Good day, and welcome to the Noah Holdings Fourth Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chairlady Wang. Please go ahead.

[Foreign Language] On today’s conference call, first I’d like to talk about my observation of the micro environment, then report on Noah’s overall results in 2021 and performances of major business segments. Our CFO, Mr. Pan Qin will then introduce detailed annual financial results of the company, followed by a Q&A session. Looking back on the past year, we once again experienced the complexity and periodicity of the financial markets. In China, the wealth management and asset management industries have undergone paradigm transformation; the industrial changes, business ecology, and characteristic positioning are different from those in the past. The industry has ushered in an interaction point in the evolution of business model. The loose supervision cycle ended and the sales orientation became the past. The underlying assets provided by domestic private banks to clients migrated from real estate bonds to NAV based bonds, embracing the era of equity products. We believe that we must replace the sales mindset with a client centric one in order to survive the competition. Investors and practitioners have been gradually maturing the ageing population and increase residence wealth is helping continuous growth of industry. All these developments show that China's wealth management industry is developing steadily and healthily. At the same time, the inflation of risky assets is prevalent across the globe due to the quantitative easing policy and surplus of liquidity that have persisted for a long time. The reversal of quantitative easingwill change regulatory models and market valuations of many industries. Over the past 10 years, China's economy has achieved remarkable growth. But there are also certain major structural issues that concerns the market; shadow banking, realistic imbalance, financing platform, industry -- over capacity, as well as resource industries with high pollution and high energy consumption. After a long-term the firm adjustments, we…

Thanks, Sonia. Thank you, Chairlady, and hello investors and analysts. Looking back at 2021, it's been a very challenging year, as supply chain inflationary pressure for this hit globally amid new variances and outbreaks of COVID-19, coupled with stricter regulatory policies in many industries, and at bumpy equity markets. And it's also what makes us so special that the young but vibrant Noah has accomplished a record setting year with unprecedented achievements across revenue and profits, benefiting from a well executed client-focused strategy and our investment in client relationships that paid off. Now, please let me walk you through the detailed financial results of the fourth quarter and full-year 2021. Net revenues for 2021 were RMB1.3 billion, up 30% year-over-year and also the highest since listing. That's just not increases in performance based income and revenue arising from the distribution of insurance products. Benefiting from the successful execution of core client strategy, one-time commissions grew 57% to RMB1.3 billion, recurring service fees were RMB2.1 billion, up 9% year-over-year, as a result of a larger asset based we managed for our clients. Performance based income achieved another milestone, amounting to RMB780 million more than doubled from the previous year. Specifically, long duration private equity products and private secondary products accounted for 46% and 48% performance-based income, respectively, again, demonstrating our excellent investment and product selection capabilities that in turn translated into value creation for our clients. Income from operations with RMB1.2 billion, down 5% year-over-year, due to increased talent retention and acquisition efforts, continuous strategic investments in client experience to better meet the evolving needs of our high networking clients, as well as expenses incurred related to our new headquarters renovation. For instance, we increase our investment in technology investment research talents by RMB120 million as part of talent acquisition strategy.…

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Ethan Wang with CLSA. Please go ahead.

[Foreign Language] I have two questions. The first one is based on the fourth quarter last year and year-to-date market environment, have we seen any change in the product preference in terms of mutual fund and employee segment products? That's the first question. Second question is related -- has been kind of, fast back in first quarter, we mentioned that it's mainly due to talent acquisition. So, just wondering if management can explain more details our strategic consideration behind our cost growth, it doesn't fit in the context of this year's market environment and the COVID situation in China? Thank you.

[Foreign Language] First of all, to your question Ethan -- on your first question is that it seemed pretty apparent that our clients have turned quite conservative in terms of investment preference. But we have tried our best to exit some of the products that are already earning profits and distribute that back to our clients. But it seemed our clients are more conscious this year in terms of the health checked of their overall asset allocation strategy. So, obviously, we have noticed the shift to holding cash or allocating more assets towards insurance products, as well as some of the trust structural design to have segregation of assets from more risky returns. So that shift is actually pretty obvious, I would say. And in terms of outlook of the COVID-19 situation, it seems that it's probably not too bigger question, when there probably will get different cities and towns that have continuous, but obviously, occasional shutdowns towards the 20th Annual Conference -- Annual National Conference. But we’re also actually looking at that as an opportunity when actually people get shut off from the offline activity. They probably intend to trade and allocate a little bit more online, and also is more willing to engaging interactions with us in terms of the knowledge sharing tips, okay. So that's the first question. And second question in terms of the cost in the fourth quarter. It's actually a little bit of, I guess, a mix of seasonality and also the result of transformation. First of all, the fourth quarter is actually typically the conventional season where we have a pretty high number of annual client activities, including a series of black card gala events in Guilin, in December, as long as the separate diamond card client conferences across our cities. So that actually accounted for quite a bit of increase in marketing expenses. And two is also part of the result of transformation, when we actually upgraded the compensation scheme of relationship managers, as you probably are familiar with that, that we have increased the fixed pay of RM by close to 30%. We did the first batch in the upper half of the year, and also the rest of the 11 regions and cities actually also came into program in fourth quarter. So obviously, that also increased expenses of the fourth quarter. And looking forward at 2022, we'll continue to actually monitor the expenses, but it seems the hikes in terms of in the transformation in the compensation mechanism will not as tricky as in the fourth quarter, and obviously, looking at the margin will continue to actually maintain pretty prudent attitude towards the uncertainties in the year of 2022.

[Foreign Language] That's all for your time, Qin.

Thank you, Ethan.

[Operator Instructions] The next question comes from Emma Liu with Bank of America. Please go ahead

[Foreign Language] So I will briefly translate my question. So the first question is that recently received a China API as well as Hong Kong stock poor than significantly, so how will it impact the performance of Gopher’s AUM, as well as these products of third-party managers, and how will it impact the investment behaviors of your clients? Second question is related to your cost. I think that the books are large, correct, because for your lending business, so how is the progress of restructuring of your lending business and do you continued -- were you continued to book more credit costs for the business going forward. And we see that your net margin declined 21% to 22% -- 21% to 22%, in fourth quarter, previously you guided that you wanted to spend net margin between 32% to 35%, do you continue to expect that and we see that your -- the number of your RM declined in the fourth quarter. What's the reason behind it and what's your plans for RM build in this year? Thank you First of all, I think, in Chinese 2019, we actually started transformation, you know, was pretty lucky that they gave us actually room and time to adjust the product mix. And as of the end of 2021, we have pretty much completed -- the first of all private credit products, as well as any credit exposure, that relates to real estate, which actually made our portfolio pretty stable for our clients. And two, was actually noticed probably will be emergence of a new group of clients that also have experienced, some of the losses that they may have experienced from other institutions, where they actually have investments in so called non-standard private credit products. And this will be a new group clients…

The third question is about your net margin, if we decided to keep it as 30% to 35% as to 21% in first quarter, and why there is a decline in your number of relationship managers in both quarters? Thank you.

Yes. For the net margin as I have actually explaining Ethan's question. First of all, it's actually pretty concentrated marketing season. So basically a series of marketing conferences, including the offline black card clients, and also the cards in separate cities, so that's one thing. And two is that the increase in fixed pays so obviously, the last bench [ph], which is also half of the population of volume that joined the reform also actually add a little bit pressure on the cost in the single quarter. But while we are talking about the net margin, we usually take a look at the margin from the annual budget process, which still actually aims to maintain around 30% or to 35% operating margin for the year but I guess fourth quarter is a low quarter. But overall, we're probably -- I think close to 28% 29% of overall operating margin. So from that standpoint, that's still the goal that we're maintaining. And two is that in terms of our RM, we did have some proactive adjustments in terms of the RM mix as we have mentioned in the transformation, when we're actually forming the plan [ph] book, we are actually only appointing I guess, the high performing register managers into the direct client interface or AR account representative. So there's -- there has been quite a bit of regrouping activities, especially when absorbing the last half of the RM group into the reform. So there's becoming a little bit of volatility in terms of a mix between when you're adjusting to the new reform and also the proactive, adjusting on the low performing -- relatively low performing RM. But at the same time, we've continued to put in pretty reasonable amount of budget for recording in 2022. And we believe actually, the market is a good timing for us to probably heighten the investment in terms of talent acquisition in 2022. So, we'll see a moderate increase in the total number of RM. But I guess at the same time, we're actually very being selective in terms of getting some of the talents they probably wouldn't have had the opportunity to acquire in a normal market condition.

Thank you.

No problem, Emma

[Operator Instructions] The next question comes from Andrew Clareon with MF Value [ph]. Please go ahead.

Hi, thank you for taking my question. I was hoping to ask a question on capital allocation. You all have a exceptionally strong and clean balance sheet, which I think is a testament to really the quality of the business with over US$500 million in cash and your headquarters, which I think you purchased just this past year, against virtually no debt on the business. And even with the strategic investments and talent that you've made, it sounds like you're projecting still quite a healthily, cash flow positive year next year. With the volatility that we've seen in the share price, you could spend just a bit of that cash and have that be quite accretive but if it goes towards share repurchases and I know at the end of 2020, I think you all spend about US$100 million on share repurchases at prices that were a 30% to 40% premium to where the stock price close today. So I was hoping to understand the willingness to maybe look at capital allocation in the terms of some return to shareholders in that form.

Thank you, Andrew. [Foreign Language] So thanks, Andrew. I guess to put in a simple way that's definitely one of the considerations that we have and also one of the tops that we have discussed extensively on internal meetings. So obviously, I'm very conscious of the ROE of our stock and at this time, it seems it's at a very low point. And I guess I am actually not at the convenience of comment too much on this, but I just wanted to share the shareholders and analysts, we're definitely keeping that in mind on the timing as well we are planning to install some shareholder return mechanism that will be probably including all kinds of tools that we have, but we have to wait for the right timing. And understand the -- I guess it's also a reflection our management style that will find to keep abundance of liquidity to cope with the uncertainty of the market, but at the same time, I'm also very conscious of creating value and also returns for our shareholders.

Okay. That’s helpful to understand. Thank you.

Thanks, Andrew.

[Foreign Language] Okay. So, Chairlady Wang supplemented some color on this question. First of all, I think especially, on the side of the stock price, I think for the Chinese FPIs overall at low point that's probably majority of the value is not correctly reflected. But for management and virtuality, we're still very optimistic about our future and especially the industry and also the company's position in this particular situation. And I guess we're lucky that we started to have formation, probably two years earlier. And we have no burden, no matter from balance sheet side or portfolio of AUM, and lastly managed to protect, the majority of the client's assets through this wave of uncertainty is probably some of the volatility. And, as you can see evidence by the returning, especially the core group of clients, which is probably the competitive, where the competitors putting all the resources trying to gain when was still made about 18%, increasing close to client group in the year 2021. So I guess we're in a pretty good position. And also Chairlady Wang mentioned that, she is also the biggest shareholder of the company, obviously, very much conscious of the value creation for and return power shareholders.

Thank you for the additional color very helpful. And yes, I think it's undoubted that operationally, you all have been exceptional in terms of execution and as a shareholder, it's been fun to watch, and congratulations on all the success. I think, from a shareholders perspective, seeing some of those positive signs on a capital allocation front, would be the cherry on top and even I think even more pointing towards the optimism. So we'll look forward to the future with much you must realize. So thank you very much for answering the questions.

Great, thanks, Andrew.

This concludes our question-and-answer session. I would like to turn the conference back over to Grant Pan for any closing remarks.

Great, I don't have any more remarks. And thank you, everyone for your time. And we have several conferences scheduled. And we'll talk to you soon, on those calls. Thank you.

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