Noah Holdings Ltd (NOAH) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen. Welcome to the Noah Holdings Limited third quarter 2011 results conference call. (Operator Instructions). As a reminder, this conference is being recorded. Joining the conference today are Ms. Jingbo Wang, Co-founder, Chairwoman and CEO, and Mr. Tom Wu, CFO. After the close of the US market on Monday, Noah issued a press release announcing the third quarter 2011 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 its 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 due to 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. In addition certain non-GAAP measures will be used in the 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.

I would now like to turn the call over to Ms. Wang, CEO. Ms. Wang will be speaking in Chinese and Mr. Shang Chuang, the Company's IR Director, will translate her statements into English. Ms. Wang, please go ahead. Thank you.

(Interpreted). Thank you operator and thank you all for joining us today. With me today is Tom Wu, our Chief Financial Officer. I will start by sharing our observation on the market environment then provide an overview of our performance in the third quarter of 2011 and an update of our strategic priorities. Tom will follow by discussing details of or operating and financial results. After that we will be happy to take any questions you may have.

The last few days we attended the 2011 APEC CEO Summit and we are speaking to you all from Hawaii. It is a special experience for us. At the Summit leaders from 11 Asian countries attended and discussed how the global economic center will shift from the west to the Asia Pacific in the 21st century. In particular, China and the growth of its economy was the main topic of discussion at the conference. President Hu Jintao specifically stated in his November 3 address, domestically as well as his address here at the summit, that China is strongly committed to its economic growth which will contribute to a steady development of Asia Pacific's economy.

We can see from the recent domestic economic figures that, other than stable consumption spending figures, other economic data dropped significantly especially in the real estate and export sectors. PPI for the first time is less than CPI. But in October M2 and M1 increased RMB 2.94 trillion and RMB 0.94 trillion respectively as compared to September, which reflects an improvement in liquidity. However, due to the residual effect of tightening measures, we think economic data will bottom in the first quarter of next year. These are our views on the current market environment.

In light of the market volatility and uncertainty our clients have become more cautious. Overall we are reasonably satisfied with our third quarter performance given the challenging macro environment. In particular we are pleased that we have started early in the year to strategically and systematically broaden client engagement and expand our active client base, which is paying off. Twelve hundred clients transacted with us in the third quarter, the highest ever on a quarterly basis, more than doubled compared to 566 active clients in the third quarter of last year and even exceeding our record in the second quarter of this year.

This quarter we distributed RMB 5.4 billion worth of transaction value and achieved non-GAAP net income of over $6.4 million, approximately 90% increase as compared to the third quarter of 2010. Although transaction value in the third quarter is lower than that in the second quarter, we continue to achieve active-client growth. When the market is difficult I think it is particularly important to expand our active client base. This will lay a good foundation to deepen client relationships when the market recovers.

We also made significant progress with our branch network expansion strategy this quarter. At the end of the third quarter, we had 53 branches, up from 45 branches last quarter. We are on track to meet or possibly exceed our target of 58 to 60 branches by the end of this year. Although branch network expansion will increase our cost base and reduce our profitability in the short term, our branch network is a core component of our client coverage and servicing strategy. Our new branches not only help us enter new markets but broaden our client coverage network and deepen local market share.

Furthermore, I am pleased to share with you that 23 branches opened in 2010 as a whole turned profitable for the first nine months of 2011. This gives us confidence on our branch expansion strategy and we are hopeful that branches we open this year will contribute to our growth next year and beyond. In 2012 branch network expansion will remain a strategic priority.

Next I would like to provide an update on our product strategy. We remain focused on distributing the right product at the right time to the right client. Our view is that China's A-Share market is at the trough and clients would benefit in the next few years by making investments in the A-Share market now. For the third quarter we distributed over RMB 700 million worth of A-Share related products, which represented 13% of our total transaction value.

This quarter we also distributed more fixed income products based on listed share financing, which contributed to about a quarter of fixed income transaction value. In addition we are responding to changes in client investment preference by developing fixed income products with shorter duration and lower risks. Although this type of products have lower one-time commission rate, we expect strong demand.

Let us now talk about real-estate-related products. We believe the effects of real estate tightening policies are starting to materialize. The controls over the real estate sector are likely to be longer than we initially expected. This will further drive the consolidation of the real estate industry and increase the need for real estate financing. Real estate financing will become more diversified and we believe this will be both a challenge and an opportunity for us. It will be a challenge as we need to be even more cautious in selecting product providers to work with by understanding what type of property developers will emerge as winners in this round of consolidation.

It will be an opportunity as our market potential continues to expand and we have increasing opportunities to work with quality, top-tier property developers. This year we have worked with leading names in China such as Vanke, Gemdale, Vantone and Star River. More recently we have signed a strategic cooperation agreement with Tishman Speyer. It is also interesting to note we have observed many local, small property developers strategically exiting the market and becoming our quality clients. We have already designed an overall plan to systematically cover and service this group of clients.

Overall we think that real-estate tightening will at least last beyond the next National People's Congress, but we have made the necessary preparation to meet the challenges and opportunities ahead. In terms of valuation and selection of real-estate related products, a comprehensive risk management continues to be one of our core competencies and competitive advantages.

Lastly I'm going to talk about our views on the private equity industry in China. Although we remain optimistic of the long-term development of the private equity industry, it is more apparent that bubbles are forming and the sector is disorderly. We are now even more cautious with evaluation and selection of private equity products. Recently we recruited Mr. Tan Li, ex-investment director of Carnegie Foundation in the United States as one of our fund-of-fund partner.

The key is to continuously improve our private equity product selection process. Recently we have started to monitor the development of industry funds like the healthcare and consumption industry. We'll maintain our views in focusing on funds with track record, stable teams and quality pipeline of investments. We will continue to cultivate this market by selecting the best of the best private equity GPs to work with.

I would also like to talk about the regulatory environment. First, the overall environment continues to become more market-oriented and we are encouraged by some of the development. However, the recent reshuffling of the regulatory leaders and the discussion on VIE structure brings some uncertainty. Also it is likely there will be new regulation on the distribution of trust products, but we have already made preparation to ensure we operate under possible new compliance requirements. Furthermore, we believe we are one of the few companies in the industry who can meet the possible new requirements. Lastly, we continue to maintain disciplined and regular dialogue with all regulatory bodies in the wealth management industry.

As the Company continues to grow and the number of branches and employees expand, we believe our sustainable and quality development depends on our ability to manage our growth. In the past we had a flat organizational structure. Now that we have 53 branches we have a lot of pressure on management bandwidth. How do we become not only a high-growth company, but grow while retaining the advantages of a small company as well as maintaining effective communication with our employees and clients?

Recently we have started to gradually implement regional management where we've split our branches into four regions based on geography. The management of our branches at headquarters will be managed by four teams to correspond with the changes to meet regional demands of our clients and distributed products regionally through regional management. Our goal is to improve structural efficiency by dedicating resources to the growth and development of different regional markets. At the same time we strive to effectively manage our branches and achieve profitability at each branch.

From the perspective of growth, if we achieve profitability at every branch next year we would already have a good foundation for next year's growth. Obviously implementation of regional management will mean headquarters will strengthen efforts in compliance, risk management, product selection and research.

During November 9 to 12 we partnered with Hong Kong University of Science and Technology and offered a family wealth management program for twenty key clients. In the evening of November 10 key management celebrated our first year anniversary as a listed company with our key clients and major shareholders.

Over the course of last year we have experienced various challenges, real estate restriction, rising inflation, macro tightening and sell off of China concept stocks, to name a few. However, backed by a united team and support from our clients and shareholders we have accomplished what we have set out to do and we are quite pleased. The market is tough but we remain optimistic. There are a lot of new entrants in this market, but because of the tough market many of them are starting to have regrets. We are grateful that the market is kind to us.

At the APEC Summit in Hawaii this year the China delegation had over 250 entrepreneurs and CEOs. It's probably the largest delegation at the Summit. Over the course of the last few days I have interacted with many of them and once again I feel the energy an ddrive of China's economy as well as promising potential of China's wealth management industry.

We are passionate and dedicated to our business and our careers. We have devoted our time and efforts. The Company represents our dream and also reflects the efforts that we have put in. We believe management is an art. In terms of dealing with our clients and employees, we will continuously improve the experience and satisfaction of our clients and employees and strive to continuously improve ourselves. I believe time is the friend of a wonderful company.

With that I now pass it to Tom to share with you details of our third quarter performance. Thank you.

Thank you madam Wang and good evening or morning everyone. Net revenues for the third quarter were $19.3 million, an 88.9% increase from the corresponding period in 2010. We achieved this growth by distributing more products to more clients. The total transaction value for the quarter reached RMB 5.4 billion or $800 million, 11% higher on a year-over-year basis. And the number of active clients, as madam Wang mentioned, was a record high at 1,200, up from 566 in the same quarter last year. Transaction value per active client declined year over year to $0.7 million, which reflects changes in product mix.

We had a more balanced product mix this quarter with fixed income, private equity and A-share related products representing 46%, 41%, and 13% of the total transaction value respectively. I might as well point out that non-private equity product as a percentage of total transaction stood at 60%, which is highest percentage-wise over the last five quarters, possibly reflecting less risk appetite on the part of our clients as madam Wang mentioned. As you know, both fixed income and our A-share related products have much lower minimal investment amount than private equity product.

For the remainder of the year, we will continue to focus on products that suit clients' current need while keeping risk management profile in mind. Those are the products with more liquidity, possibly less duration.

Both one-time commissions and recurring revenues increased on a year over year basis. One time commissions increased 56% as a result of the aforementioned increased transaction values. Recurring revenues increased to $6.4 million during the third quarter of 2011 representing 33% of total net revenues, primarily due to the cumulative effect of private equity and A-share related products distributed previously. This segment of our revenues will continue to provide us with good earnings visibility going forward.

Gross margin for the third quarter 2011 was 79.3%, which declined on a year-over-year basis and this decline is a function of our continued business expansion. We opened, as madam Wang mentioned, an additional eight branches in the third quarter and increased the number of relationship managers to 505 from 450 the previous quarter. The rollout of regional management will strengthen our efforts and shorten the profit cycle for the new branches.

Total SG&A costs for the third quarter were $9.9 million, an increase of $5.8 million from the corresponding period in 2010. As we have mentioned on previous calls, 2011 is an investment year and as we continue to expand our branch network and invest in our platform including both technology and people. So in the short term margins will unlikely to improve. However, we'll focus on effective cost management as we think we will continue to expand for the remainder of the year. We should reach a point of critical mass and start to see the benefits of economies of scale in 2012 in terms of stabilizing or improving margins.

Balance sheet remains strong. Our cash position increased by $9 million as a result of our free cash flow generation. We are an asset-light company and our ability to generate cash not just profits will continue to be an attractive area for investors. And in the relatively challenging environment that we're in a strong balance sheet is also a competitive advantage. Accounts receivables decreased by $1 million from the previous quarter and the receivable days remains relatively flat. The quality of our accounts receivables continues to be strong.

Before I wrap up I would also like to shed some light in terms of our VIE structure, madam Wang mentioned, which seems to be one of the concerns investors have in the marketplace. Revenues under our VIE entities in 2010, as you may have read in our 20-F filing, represented about 10%, which is very limited. And in 2011 year to date that amount have declined further to 3% under the VIE structure mainly as a result of further revenue growth under the WOFE or wholly-owned foreign entities, other non-VIE entities and also our ability to manage tax more efficiently throughout our various entities. In short, VIE structure has very limited impact on our organizational structures.

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

Thank you. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions). Your first question comes from the line of Ella Ji from Oppenheimer. Please ask your question.

Thank you. (Spoken in foreign language). First two questions relating to your product mix outlook. You mentioned that in the current environment customers are becoming more cautious and understand that they prefer fixed income products and that is why you see a higher mix of that in this quarter. I'm wondering if the economy bottoms in 1Q'12, as you predicted, then how should we think about the mix in 2012.

(Interpreted). As mentioned, clients are obviously more cautious in the current environment. We have similar experience in 2008. In comparison we're probably at the end of 2008 or early 2009. In 2009 our business tripled and had significant growth. This occurred because we made adjustment to our product strategy. We focused on more fixed income products, those that were backed by government and of higher quality.

So the key to our growth in the next few quarters is how we adjust our product offering. In the next few quarters we will focus on quality, large product providers. We will also lower the minimum investment threshold from previously perhaps RMB 10 million, RMB 20 million to a couple of million RMB. Also we'll focus on product with more liquidity as well as products that are cross-cyclical.

Thank you. That's very helpful. My next question is regarding the gross margin specifically. I understand that you expect some economy of scale in 2012 for operating margins, but could you tell us about the gross margin outlook and how much leverage is there in the gross margin line specifically? Thanks.

Yes, Ella. First of all, good morning or good afternoon. That's a very good question. I think we've talked about in the past. The decline in gross margin, as we have shared with all you analysts on previous calls, is mainly a function of our expanding sales force. So we had 450 RMs at the end of last quarter and we ended up with 505 RMs so almost more than 10% growth. Obviously that's going to put some pressure on our gross margin because revenues on a quarter-over-quarter basis did not increase. So my view continues to be that we should be able to maintain a gross margin around 80%, plus/minus a few percentage points.

There's probably no operating leverage at the gross margin level because, as you well appreciate, these are variable costs, which include a lot of commissions that we pay to our RMs which will fluctuate as a function of the revenues, as well as product-specific marketing expenses, which is also a function of our revenues. So these are all variable costs. Most of them are variable costs. So no, I don't think there's operating leverage at the gross margin level, but I do think that we should be able to maintain that around 80% certainly in the near future.

And finally, as you rightly pointed out, sometime in 2012 we should be able to gain economies of scale with SG&A costs growing slower, much slower hopefully than revenues and we should be able to see margin expansion at the operating line. So hopefully that answers your question.

Yes. That's very good, very helpful. Thank you. Last, quickly, what's the nature of your other operating income in this quarter? Is there any one-time item in there?

I believe what you're referring to is rebates, tax rebates provided by government. We've had obviously various discussions with our auditor. First of all, the accounting treatment is above operating line. That's because it's related to our business. And it's a function of various taxes we've paid over the quarters. Obviously it's slightly unpredictable because it's a function of when and how much the tax authorities will provide the rebates back to us. But the short answer to your question is that it's tax rebates, which won't lower our effective tax rate, but in effect it's a rebate from our previous tax payments.

Got it, thank you. Thank you for taking my questions. Congratulations on a strong quarter.

Thanks Ella.

Thank you. The next question comes from the line of Samuel Chen from JP Morgan. Please ask your question.

(Spoken in foreign language).

(Spoken in foreign language). I'll summarize the question for the benefit of the audience on the phone. Sam's questions were essentially twofold. One is that how would we characterize our revenues for the third quarter given that some of the revenues which we had originally allocated to third quarter had been recognized in the second quarter, which we talked about on the previous call.

And the second question I believe was about the outlook for the fourth quarter.

I'll take a stab at the first question. You're right that a pretty significant percentage of our second quarter revenues came from what we had planned for the third quarter. I think I indicated that on the previous call roughly out of that RMB 7.9 billion transaction value about low double-digit % got shifted to the second quarter mainly because the projects were done and on a revenue recognition basis we had to recognize them. So if you do the math a little bit, I think in reality what would have happened is that third quarter would have been much stronger than what we have presented just now and second quarter in comparison would be also more even.

But I think one point is that this year is slightly different from previous years where we traditionally observe that the third quarter tends to be the strongest quarter for the Company. It obviously did not turn out to be the strongest quarter this year. One reason is because of the accounting issue that we just talked about. And the second issue, I don't want to over-emphasize this but it is a very soft market with clients' appetite changing, shall we say. So obviously one of our challenges is to reconcile the two, to come up with products that meet the needs of our client base. So no, this is not a traditional year but if you net off the accounting differences it would have been more even between second and third quarter of this year.

So maybe I'll ask Wang to talk about the pipeline for fourth quarter.

(Interpreted). I would like to first discuss about what Tom mentioned, changes in client need. In the third quarter we have strategically lowered the minimum investment threshold for our products. I think when the market is bad it is very important to cover more clients so when the market recovers we have more client resources to monetize. So in a certain extent the third quarter transaction value reflects our proactive strategy in terms of products. If we did not lower the minimum investment amount we probably would have roughly about similar transaction value, but fewer active clients.

So in the fourth quarter in terms of product strategies there are four points to note here. One, we will focus on big brands, quality product providers with track record, with leadership in their respective sectors. Second, lowering the minimum investment hurdle for products, make it easier for our clients to make investment decisions. Third, we'll also focus on products with more liquidity and shorter duration. Fourth is also to focus on products that are cross cyclical. So if you look at the third point and the fourth point, we will focus on either products with more liquidity, shorter days or products that have a longer period to overcome cyclical volatility.

So in the fourth quarter we have built products meeting those four points and our challenge is how do we continue to adjust our products to meet the changes in client needs.

I would just like to follow up on that point in terms of transaction value and lowering the investment amounts. It's not a function of the quality of our clients. I wanted to be very clear about this because what we have observed from our clients is not necessarily liquidity. They do have the liquidity, but they're just more hesitant. Same clients, high-net-worth clients, but under this kind of market environment they're more willing to engage in a financial transaction perhaps at a lower amount just to test it out a little bit.

So obviously the math is the math in terms of when you divide RMB 5.3 billion transaction value by 1,200 active clients compared to other quarters. But our view, management's assessment, is that it's not a difference in terms of quality of clients, but in terms of the risk appetite and the hesitation that we're seeing in this marketplace. So I wanted to differentiate the two points. Hopefully you'll agree with me.

Okay. (Spoken in foreign language).

(Spoken in foreign language).

I think I should translate that for the audience, the benefit of the audience. Sam's question was about our fund-of-funds business, how much we raised during the third quarter. Essentially we're still going through that, in the process of raising a third fund of private equity funds. And that is not part of our third quarter results and hopefully it will be part of our fourth quarter results.

Thank you. The next question comes from the line of Songbai Wang from CICC. Please ask your question.

Management, congratulations on your good work. I have a quick question regarding product directions. Ms. Wang has expressed Noah's views on the PE and trust industries. And regarding your four product strategies you have launched more products with better liquidities. Is that saying that you'll prefer trust products more than PE products in the future, or what's your view about trust industry's facing the more restrict regulate risks?

(Interpreted). As mentioned --

Excuse me. What's the preference between PE and trust in the short term, in one or two quarters?

(Interpreted). As mentioned, we will focus on products with more liquidity and shorter duration days. At the same time, as mentioned we will certainly still cultivate the private equity market by focusing on GPs with solid track record and solid, stable teams. And for the trust products we expect there is likely to be new regulations. Based on our communication with various regulators we are optimistic that we have made the necessary preparation to fulfill likely new compliance requirements and continue to operate our business as usual.

In regards to your questions about our preferences between trust products and private equity products, I wouldn't say that we have a strong preference either way. I think we are a professional asset management selection company. So if there is a good quality private equity product with a strong GP and a very clear thought out investment strategy we'll certainly continue to distribute that product to our clients. But with that said, we will obviously have our strategy in terms of products with more liquidity and shorter duration days.

If I could just some more color in terms of, it's not directly what you're asking, but how the macro environment is impacting our clients and their appetites. Our observation is that as I mentioned earlier, it's not an issue of liquidity. We've also obviously seen a lot of publicity out there about some of the SME owners getting into -- businesses rather, getting into difficulties. So our observation is that for our clients it's not an issue of liquidity.

I've got a couple of examples for you. One of the private equity GPs which we raised for the last year actually called, instead of over three years called the capital, over 75% was called up to date, less than 12 months. Not a single LP had a problem coming up with the money. And that's example number one. Example number two is that for some of the products which are shorter duration, more liquid, actually demand exceeds our supply right now.

So it's less of a liquidity issue, but more of a risk appetite and assessment of the macro environment. So as madam Wang tried to emphasize repeatedly, I think the challenge for us is whether we can match from a product set standpoint with the needs of our clients and the kind of environment, at the same time streamlining our organization with regional management. So I wanted to put everything into context in terms of the macro environment as well as our strategies, both products and organizational structure in this kind of environment. Hopefully you'll find that helpful.

Operator, can we go to the next question?

Thank you. (Operator Instructions).

Operator, if you could just open up the line.

To the rest of the --

Yes.

The next question comes from the line of [Cynthia Ng] from --

Hi Ms. Wang and Tom. I understand that the trust industry has been, the whole industry has been reduced in terms of volume in Q3. To what extent does that affect your fixed income product sales?

And how do you see the overall industry going forward in the next Q4 quarters or Q1/2, beginning first half? Do you see the overall industry will still be -- when will it turn around do you think?

(Interpreted). I guess my comment on your question is perhaps it's important to note differences among the various trust companies in the market. There are various trust companies with varying degrees of strength and experience. The ones that we work with are usually larger scale, have a track record in terms of rating, evaluating and selecting products. So these are the ones that we work with more often. At the same time in the market there regional trust companies. They perhaps don't have as much experience or expertise or ability to pick the right products and we don't work with these type of trust companies frequently.

But I guess it is important to note that in terms of the trust industry we're still a very small player. So even if the overall industry decreases there's still plenty of room for us to expand our business.

So I've been in the industry for many, many years. So I perhaps have a different view than what some of the media reports out there. I think the key is whether you have clients who are wants to invest. And if you have a solid client base then it's ultimately possible to find products. Obviously you need to find products that meet the needs of this client base. So in terms of our growth profile again it's whether we service a client base that has an investment need, which we believe our client base does have that investment need.

And Cynthia I would just like to add some color if I may, basically two points. One is that one should not generalize, over-generalize amongst the trust companies. Obviously we're aware of media reports out there. There are some very well-run, very well-managed trust companies, number one.

And number two, just to quantify or add some color in terms of our market share within the industry, medium-sized or slightly above average size trust companies, their transaction value is probably or seven of eight times what we do, and there are probably 55, 60 trust companies. So if we just do the math you can get a feel of what our current market share is. So even if the overall trust size is stagnant or even declining moderately, for us at a low single digit kind of market share the limit -- the impact is very limited.

Yes, got it. Thank you. And on the regulatory side, besides the sales of trust do you see any other like regulations coming on for, in terms of on the trust companies or on the new formation of new trusts?

(Interpreted). To add more color on the regulatory environment, in terms of the likely new regulation on the distribution and trust product, I think it works both ways. On one hand certainly it gives more recognition to independent wealth management companies in terms of them servicing and recommending clients. At the same time there are also challenges. Independent wealth management companies having their clients sign in person or in front of the trust providers and ensuring the accuracy of the client information.

I think through some IT innovation and preparation we have already made we are very confident that we are able to meet these likely new requirements. For example, we have already set up video conferencing facility between ourselves and the trust product providers that we work with often, we have strengthen our Internet platforms to ensure client information accuracy.

On other fronts, as previously mentioned, CSRC is reviewing applications in terms of distribution of mutual funds and, as we have discussed on previous calls, we're in the process of applying. For NDRC in terms of PE products, I think nothing significantly new here. There were early in this year new requirements for registration of private equity funds above RMB 500 million. And the product providers or the private equity product providers that we work with are all large-scale so when they distribute their private equity products and funds are established, they all register with NDRC accordingly.

So I guess I would like to conclude that the asset management industry in China is still very nascent. I read one figure that the asset management industry is only probably RMB 4 trillion, RMB 5 trillion in scale. But compared to international or developed markets there are 10 or 100 times of potential for it to continue to grow. And we believe that we are a player in this industry. So we are very optimistic about our growth profile in the long term.

How about one last question if there is any?

For today, the last question comes from the line of [Chen Ji] from Artisan. Please ask your question.

(Spoken in foreign language).

(Spoken in foreign language).

I'll first translate the question. Madam Wang mentioned the long-term development of the asset management industry and her personal optimism of the growth.

I guess in the context of the macro environment, clients becoming more cautious, how would you describe the Company's growth prospects in the next one to two years? What would be the main drivers? Is it branch network expansion or is it growth in terms of number of high-net-worth individuals, or do you think that given the difficult environment, it will impact growth?

Now madam Wang's response to the question is the following. We still see very strong demand for wealth management in China. To give you an idea, the wealth management department of the banks in China, we understand they're seeing very strong growth, north of 30%. So to that extent what we do is similar to the wealth management department of the banks in China. And also over the last few days in my interaction with --- at the APEC Summit with the 250 Chinese entrepreneur I am very reassured that the industry still has a very long way a clear path of growth. And the entrepreneurs that I have interacted with all have wealth management needs. This again reaffirms the nascent growth prospects of the overall industry.

Obviously given the overall global macro environment is quite uncertain with everything that's going on in the various large developed nations, it's quite reasonable for these clients or high-net-worth individuals to be more cautious, and for them not to be overly aggressive. As China continues to develop and as high-net-worth individuals become more aware and accept wealth management services we remain confident. And, also as we mentioned, if next year the 53 branches that we currently have all become profitable I think that will lay a very good foundation for our next year's growth. Specifically when we release our fourth quarter results we will provide the market with a specific guidance for our 2012 net income growth.

Okay. Thank you all for joining us and thank you for your questions. We look forward to speaking to you on the next earnings call. Thank you.

Thank you ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all disconnect.

Portions of this transcript that are noted interpreted were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.