Good day, ladies and gentlemen. Welcome to the Noah Holdings Limited First Quarter 2018 Financial Results Conference Call. At this time, all participants are in listen only mode. [Operator Instructions] As a reminder, this conference is being recorded. On Monday, Noah issues a press release announcing its first quarter 2017 financial results which is available on the company's IR website at https://ir.noahwm.com. This call also being webcast live and will be available for replay purposes on the company's website. I'd like to call your attention to the Safe Harbor statement in connection with today's call. The company will make forward looking statements including those with respect to expected future operating results and expansion of its business. Please refer to the risk factors inherent in the company's business and have been filed with the SEC. Actual results may be materially different from any forward looking statements the company makes today. Noah Holdings Limited does not undertake any obligation to update any forward looking statements as a result of new information, future events or otherwise except as required under the applicable law. The results announced today are unaudited and subject to adjustments in connection with the completion of the company's audit. Additionally, certain non-GAAP measures will be used in our financial discussions. Reconciliation of GAAP and non-GAAP financial results can be found in earnings press release posted on the company's website. I'd now like to turn the call over to Kenny Lam, Noah's Group President.

Thank you, operator. I want to welcome all our investor and analyst friends to our earnings conference call today. In addition to myself, Ms. Wang Jingbo, Chairlady and CEO of Noah; our CFO, Shang will also be participating in our call. For today's agenda, we'll first review Noah's first quarter 2018 performance, as well as the development of our core wealth and asset management businesses. Chairlady Wang will then provide her overall view on the current regulatory environment and share updates of each product segment that we are involved in. Our CFO, Shang will then follow up with more detailed discussion of Noah's first quarter financial performance. We will conclude the call with a Q&A session. Since the beginning of 2018 the volatility of capital markets both at home and abroad has intensified. In China, a series of de-leveraging and risk prevention regulatory measures have been implemented. In particular, with the March 13 merger announcement of the China Banking Regulatory Commission and the China Insurance Regulatory Commission to form a combined Banking and Insurance Regulatory Commission. And the official launch of a new guiding principles on regulating the asset management business of national institutions on April 27. There will be a profound long-term impact on the entire financial industry in China. Overseas, the United States has entered a rate increase cycle and SINO-US trade disputes have gradually escalated. In such a complex environment, Noah has been steadfast in its efforts to build an open product and integrated private financial service platform centered on client's needs. In the first quarter of 2018, our transaction value for financial products reached RMB27.8 billion, down 15% from the same period of last year, while our asset management business reached RMB156.9 billion, up 21% from the same period of last year. In terms of financial…

Thank you, Kenny. On April 27, 2018 the official version of the new asset management guideline was released. We believe this new regulation effectively redefines the asset management industry in China. It clarifies that the mainstream operations of channel plus funding pool and implicit guarantee plus maturity mismatch models in the past was pseudo asset management practices. The new regulatory logic stipulates that true wealth management and asset management need to be driven by investment and research capabilities. Research capabilities provide value add for clients and investment capabilities are core to wealth management business. This is also in line with international standards and entirely consistent with Noah's long-standing strategies and core competencies. Investment and research driven has become the only path for the development of the wealth management and asset management industry under the new asset management guidelines. We're fully confident in the long-term healthy development of our industry in this background. On the other hand, under the impact of the new asset management guidelines, the fundamentals of the industry have also changed and the product strategies and strategic direction of many industry participants also need to change. Therefore, in the short term there has been some rather significant impact on market funding. In the first quarter of 2018, the capital market in China experienced the state of increased volatility. Credit default hit new highs in terms of both the frequency and amount, especially the default of equity pledged by large shareholders of public company and public debt default. These problems affected the investment psyche of high net worth customers in the short term and we believe we need some more time to observe and evaluate the duration and magnitude of this effect. We believe that the changes in the industry as a whole and the changes in investor mentally…

Thank you Chairlady Wang and hello everyone. For the first quarter of 2018 we achieved solid results and are on track to meet our full-year guidance. Net revenues in the first quarter increased 16.5% year-over-year to RMB830.9 million, driven by strong reoccurring revenue and performance based income. Reoccurring revenues reached RMB398 million, up 21.7% as we continue to focus on scale and quality of the assets we manage. We achieved performance based income of RMB59.7 million, up more than three-fold year-over-year. This demonstrates our efforts to generate investment returns consistently for our clients despite market volatility. Revenues from one-time commissions were down 7.7% to RMB317.9 million due to lower transaction value this quarter; offset a higher effective one-time submission rate. With ongoing market volatility, we intent to engage our clients with diversify product offerings and focus on both growth and quality. By segment, net revenues from our wealth management business were RMB594.2 million, up 5.7% year-over-year and contributing over 70% of total revenues. Our asset management revenues were up 53.8 % this quarter reaching RMB194.3 million. Our other financial services business segment achieved RMB42.4 million in net revenues in the first quarter, representing a large 71% increase versus last year, primarily due to the growth of our lending services. We anticipate this business segment will breakeven on a quarterly basis this year as we continue to focus on revenue growth. Total operating expenses were RMB556.4 million, up 21.9% year-over-year due to an increase in marketing expenses and lower government subsidies this quarter. We believe the comprehensive brand promotion campaign we launched this year will allow us to strengthen existing client relationships and improve new client acquisitions going forward. Total compensation costs were RMB360.7 million, up 5.9% year-over-year. Excluding government subsidies which vary quarter-to-quarter operating margin was 32.5% this quarter compared…

[Operator Instructions] The first question comes from Haifeng Cao with Nomura. Please go ahead.

Good morning and thank you for the opportunity. I'm Haifeng from Nomura. I have two questions actually. Firstly, I noticed that the actually for the wealth management and business the fixed-income transaction value decreased by roughly 40% in the first quarter. And the private equity transaction value also decreased by roughly 30% year-over-year. I wonder what the reason of this decrease and the outlook the rest of the year. This is a first question. And secondly, understanding spending more on the marketing this year which also explains some decline in the [OP] margin and it can give us more color on the marketing campaign so far this year across China. Thank you very much.

Okay, sure. So thank you. I will comment on the first question regarding the transaction value for fixed income product as well as private equity. As madam Wang mentioned in her prepared remarks, I think beginning of this year we saw for the overall private equity venture capital market fundraising has been difficult compared to 2017 and in 2016. Overall market for the first quarter fundraising with down 70%, but we still managed to raise over RMB6 billion of private equity product year-over-year down around 30% as you mentioned. This reflects our strength in this business and also reflects our strong long-term strategic relationship with the top GPs in the market. I think as we continue to develop the private equity market in China, we will see that the top GP to gain most of the AUM as well as vast majority of the returns. So we will continue to focus on a strategy of working with a leading GP investing in breakout new GPs as well expanding our proportion of co-investment to recommend. Regarding the fixed income volume, we see the tightening regulation; we're starting to see short term funding impact to the market and as a result there has been notable of defaults with public company debt or equity pledges by a large shareholder. The increasing default in the short term is affecting the client appetite or the clients are now a bit cautious and now considering much longer before investing in new fixed income product. But we think this impact is a short-term in nature as we think the overall regulatory development it certainly on the right track for a healthy long-term development in the market as it is containing unnecessary systematic risk. On a second question I'll past to Kenny to comment on the marketing campaign but on the margin side, I think for the first quarter we were generally satisfied with the operating margin, operating margin excluding government subsidy which can vary quarter-to-quarter is actually up so it reflects our continued focus on cost optimization and cost management.

It's Kenny here. On marketing campaign, as I mentioned in my talk just now basically it's our first time ever to invest in such a broad campaign. We believe that with the new environment, it is a good time to begin building brand awareness. And it's quite targeted. The campaign is actually focused on two areas. One is with focused media with targeted residential building. And two is in very select airport. So Shanghai and Hong Kong particularly where we have placed commercials. And the advertisements are actually focused on showcasing our clients or leading business entrepreneurs that are willing to represent us actually without paying fee. So that's one point. Two is the impact has been quite enormous. We've actually gained a 10 fold increase about 10-fold increase through our client hotline and we are working through those inquiries and we are seeing accelerating conversion rate from those increase. The exact numbers I can't share now as we are basically going through this increase. Yes. Madam Wang would like to supplement on the question regarding the fixed income volume. She would like to add that as mentioned this -- beginning of this year we saw the official rollout of asset management plan. The spirit of the asset management plan is to dismantle the practice of explicit or implicit guarantees in the market, and this is having profound effect on the overall industry. And so what we note was overall volume for fixed income product in the industry was down. Given this context we are very particularly focused on quality and we continue to rollout and distribute high quality technical product as opposed to just certain peers in the market they are offering pseudo equity product in reality they are debt related, for example the real estate industry. So I…

Thank you. The next question comes from Kaith Lynn with Last Word. Please go ahead.

Hi, good morning management. I have two questions on Noah. So I know in March the Melbourne and Vancouver offices were open and I want to know about what is going on there. Is it mainly attracting Chinese offshore well so how is it going there? And would there be other plans to open and other oversea offices in 2018? And another question would be I know Hong Kong the regulator has fined Noah for some KYC issues. So I wonder if the management has some insights into how to foster this kind of control and how to foster the confidence from clients as well? Thank you.

Great, well thanks so much for the question. I think it's very spot on question. First question around the new locations of Noah in Vancouver and Melbourne. We open both offices fully earlier this year in the first quarter. The results have been overwhelming. We believe that not only are there a lot of clients actually now with have strong connections between China and Canada and China and Australia but also domestic clients are also quite interested in our services. I think most of the comments were that we have quite a broad and unique product base and our understanding of China is something that is attractive not only to Chinese communities in Vancouver and Melbourne, but also domestic investors. One example is we're actually working with a few leading family offices that are domestic in Canada and domestic in Australia that are interested in investing back in China. So I think they're progressing well. We can't share specific numbers yet because they're just really starting but they're highly promising. In terms of opening new offices I think we're quite cautious. We're not here to try and be in everything of global locations. We're currently in the US in New York in Silicon Valley. They're mostly investment team. We're in Hong Kong and Taiwan. We're also now including Melbourne. The next potential location is Singapore. We think that there are increasing high needs to look at our potential investment team in Singapore. And Southeast Asian Chinese are also interested in investment back in China. So that could be the potential next location we are exploring. In terms of your second question about the Hong Kong SFC fine. I think it's --let me just kind of make a few key points for everyone here. One is the issues identified are related…

The next question comes from Sam Dubinsky with Carlson Capital. Please go ahead.

Hey, guys. Thanks for taking my question. Just a quick one. I believe your pro forma net income was up 8% but your guide is roughly 20% of the midpoint. How do you bridge in outer quarters to that 20% number? Do you need a recovery and fixed income or private equity products or how do you think about that? And then I have a follow-up.

Okay, sure. And this is Shang. So over the years, our results are not evenly split between the quarters. I think there are two reasons for that. One is generally clients --clients demand seasonality number one. Number two also the overall economic environment in China has been changing or dynamic. So I think for the full year we're still very confident and meeting our non-GAAP net income guidance. Number two, over the years we have also been focusing on the quality of the assets we manage, i.e. fees that we are able to earn, as well as the performance based income that we're able to realize. And for 2018 there is a quite of a bit of performances income that we are expecting in the second half rather than the first half of the year. So we think the first quarter results I think we're still on track to meet our full year guidance and we continue to focus on executing our strategies.

Okay and then just in terms of that Hong Kong issue. I'm glad it's rectified but just curious I believe there were some statements in there that you may have to redeem the funds or I don't know if there are any losses there but regardless of loss or not, are you obligated to buy these assets back or like how do you deal with that type of risk and just how do you think about that?

So just to give a bit more details right. We have been asked affected client as announced in that statement was a 757. The vast majority of the products that are affected were actually in profit. So either they are a liquid product that is - has NAV that that is actually above the 1.0 value or they are long duration products that actually have a profitable net value as of the latest numbers. The SFC has actually asked -- gave us quite a lot of leeway to deal with this price. One is we need to notify them and tell them that they do have the right to redeem these products, but we do have a three-month period to help them transfer the products. So Noah has --doesn't have an immediate obligation to take these products back. And as you can imagine these are mostly profitable products. And the clients intention to redeem, our judgment may be low, but they do have the right to redeem. If they do want to elect to redeem we --our obligations first is to help them transfer that product to a third party. So our obligation is not immediately to buy those products. After that transfer if through transfer there is a loss, our obligation is to make them back to 1.0. So we're not here to provide any type of implicit guarantee, but that only happens after three steps. One is they elect to redeem which we think is unlikely given that most of the -actually the vast majority products are actually in profit. Two, if they do elect to redeem, our first role is to help them transfer and if they're unsuccessful in transfer then we have to help them redeem those products and basically keep them at 1.0. That's the obligation. We have actually-- our CFO has actually looked at this. All of these obligations are below the material threshold in terms of our obligations, meaning that the actual loss is actually below the 1% of our total profit line.

Yes. This is Shang. So just let me summarize on two points. In terms of impact on P&L, we expect the impact to be around 1% of our expected non-GAAP net income guidance. So it's not going to be a big hit to our profitability this year. Second, in terms of the balance sheet as Kenny mentioned, I think most the vast majority of the transaction that were identified, the clients still holding a product or but are unrealized profit. So we expect the clients will continue to choose to hold these products.

Seeing no further questions in the queue. I would like to hand the conference back over to Kenny Lam for any closing remarks.

Why don't we wait for another two or three minutes to see if there are others who want to ask questions. If not then we could close the call.

Okay. I'll stand by.

Okay. If there are no questions then I think we should close to call. Is that okay operator?

Yes. That's good.

Okay. Well thank you all for taking in time to listen to our remarks and ask questions. Of course, we will be ready to take any questions after this call. Please reach out to our Investor Relations. I think we've also set up quite a few one-on-one discussions with any of the analysts that would like to set up these meetings. Thank you so much again.

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