Good day, ladies and gentlemen. Welcome to Noah Holdings Limited First Quarter 2019 Financial Results Conference Call. At this time, all participants are in listen-only mode. Following management’s prepared remarks, there will be a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded. After U.S. market closed on Thursday, Noah issued a press release announcing its first quarter 2019 financial results, which is available on the company's IR website at ir.noahgroup.com. This call is also being webcast live and will be available for replay purposes on the company's website. I would like to call your attention to the Safe Harbor statements 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 that have been filed with the SEC. Actual results may differ materially from any forward-looking statements that company makes today. Noah Holdings Limited does not undertake any obligation to update any forward-looking statement 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 discussion. A reconciliation of GAAP and non-GAAP financial results can be found in the earnings press release posted on the company's website. With that, I would now like to turn the conference over to Shang Chuang, Noah's Chief Financial Officer. Please go ahead.

Thank you, operator. I want to welcome all our investor and analysts present to our earnings conference call today. For today's agenda, Mr. Yi Zhao, Group President of Noah will briefly summarize Noah’s overall performance for the first quarter of 2019 and then discuss our strategy in improving operating efficiency. Ms. Jingbo Wang, Chairlady and CEO of Noah will then speak about each of our product segments as well as provide our overall views on the current industry and regulatory environment. I will follow up with a detailed discussion on Noah’s first quarter 2019 financial performance. We will conclude the call with question-and-answer session. Now I would like to turn to Mr. Yi Zhao for his prepared remarks.

[Foreign Language] This is my first earning conference since taking Group’s President. As a long-term employee who has been with Noah for eight years, presentation during the past few months was very smooth. After a comprehensive and the systematic review of the group's business and operation, we formulated short-term and medium-term goals and the strategies in the short time. And after a quarter of execution, we have already achieved the initial results. To date I'm very pleased to share with you the operating and the financial results we achieved in the first quarter. In the first quarter of 2019, Noah Group achieved the net revenues of RMB890 million, up 7.1 percentage year-over-year and 8.2 percentage quarter-over-quarter. Non-GAAP net income attributable to shareholders reached RMB300 million, up 19.9 percentage year-over-year and 36.5 quarter-over-quarter. It is particularly noteworthy that the non-GAAP net margin reached the 34.2 percentage, the highest costly margin for the past three years. Although, there was only small amount of performance based net income recognized the fourth quarter, we maintained revenue and the profit growth through the combination of different project and the revenue mix as well as effective operating strategies. In terms of business performance, in the first quarter of 2019, we distributed RMB28 billion worth of wealth management products, flat compared with last year and up 11.4 percentage from last quarter, indicating a recovery of investor confidence. The effective one-time commission rate reached 1.16 percentage, inline with our overall project strategy. The number of registered wealth management clients reached 275,000, up 39.6% year-over-year and 5.6% quarter-over-quarter. As we expanded project lines and in particular increased the sales of public offering, the number of active clients increased to 8,117, up 49% year-over-year and 72.1 quarter-over-quarter. As of the end of the first quarter, the AUM of the Asset…

[Foreign Language] Thank you, Zhao Yi. In the first quarter of 2019 China has been adopting favorable macro policies specifically maintain a relatively liquid monetary policy and the Asia market performed strongly in the backdrop. Looking at current economic data for Q1 including GDP, foreign trade, finance, and other metrics, the economy outperformed expectations as a whole and operations of private enterprises have also improved at a certain extent. For China's wealth management and asset management industries, 2018 was a year of adjustments. According to the latest China Private Bank report 2019 jointly issued by Boston Consulting Group and China Construction Bank despite the ongoing growth momentum in total wealth of domestic residents, the growth rate in 2018 was only 8% percent significantly dropping behind the compound average growth rate of 16% during prior 2013 to 2017. Domestic high net worth individuals with investable financial assets over RMB6 million only increased by 6% in 2018. Moreover with increased complexity in the domestic economic homefront and foreign trade frictions, investors' aversion to risk increased significantly. At the same time, individual investors understanding of risks and rationality of investment are going through the volatile market and their long-term expectation of investment return is normalizing with the adjusted market conditions. Meanwhile, the same China Private Bank report 2019 also estimated that during the next five years, the investable financial assets of Chinese individuals will recover to a compound growth rate of 11%. Specifically for high net worth individuals with their invested assets transferred continuously from real estate properties and corporate direct investments to financial assets, the compound growth rate of their investable financial assets will exceed that of the industry to 16%. So, we strongly believe that asset management industry will continue to be attractive in China. Combining the asset management with wealth…

Thank you, Chairlady. We have been through a solid set of financial results for the first quarter of 2019. Both net revenues and non-GAAP attributed income reached historic highs on a quarterly basis. Total net revenues were RMB889.9 million, an increase of 7.1% year-over-year, and non-GAAP attributable net income was RMB304.6 million, up 19.9% year-over-year. In terms of revenue mix, we achieved one-time commissions in amount of RMB324.6 million, up 2.1% from the same quarter last year, and up 33.6% from the last quarter. The strong sequential rebound was mainly contributed by the 11.4% quarter-over-quarter growth of transaction value, reaching RMB28 billion as well as the improvement of an effective one-time commissions from 0.97% to 1.16%, mainly contributed by the increased distribution of insurance products. Recurring services in the first quarter of 2019 were RMB420.6 million, up 5.7% from the same period last year, accounting for about half of total revenues. So foreign-based income of RMB4.9 million was significantly lower than the first quarter last year, because most of the public securities products have not exceeded high watermark of last year and there were no significant exit by other products. Other services of RMB145.4 million, primarily driven by our lending services business as well as the increased demands of value-added services that we provide in the wealth management business. In the first quarter total operating income increased 10.2% year-over-year to RMB302.5 million with operating efficiency enhancing measures, our operating margin increased to 34.2% from 33% a year ago. Total compensation costs were RMB404.3 million, up 12.1% year-over-year, but down 5.6% quarter-over-quarter as it optimize our employee base. Our selling expenses were RMB90.5 million, down 14.9% year-over-year, and down 13.7% quarter-over-quarter. General and administrative expenses were also well controlled during the quarter. The amount of RMB58.6 million represented a 4.7% increase year-over-year. But 38.3% decrease quarter-over-quarter. Non-GAAP attribute net income for the first quarter was RMB304.6 million, a strong increase of 19.9% year-over-year. This quarter we adjusted out 29.6 million of share-based compensation, 8.7 million of gains from unrealized share changes of equity security, an RMB5.7 million of tax effective adjustments and adjusted RMB4.9 million of gains from sales of equity securities. On the balance sheet side, the company increased cash and cash equivalents by RMB165 million this quarter. Operating cash flow generated by core businesses remains strong of RMB132.7 million. In summary, we continue to grow our business despite much uncertainty. Looking ahead, we see huge potential on both wealth and asset management industries in China. And we are dedicated to creating value for our clients and to our shareholder. With that, let's open up the call for questions. Operator?

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Edward Du with Deutsche Bank. Please go ahead.

I thank the management team for taking my question. This is Edward from Deutsche Bank. I have two small questions. First question is about, I just saw your active client increased by around 49% year-on-year, but the total transaction value was up only 1% in first quarter and making the average transaction declined by around 32% year-on-year. And my question is about, we know -- is there any transaction behavior change among your client base, or any reason behind this? And my second question is about distribution fee and based on my capital calculation, your distribution fee rate came around 120 bps in first quarter, but we do not see any meaningful change in your product distribution mix in first quarter compared to fourth quarter last year. And I mean, we know any pricing structure change especially in the fixed income product and the secondary market product, and that's my question. Thank you.

Yes, sure. Thank you, Edward. I will answer both of your questions. So the first question regarding active client transaction value as well as average transaction value per active client, so for the first quarter of 2019, one of our strategy was actually to activate or get more of our client base to transact on product and we were able to do so by broadening the type of product that we have conversations with as clients. And in the first quarter versus last year for 2018, we engaged client with mutual funds and we feel that by broadening our asset category to include public securities or wider categories of public securities, we can engage deeper with our clients and that I think worked quite well. And so, going forward, I think both on the wealth management side and asset management side, we see opportunities for us to deepen all the share by expanding into public security, that’s for your first question. Regarding the second question is, yes, for the first quarter of 2019, effective onetime commission rate was up meaningfully to around 1.16%. This is up year-over-year as well as quarter-over-quarter. I think the two main reasons. So the amount of insurance distribution from the first quarter was actually quite robust. In addition among the credit products that we distributed for the first quarter 2019, a portion of it were more longer-term fixed income product and for longer term fixed income product, we're able to achieve the revenue upfront. So those are the two main reasons why we saw effective I think commission rate, but it's still within a very long term range of 80 to 100 basis points. And so the change is mainly because of the product mix rather than any structural change going forward.

Thank you.

The next question is from George Cai with JPMorgan. Please go ahead.

Thank you for taking my question and congratulations management for the results. I have two questions. The first one is on the private equity sales. As we can see from the first quarter, I think the private equity product sales have been quite weak as well compared to the last quarter and on a year-over-year basis. So can you share with us more color on potentially when sales could rebound? So that's my first question. My second question is relating to the lending and other business. As we can see, the revenue growth has been very robust and we achieved a very sizable profit, but we want to ask on the loan book, what's the current status of the asset quality and what's the provision ratio. And I understand this is more for internal product lending, but I just want to ask if we have cooperated with the banks on a co-lending side. So these are my two questions.

Sure. For the first question, regarding private equity, I'll allow Madam Wang to speak about that and then I will answer, George, second question regarding our lending business.

[Foreign Language]

Yes. So I'll translate Madam Wang's answer for the first question. So regarding the new fund raising for private equity, overall, in the market is still quite soft. It's mainly regarding the pace of exits by previous funds. As we see in the market, general capital market activity has been sluggish in terms of new IPOs and new exits. But we do see a silver lining as top tier GPs are still able to exit. They're very tough portfolio company. So our strategy in terms of private equity continue to be focusing on top tier clients, our fund from business, as well as expanding the amount of co-investment and direct investment. And so we believe our focus will allow us to capture growth opportunity in private equity on a long term. The short term challenges and difficulties is mainly regarding investors being reluctant to make a very long term investment versus hedge funds or public security, given there are still a bit uncertainty in terms of the macro environment. So that's Madam Wang's response to your first question. Regarding the second question, regarding your lending question, Madam Wang just want to add some high level comments that, the lending business she believes is an important complementary business to our wealth management business. In terms of our high net worth individuals using financial products or real estate to achieve -- to obtain short term loans, we see it to be a synergistic to both of our core businesses. Now, specifically regarding George's question in terms of some of the metrics for our loan business, if you people can take a look at our balance sheet, as at the end of the first quarter the loan receivables that are on our books is around RMB507 million. Okay? Yes. I want to take this opportunity perhaps to describe the way our lending business works. So we would originate loans to a high net worth individual and most of the time they would have high quality collateral. And the average duration is around nine to 12 months. After originating these loans, we will sell or securitize these loan receivables, so then they are sold to investors. And we continue to serve as a servicing agent in terms of the collection and the passing of interest and principal, but we're no longer liable for the financial risk. So, as generous as we feel, an asset light business, if you may. In terms of the loans that we're servicing, it's roughly about RMB10 billion, okay. So for the loans on our part actually we have a 1% NPL provision, but historically the last two, three years, we have not seen any meaningful people. The main reason is because of a high-quality of the borrowers as well as the soundness of the class that we have when we make that loan or we make those loans. Thank you.

Operator?

Yeah, sorry. The next question is from Stephanie Poon with Citi. Please go ahead.

Hi, management team. Thanks for taking my question. So first question is regarding your product mix or your product strategy. So we understand that like traditionally the alternative products have been your core strengths like for example on the private equity or some non-standardized credit. But as you are now expand into this standardized credit product for this mutual funds, it seems to be a more competitive area that we see a lot of other traditional banks or brokers there also offering these product. So can you just share with us more about, like what you see as your competitive edge here on these standardized products? And also as you expand into this product category, is it also means that you're penetrating into maybe a lower-tier client base? And the second part -- second question is regarding your asset management, distribution channels. You mentioned earlier that you're expanding into some non-lower distribution channels. Can you just share with us like any specific channels that you have currently, and what is the percentage exposure there? And also in terms of the position of this asset management business going forward, I guess, in the past we use to understand more as a supplementary of your whole wealth management product business to start off your existing high [indiscernible] individual clients but going forward, should we see maybe more standalone business segment that you are also expanding it to some external time period. So, that's my all five questions. Thank you.

Thank you, Katherine. Just for the benefit of my colleagues who r also on the phone, perhaps just quickly summarize the three questions you raise. One is regarding our public security products, specifically mutual fund. How that will impact our business? Second is regarding Gopher Asset Management expansion into no-Noah distribution channels. And third is asset management positioning going forward. I will answer these three questions and see if management and Mr. Zhao has anything to add. So, regarding the first question, as you know and many of our shareholders are aware, Noah has been and will continue to be a firm believer of asset allocation over the last 10 years, we have consistently expanded in terms of the product categories and investment strategies that we're able to offer and manage for our clients because we believe a true diversified asset allocation is the best way for high net individuals to ride through capital market volatility and we believe mutual funds should be an important aspect of that toolbox -- an important tool in the toolbox. And if you look at leading private banks, for example, UBS, their high net worth individuals have 20% to 40% allocation in mutual funds. So, specifically on this particular strategy, it's actually in line with our long-term strategy of deepening high wallet share rather than us expanding into mass retail. So, I just want to clarify in terms of our approach with some mutual funds, how do we get more of our existing clients' wallet share. How do we have or engage more time to transact with them. So, that's the reply for number one. And turning to number two as Ms. Wang mentioned for Gopher, I think we have always been seeking ways to broaden the capital sources for Gopher. We have had…

[Foreign Language]

So let me translate Madam Wang’s commentary on the question. So for Gopher, since the establishment in 2010 over the last nearly decade, I think we have accumulated expertise in the various investment strategies that we operate in. And most importantly, we have now seen the benefits of being an expert in terms of asset allocation and diversified solution provider. What this means to our investors is delivering low volatility, as the various investment strategies have low correlation to each other. Now we will continue to expand Gopher based on product line co-investments and direct investments with the goal and intention of delivering absolutely return to investors. And we believe we're able to do so by executing on a multi-strategy efforts. Now based on various data that we have accumulated over the years as well as recent conversation and surveys of our clients and we believe that we are very well-positioned and should be the leading brand for multi-strategy in China, and trends on the asset manager alternative. So now adding or adding some comments on our expansion into public security, again, I want to emphasize this is part of our asset allocation approach, if not aiming to expand into a new client segmentation, but rather how do we use new tool to cross-sell to existing high net worth clients. Now for the first quarter, I think we had some efforts in terms of mutual fund fundraising. And historically we have done mutual fund fundraising on Asset Management basis. So we are quite familiar with this asset category and for some of the funds that we were focused on fundraising in the first quarter, fundraising side that we achieved is actually similar to some of the -- in the bank. And this just shows that the potential of our clients such this asset category, the average transaction per client for mutual fund for our time is much higher than bank. Now we are confident in terms of getting non-Noah’s channels for distributor Gopher Asset as Shang mentioned there are a lot of asset management firms globally that have originated from wealth management route, but has grown to be very sizable and their reliance on their existing private banking partner is now only 10% to 20%. So in other words as Gopher develop the potential from non-Noah channel should be even larger than the amount coming from Noah currently stage.

Operator?

Yes. Our next question is from Yuan Xue with CICC. Please go ahead.

[Foreign Language] Yes, for the benefit of the audience, I will translate the question from the research analyst of CIBC. I know from the quarterly disclosure the company had for the first time disclosed segmentation by geographic location and we see for the first quarter 2019, revenue coming from other or other region has made good progress. And if you can give us some more color on that?

And -- so I'll comment on this question and see if my colleagues have anything to add, but over the last two years, we continue to express our view to the capital market is that we want to build a global business. And since the establishment of Hong Kong -- of our Hong Kong business in 2012, we have continued to make good progress. As of the first quarter of 2019, our overseas markets have contributed roughly about 25% of total revenue and over the next two to five years, we continue -- we want to continue to grow that percentage. Now, as you know we set up our business in the U.S. roughly about two and a half years ago both in Silicon Valley and New York. Both of these offices and the team our focused in terms of product sourcing and developing products. And so we're now able to offer D.C. investment opportunities, co-investment in excellent investment opportunity as well as U.S. insurance product to our clients. And so it's an example of how we replicate our success in Hong Kong to other large capital markets or large markets elsewhere in the world. We believe our times are becoming more mobile and global, so our investment in terms building a global presence will benefit us in the long term.

Our next question is from George Cai with JPMorgan. Please go ahead.

Hi. Thank you. I have a follow up question. I think on the net profit there is quite a large gap between the GAAP net profit and non-GAAP profit. A large chunk of it, I think, is related to a gain -- unrealized gains from the fair value change of equity securities. So could you add more color on this? And going forward, do you expect the volatilities could be smaller? Thank you.

Yes. Thank you, George, for the question. If you note on page 17 of our 6-K or quarterly disclosure, we break out the details of GAAP net income and non-GAAP net income. The largest adjustment is actually share based comp, which is quite in line with how other, let's say, company define non-GAAP net income. And part of it -- the other part of the adjustment comes from fair value changes of equity securities that are unrealized. You can define this or interpret it as basically mark-to-market of equity securities that we hold and the markets have been a bit volatile. And so we adjust out those noises and we add back in unrealized gains. And there is the detailed breakdown, so I won't read the numbers one by one. Yes.

Operator?

This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.