing, if you will. But this year, the actual stronger performance in secondary market do drive the need for good PE products, but only associated with the top names. We see that actually very apparent. Our clients actually, it's a probably general market condition that clients concentrate their capital or investment in the top names. But for the smaller and less known names, they will have a little bit of challenge. So we do see a recovery in the PE fundraising in both supply and demand side, if you will.

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Operator [29]

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And as there are no more questions at the present time, I would like to return the floor to management for any closing comments.

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Qing Pan, Noah Holdings Limited - CFO [30]

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Okay. If we don't have any further questions, that will be all. We also scheduled some conference calls afterwards. If you have questions that weren't answered, feel free to contact me or the IR team directly.

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Operator [31]

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Thank you so much.

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Qing Pan, Noah Holdings Limited - CFO [32]

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Thank you so much.

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Operator [33]

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The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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Qing Pan, Noah Holdings Limited - CFO [34]

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Okay. Thank you. Bye.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]