Noah Holdings Ltd (NOAH) 2010 Q4 法說會逐字稿

Welcome to Noah Holdings Limited Fourth Quarter Fiscal 2010 Results Conference Call. At this time all participants are in a listen-only mode. Following management's prepared remarks there will be a Q&A session. As a reminder this conference is being recorded.

Joining the conference today are Ms. Jingbo Wang, Co-Founder, Chairwoman and Chief Executive Officer, and Mr. Tom Wu, Chief Financial Officer. After the close of the US market on Thursday, Noah issued a press release announcing its fourth quarter 2010 financial results, which is available on the Company's IR webpage at ir.noahwm.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 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 our business. Please refer to the risk factors inherent in the Company's business and that have been filed with the SEC. Actual results can 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 applicable law. The results announced today are unaudited and subject to adjustment in connection with the completion of the Company's audit. Additionally, certain non-GAAP measures will be measured -- will be used in our financial discussion. A reconciliation of GAAP to non-GAAP financial results can be found in the earnings press release posted on the Company's website.

I will now turn the call over to Ms. Wang, Chief Executive Officer. Ms. Wang will be speaking in Chinese and Mr. Tom Wu will translate her statement into English.

(interpreted) Thank you, operator, and thank you all for joining us today. With me today is Tom Wu, our Chief Financial Officer. I will provide a quick overview of our business in 2010, the opportunities that we saw, as well as our strategic prerogatives. After that, I will ask Tom to provide further details of our operating and financial results. We will then be delighted to answer any questions you may have.

First of all, we are very pleased to share with you our results, both operational and financial. They have certainly met our expectations. Our revenues grew 160% in 2010, compared to the previous year, and our registered clients surpassed 16,000.

We were able to maintain high speed of growth and profitability even though inflation started to tick up and government issued strict policy initiatives related to the real estate market in the fourth quarter of last year. So we continue to be hopeful, hopeful of opportunities that are in front of us in our industry in China. I would like to spend my portion sharing with you some of my thoughts regarding how we plan to continue to grow our business and improve how we manage our business.

First of all, our strategy for 2011 is to continue to scale our business through branch network expansion. Our business originally envisioned a total of 55 branches by the end of 2011, up from 39 branches as of the end of last year.

We have recently upgraded our plan with the approval of our Board of Directors to target the total number of branches to reach 58 to 60 by the end of 2011. I would like to share with you that out of the 23 (Company corrected after the conference call) new branches that we opened in 2010 last year, six of which already became profitable the year of their openings.

This gives us not only confidence, but also operational insights to improve our branch network expansion strategies, including improving the efficiency of our new branches, both on a cost side in terms of real estate, as well as personnel structure optimization. Our strategy here is to continue to grow the business of our existing, or old branches if you will, but at the same time endeavor to improve the profit cycle of new branches.

Let me now talk about our product strategies. We will continue to focus on research, risk management and innovation. What we have found is that recent inflation, or inflation outlook, actually increased the investment needs of our clients and restrictions on real estate in some ways are gradually increasing clients' needs for secondary market equities, or A shares exposure.

We have already established a product team focusing on equities and we expect to increase the scale of our secondary market business in 2011, including through the fund of funds business. We have started to see some progress on that front already in the first quarter of 2011.

In terms of real estate, it remains a key sector for the Chinese economy. We will focus on longer dated real estate equities funds to provide some immunity from the impact of the current market cycles, helping our clients in terms of asset allocation to the real estate sector. It is being well received thus far by our clients.

In terms of private equities, we plan to continue to cultivate that market. Looking at our product pipeline for 2011, there are a number of top notch private equity general partners, both local or "foreign" that we will cooperate with to bring benefits to our clients.

In terms of fixed income, it remains an important business for us. We will focus on solving our clients' needs, partly through looking at products with floating interest rate structure to minimize the impact of possible inflation.

I would also like to highlight the progress we are making vis a vis our fund of funds business, a strategic business for us. Our fund of funds team is becoming more experienced working as a team in 2010 and our total fund size in fund of funds has reached close to RMB1,300 million, and our expectations is that there will be significant growth in our fund of funds business in 2011.

Before I move on to the next topic, I would also like to mention our OTC financial products database. As you know, the database is critical in our product selection and design. We will continue to invest in that area to become a leader in this area and enhance our value propositions to both our clients and product providers.

Let me now talk briefly about our human capital strategy. Hiring, training and retaining key people has always been one of the key areas I focus on. We are currently taking and conducting a "NOAH 100" campaign , a designation for an additional top 100 RMs to generate momentum for our hirings.

We are conducting interviews in 38 (Company corrected after the conference call) key cities around the country and have asked some of our key senior management team to participate in the interviews, communications with potential candidates. I think it's important to articulate our values, share what we are hoping to achieve upfront to provide possible smooth integrations later on.

Finally, technology -- technology is becoming an increasingly important area of differentiation for us. A mottol that we have internally is "frequent contact and strong technology," meaning that frequent contact and quality contact through our RMs, but using technology as a platform.

When we set up a new office, we want to improve the efficiency of our business or operations, partly through technology. This will provide standardized services to improve consistency of our service quality. We plan to increase our investments in technology in 2011, including an online client service platform.

Obviously there are other areas we can improve on, but my view is that if we focus on the key strategic issues and trends, while ensuring execution, the chances of success will be greatly enhanced. What we are trying to do here is to build an organization, an organization which endures through time, market cycles and, for that matter various governmental policy initiatives.

If we focus on our clients, continue to enhance our value propositions for our clients, have a set of values we believe in and promote a sustainable culture we will be on the right path to move closer to our mission or our aspiration, which is to become the most trusted brand in the wealth management industry in China.

I will now ask Tom to provide some details on our financial results. Thank

Thank you, Madam Wang, I will provide some highlights on our operational drivers and financial results for the fourth quarter, the entire year 2010 and then our comment on our outlook for 2011.

Our fourth quarter results were strong. Net revenues for the fourth quarter were $14 million, a record high quarterly revenue for the Company. This represents 157% growth on a year-over-year basis. We achieved this growth by distributing more products to more clients.

The total transaction value for the quarter reached RMB4.4 billion, 79% higher on a year-over-year basis. And the number of active clients was 621 for the quarter, up from 506 in the same quarter last year. Product mix for the quarter was relatively consistent on a year-over-year basis with fixed income representing 45.9% of total transaction value.

Both onetime commissions and recurrent revenues increased on a year-over-year basis. Onetime commissions increased 145% as a result of the aforementioned increased transaction value.

Recurring revenues increased to $3.7 million during the fourth quarter of 2010, up from $1.2 million the previous year. It is mainly due to an increase in transaction value of the private equity product area that we distributed during the quarter and the accumulative effect of private equity products distributed previously during the year.

Recurring revenues represented about 26% of our overall revenue in the fourth quarter. The stream of recurring revenue enhances our revenue visibility and we continue to believe this will be an important component of our revenue stream going forward.

Our profitability remains strong. Gross margin for the fourth quarter was 81.7%, slightly lower than that of the fourth quarter of 2009. The change was mainly a product of our growth, as we added our relationship manager headcount in our branch network expansion.

Selling costs as a percentage of revenues increased year-over-year to 25.2% from 20.7% in the same period of 2009. This was primarily due to increasing costs associated with the year end client activities. We also held a number of client marketing events related to our IPO in the fourth quarter of last year, contributing to higher selling costs as a percentage of revenue in 2010.

G&A expenses as a percentage of our net revenues declined year-over-year to 13.1% from 23.1% (Company corrected after the conference call), partly reflecting economies of scale of our business model.

Fourth quarter non-GAAP net margin was 33.3%, which is lower than the comparable period in 2009, partly because of lower investment income and higher income tax expenses in the fourth quarter 2010 on a year-over-year basis.

Our balance sheet continues to remain strong. Our cash and cash equivalents increased by $111.5 million from the previous quarter to $133 million at yearend. $105 million of the increase was the net proceeds from our IPO in November of last year.

Operating cash flow was strong, generating $11.5 million for the quarter. We have an asset light business model and our business continues to generate significant cash flow.

Accounts receivable and amounts due from related parties, both decreased significantly from the previous quarter end and most of the accounts receivable and amounts due from related parties on the December 31st balance sheet have since been collected.

Deferred tax assets also increased significantly because of a temporary difference, mainly from accrued payroll and bonus.

I would also like to provide some highlights for the full year of 2010. As Madam Wang mentioned, 2010 was a strong year for Noah. We continued our expansion by growing our registered clients to over 16,000.

We continued our branch network expansion and now cover 38 key cities and towns, up from 16 at the end of last year. As of year end we had 341 relationship managers, up from 192 at the previous year end.

Our net revenues reached $37.9 million, a 160% increase compared to the previous year, reflecting not only the secular growth of the targeted high net worth population, but our unique business model and our expansion strategy. Profitability overall remained strong.

Our non-GAAP net income for the year 2010 was $13.4 million, exceeding the high end of the guidance range we provided to the market place back in December. However, as Madam Wang, mentioned, there are ample challenges for us and rest assured we are focused on executing our strategy to capture the market opportunities in front of us.

Let me now comment on our outlook or guidance for fiscal 2011 and put our guidance into context. First of all, given the nature of our business it's difficult, as we mentioned on the previous call, to provide guidance on a quarterly basis with a lot of precision, but we know that investors need to understand directionally where we are going and what financial targets we are trying to achieve. So, as we mentioned on the previous call, we will provide guidance ranges annually, rather than on a quarterly basis.

Secondly, we will provide guidance, annual guidance on a non-GAAP net income basis as we have greater relative control over the management of our net income, rather than our revenue results. Having said that, we have a budget in place for 2011 on which we are executing.

For fiscal 2011, we estimate that our non-GAAP net income will be in the range of $21 million to $25 million. This represents a growth rate of 56.7% and 86.6% compared to fiscal 2010. Obviously this is a pretty long data forecast and we will provide investors with updates as we see fit on an ongoing basis.

That completes our financial review. Thank you for your time today. Madam Wang and I will be happy to address any questions you may have. Operator?

Thank you. (Operator Instructions). Our first question is from the line of Ella Ji from Oppenheimer. You may proceed.

Thanks. (spoken in Chinese) Congratulations on a very strong quarter and thanks for the detailed comments.

First of all, you mentioned there's a few initiatives that you will pursue next year. I am wondering if you can provide a rough mix of product mix for next year.

Yes. I can. Thank you, Ella, and good to hear from you on the phone. I will take a stab at it and see if Madam Wang wants to add to it later on.

We mentioned this on the previous call that our basic asset allocation model for the entire firm is a balanced one, which is 60% fixed income, 40% non-fixed income. Looking at product mix for 2010, the year that we just passed, it was roughly about 50/50.

So I think our base case scenario, Ella, it is obviously difficult to forecast with any precision, is perhaps more on the non-fixed income side than fixed income, so perhaps 40% or less fixed income and the remaining will be made up of private equities. And Madam Wang mentioned earlier our goal of communicating our values or our views on the secondary Asian market.

So I think a base case scenario will be the fixed income will be less important for 2011, but obviously it's a very dynamic market. We will continue to provide investors with an update as we see fit should that basic allocation were to change.

Thank you.

I hope that was helpful.

Yes. Sure, that's very helpful. Regarding your own fund of funds, what's your planned initial size of your fund of funds for this year?

Yes. I will take a stab at it as well. As we mentioned, the total fund of funds size we have accomplished through two funds has reached about RMB1,300 million (Company corrected after the conference call) at the end of last year. The second fund, as we talked about on the previous call, was completed during the fourth quarter of last year.

I think it's difficult to give you any forecast with any precision, but we do expect, as we mentioned, significant growth of the fund of funds business, but if you look at our total AUM, if you will, for this year from a percentage standpoint it's not going to be that significant on a relative basis. So I am not trying to evade a question, but I think you could expect significant growth from that RMB1,300 million (Company corrected after the conference call) which we have currently.

Okay. And I was looking at your 4Q results and I noticed that the average transaction value per client declined a little bit from 3Q. Could you explain a little about that?

Yes, sure. I think that's a very good question, Ella. Yes, our transaction value per active client declined fourth quarter compared to the previous quarter. I guess that makes our point further in terms of not making direct quarter-over-quarter comparison, but having said that, we fully understand why people want to understand what's going on.

It's primarily a result of product mix. If you recall, private equities played a very important role in the third quarter of last year and private equities in general have a higher entry point. In average, private equity will probably start with RMB10 million per client, versus only RMB3 million on a fixed income side.

So the product mix became more balanced the fourth quarter. It was roughly 50/50 between private equities and fixed income, so that shift to more fixed income is probably the key reason why transaction value per active client declined to about RMB8 million from the previous high in the third quarter. So it's entirely a function of product mix in the fourth quarter, Ella.

Sure, understood. And looking out at your 2011 with fixed income likely representing less percentage, should we expect the average transaction value per client going up again?

I think it's a harder question to answer, Ella, because partly it would have to be driven by how we are doing vis a vis our equities business, so I wouldn't want to venture out to guess where that's going to be, but it would also have to be a function of what kind of active clients number we generate.

So one of the things that I should point out is actually we had very good growth on a relative basis in terms of active clients in 2010, compared to 2009 (Company corrected after the conference call) so if we could continue to increase that active client number we will have less reliance in terms of generating the higher transaction value per active client. So I -- it's hard to give you a precise answer for that.

Okay. And lastly, regarding your G&A expenses as a percentage of revenue it actually came down versus 3Q, and I was wondering why is that because usually 4Q would be higher because of the year end bonus and everything.

Well, we -- no, that's not quite right. The key reason for G&A as a percentage of revenue declined is because of economies of scale. So as our revenue grew by almost 40% quarter-over-quarter certainly our fixed costs would not grow at that rate, even with our expansionary mode.

The year end bonus that you mentioned, yes, it did kick up, but we actually accrue that on a quarter-over-quarter basis, so it will not be a huge increase just because it was the fourth quarter. We accrue that on a quarter-over-quarter basis for the full year.

Got it. Thank you very much.

Sure. Thanks for your questions.

Your next question comes from the line of John Ma from Roth Capital Partners. You may proceed.

Good evening. Congratulations, Tom, and Madam Wang. I have a few questions.

First of all, I just want to follow up the previous question regarding your G&A expenses. And now, as we going forward, do we expect the same level of, at least in terms of a percentage of revenue, going forward we see that stable at current range? (spoken in Chinese)

Thank you, John. I'll take a stab at the question. I think in the normal case one should expect actually some synergy as we accelerate our revenue growth for 2011 that G&A expenses as a percentage of revenue would come down, but we are making a number of investments in the areas of IT and our research areas.

So I think a base case will be that the G&A expenses will grow and also would accelerate the growth rate. So I think base case, yes, we should probably expect G&A expenses to stay relatively flat as a percentage of revenue, if not slightly ticking up, but only slightly. But obviously we will be focused on controlling our expenses, managing our expenses in support of the growth of our business, but I think base case it may tick up just slightly. Thank you.

Okay. My second question relate to some proposed regulations or some new policies related to private equities and also security investment fund laws, and I would like to -- hope you can answer or give some light on what's the net impact these regulations will have on you, especially related to your security funds and also these private equity funds. (spoken in Chinese)

I'll translate that for you, John.

(interpreted) First of all, the changes are -- in policies we believe are positive, meaning that some of the private equity funds will have to be filed with the NDRC, the National Development and Reform Commission. We are analyzing the changes and implications for our business, but most of our existing funds in the pipeline have been filed with the NDRC and we have actually formed a focus group, if you will, to actually analyze further for the ones that have not been filed with the NDRC.

Actually, we participated in the discussions of the possible changes in policies with the government. Our view is that the policies will become more open and the fact that the regulation on hedge funds may migrate from CBRC, which is the banking regulator, to CSRC we believe is actually a good move, a possible, a positive move. So hopefully that's helpful.

There are also some conflicting reports talking about CBRC may release their regulation, limiting trust product for the real estate investment, so I am wondering what you have seen on ground from these trust company. Will we see more the trust product offering for real estate rebound? (spoken in Chinese)

(interpreted) So, I think short term to let trust companies that issue these real estate funds it's hard because it's sort of anti or against what the government is trying to accomplish vis a vis the real estate policies. The -- 99% of real estate projects, I think we mentioned the same statistic last quarter call, are financed by lending or credit and the government is becoming very strict with that.

So what is happening is that there is actually a fundamental shift in terms of business model or a financing model, not financing through real estate loans, but more migrating towards the equity side, or real estate equity fund.

Our view is that, first of all, we are looking at this very closely, but our view, a preliminary view is that this shift from real estate financings through credit only to real estate equities fund is actually a healthy one because the equity one, equity funds tend to be longer date, which we mentioned earlier in the conference call, and that may be a healthier development for the real estate sector and smooth out the cycles a little bit more.

Oh, okay. My last question is how do you strike a balance between higher transaction value per client versus bigger market share? What I notice is your active count clients represent about 10% of your total registered clients, so obviously when you raise the threshold you get more and more transaction per client, keep revenue growth.

However, you are not converting your registered client quickly into active client, which may hurt your market share. So I am just wondering, how do you strike that balance? (spoken in Chinese)

Yes. That's a good question. I think Ella from Oppenheimer was asking sort of a similar question earlier. I think just a couple of corrections; one is that if you look at sort of active clients as a percentage of our total registered clients, it's more than 10%. I think we mentioned this on a previous call that out of our 16,000 registered clients, over 5,000 have transacted with us. So just by dividing our active clients for the year by our total registered clients it's probably not necessarily the right way to look at it.

But I think it would continue to be a function of our network expansion to cover more areas where private wealth is concentrated. I think it's a function of deepening our dialogue with our existing clients and whether -- especially the ones that are "not active." And it's also a function of gaining a greater wallet share of our clients.

So what we are finding is that the wealth level, I think I mentioned to you before, the wealth level of our clients is just increasing in general as the economy continues to expand. So we are hopeful that we can fine tune that balance between growing our business and getting more people involved, at the same time achieving the goals that we have set out for ourselves. So obviously there is no magic answer to it, but we spend a lot of time thinking about some of the key issues, one of which you just mentioned.

Should we take another question?

Our next question is from the line of Michael Li from Bank of America/Merrill Lynch. You may proceed.

(spoken in Chinese) Oh, it's Michael. (spoken in Chinese)

I will translate the question for the benefit of the audience first. Michael Li, analyst from Merrill Lynch. Two questions. Number one is the growth of our branches in 2010, any characteristics of cities or towns. The second question, I believe, is what is the strategy for 2011 in terms of the growth that we described earlier, in terms of where we would select these towns.

If I could just take a stab at it, maybe two points to make. One is that our target client is the entrepreneurs of China, and I think we have mentioned this and mentioned this repeatedly previously that 70% of our clients are businessmen, entrepreneurs.

So that has a direct implication in terms of our branch strategy, so our branch strategy will focus on the top 100 counties by GDP in China. And 80% of these top 100 counties are concentrated in five provinces, Zhejiang, Jiangsu in the Yangtze Delta River, and Guangdong, Fujian Province in the Pearl River Delta and also Shandong Province up north. So the vast majority of the branches that we have opened in 2010 were in those five provinces and our expectation is that most of the new branches that we are targeting to open in 2011 will also be in these five provinces, most of them. So I hope this is helpful.

(spoken in Chinese)

Yes.

(spoken in Chinese)

Okay. Again, I will translate the question for the benefit of the audience. The question from Michael is on related party revenue as a percentage of our total revenue. Obviously it ticked up from about 19% to 20%, 26% in the fourth quarter. And the question is, is it all because of Sequoia?

I think we talked about this on the last quarterly call that we were in the process of raising a fund for Sequoia, one of our shareholders. And part of that revenue was recognized in the third quarter and we did talk about the vast majority of that revenue related to Sequoia would be recognized into the fourth quarter, and most likely related party revenue would increase in the fourth quarter as a percentage of total revenue. So we talked about that on the last quarterly call, but I guess two more points to make.

The second reason why related party revenue increased was the fund of funds business, our fund of funds business. Because we own the business, so the fund of funds that we raised in terms of commission that we received, was also categorized as related party revenue. And we did raise the fund of funds, as I mentioned earlier, the fourth quarter of last year.

I think going forward what we should expect is that it will decline as a percentage of revenue starting this quarter and beyond, simply because the fund that we raised for Sequoia, you could almost treat it as a onetime event. Sequoia is not in the market raising funds every quarter or every month, let alone every year.

But I would also emphasize that even the fund that we raised for Sequoia, as I mentioned earlier on the previous call, entirely was on the arms length transaction, but going forward you should expect the percentage will decline as a total revenue. And the continuing related party revenue will come from primarily two sources.

Number one is management fees we are receiving from Sequoia, management fees we are receiving from our fund of funds business, and also the incremental, Ella's question earlier, the incremental commission that we receive raising fund of funds in 2011. But overall the percentage should come down.

(spoken in Chinese)

Again, I will translate the question. Question from Michael is the cash balance that we have on our balance sheet, over $130 million. What is the investment plan for that cash balance?

I think that's an excellent question. In fact, we discuss that internally with management, as well as with our Board of Directors. I think there are two guiding principles how we will use the cash.

Number one is safety. It has to be safe, so a vast majority of that will be in bank deposits or cash equivalents. And the second guiding principle is liquidity. We will not want to be tied in longer dated deposit instruments, which may hamper our ability to expand our business or the financial flexibility that we need.

My view is that if you look at corporate America, vast majority of corporate America would use cash in a very conservative way, CDs or otherwise. So that will most likely be the predominant form of how we use the case, number one.

And number two, we are in the wealth management business, so we are in the business of selecting wealth management products. For select products, which we would consider as ultra safe we would recommend some of these products to our risk management committee, but only if that gets passed by our risk management committee can we invest in some of the fixed income instruments, shorter term fixed income instruments, but from a percentage standpoint it would definitely be in the lower percentage.

So the vast majority will be kept in bank or bank deposit equivalent. And obviously I want to reemphasize the guiding principle of safety and the guiding principle of liquidity, but that was an excellent question, Michael.

(spoken in Chinese)

Can we take a couple more questions?

Our next question is from the line Zach Yang from Acacia Capital Management. You may proceed.

Congratulations to your strong quarter performance. I have a couple of questions. The first one is about the average transaction value per client in Q4 and at Q3. You mentioned that this is because the product mix changed. I wonder if there is a reason in there, the expansion into Tier 3 and (inaudible) and clients in the Tier 3 (inaudible) money or in that one product.

I'm sorry, Zach. The line was very bad. The last portion of it -- I understood that you are asking about the decline of transaction value per active client. What was the last statement before you asked the question?

Well I said you mentioned that the reason is just product mix, but I wonder if it's another reason contributed to this change that your expansion into Tier 3 and 4 cities and the clients in those cities don't spend enough money.

Oh, no, no. I see, I see. Let me perhaps just repeat the last portion of your question for the rest of you who are on the line, may or may not hear that clearly. The question from Zach was related to decline in transaction value per active client.

And we did explain it was a function of product mix shifting more towards fixed income. But Zach's question was, is it because clients are spending less money as we expand to second and third Tier cities.

I think my view, and I can ask Madam Wang to comment on that as well, my view is probably not because we have been in second and third Tier cities, when we produced the third quarterly results with the highest transaction value per active client. And, again, I keep coming back to the same point. That's one of the reasons why we don't want to provide quarterly forecasts because the product mix does shift and you could have very different results from very different products, product mix, produce different earnings.

Perhaps it's better to explain why it was so high back in the third quarter. Actually, one of the key reasons was because of Sequoia. The fund that Sequoia raised -- I don't want to get into too much detail. Their starting point was actually very high.

I mentioned that an average private equity fund the starting point would RMB10 million. In the case of Sequoia it was several times higher than that, so that really lifted the transaction value per active client back in the third quarter. That will be more of an exception than the norm, I would argue, but to answer your question my view is it's not because of second or third Tier cities. You are kind of looking at poor rich people, if you will. That would not be the case.

Thank you. Okay, I have another questions. In last quarter's call you mentioned that due to inflation and clients' preference the proportion of fixed income as to your products value decline, but I noticed that the percentage increased in Q4. Is there any reason? Will this trend persist? (spoken in Chinese)

I will translate that, the answer.

(interpreted) There is no immediate trend in terms of clients' desire for shorter duration fixed income products or avoidance of fixed income products. So what we said on the last quarter was our sort of forecast for client needs. So in actual I guess operations we have been a little bit surprised that there continues to be very strong demand for fixed income products.

That's Madam Wang's reply, and I would just add a bit more color. We actually analyze the average duration on a weighted average basis on a quarter-by-quarter basis and we also look at the average yield of the instruments that we distributed, and it is very much consistent with what Madam Wang said.

So far, last year there doesn't seem to be a direct declining trend yet. I think, again, it goes back to clients' needs, so it -- but we think that it may impact, so I don't want to make this as a precision kind of forecast, but it may impact our business, but we think it continues to be an important business for us, even from a percentage standpoint. It may decline in 2011 compared to 2010.

Okay. Thank you. My last question is how long will it take for a new branch to materialize profitability? (spoken in Chinese)

Yes.

(interpreted) It varies, Zach. Some became profitable for the first year, the same year. As we mentioned on our call, six out of the 23 (Company corrected after the conference call) branches that we opened last year became profitable within the year, but for some of the provincial cities we do have some offices in the provincial capitals, I will just add some more color, mainly for the financial institutions, the distributions partners that we work with in those cities, it may take a little bit longer, three years.

And, again, coming back to the strategy that Madam Wang outlined earlier, we are trying to optimize the economics of new branch openings, partly through optimizing real estate, maybe a smaller office, 300 square meters down to 200, 250, just lower the fixed cost base to make the profit cycle faster, so we actually shared with you on the earlier call.

Operator, why don't we just take one last call from the line?

The last question then comes from the line of Cindy Xu from JPMorgan. You may proceed.

Hi. (spoken in Chinese)

Have we -- yes, Cindy. This is Cindy from sell-side JPMorgan. She wanted a breakdown of active clients figure by channels. We do have that.

Out of 621 active clients 559 was direct sales clients, about 90%, and for enterprise clients, 53, which is about 8.5%. Our channel clients was nine clients, 1.4%. I would just point out the trends are relatively consistent for last year, roughly about 90%, vast majority from individual clients and the remaining more heavily weighted towards enterprise clients.

(spoken in Chinese)

(interpreted) Certainly it would have an implication in terms of our margins, but we are trying to be very strategic vis a vis our channel business and we think it's an important business, so we will continue to make an effort in that area.

Okay. Why don't I stop here, operator?

Okay. We will turn the line back over for closing remarks to management.

Great. Thank you, again, for joining us today. Obviously it was a very strong quarter and we closed the year by exceeding the higher end of guidance range we provided for the marketplace late last year, so we look forward to speaking to you in the coming quarters.

And, again, I would like to emphasize that partly how we want to differentiate ourselves is through regular communications, transparency and the quality of our communications with our investor base and become a company that you can trust. Thank you and have a good evening or good morning.

And, ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring their Event.