Noah Holdings Ltd (NOAH) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to Noah Holdings Limited Third Quarter 2015 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

After the close of the U.S. market on Monday, Noah issued a press release announcing its third quarter 2015 financial results, which is available on the company's IR website 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 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 be materially different to any forward-looking statements that the company makes today. Noah Holdings Limited does not undertake any obligation to update any forward-looking statements as a result of the 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, non-GAAP measures will not be used in financial discussions. A reconciliation of the 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 hand the conference over to Ms. Jingbo Wang, Chairman and CEO of Noah. She will be speaking in Chinese and her remarks translated into English. Please go ahead.

(foreign language) Thank you, operator, and thank you all for joining us. With me today are Mr. Kenny Lam, Noah's Group President; and Ms. Ching Tao, Noah's CFO. Mr. Lam will start by providing a brief overview of our financial highlights for the third quarter of 2015 and will walk through the performance of our core wealth and asset management businesses. After that, I will provide an update on the progress we are making to develop a global open architecture product platform as well as progress with our new internet finance business. I will also review our strategic initiatives to establish an integrated financial services platform to support the sustainable growth of the company. Lastly, Ching will provide further insights into our financials and reiterate our 2015 guidance. We will be happy to take any questions at the end of our prepared remarks.

Now I'll turn the call to Mr. Lam.

Kenny Lam;President^ Thank you, Chairman Wang. In the context of a structural transition into the broader economy and extreme volatility in the capital markets, we're pleased to have continued our steady growth in the third quarter with both the top and bottom line in line with our expectations.

Net revenues in the third quarter of 2015 were USD 82.6 million, a 31.4% increase from the corresponding period in 2014. Non-GAAP net income was $26.3 million (sic) [$26.2 million], a 34.8% increase from the corresponding period in 2014.

In terms of our core businesses, we distributed CNY 26.1 billion or $4.1 billion of wealth management products during the third quarter, representing a 41.8% increase year-over-year.

Our total registered client base also increased at an encouraging rate to 88,663 clients as of the end of quarter 3, up 34.2% year-over-year.

Noah has always been focused on improving our core competitiveness in a wealth management industry. We are committed to maintaining our stringent risk management, selecting the best quality products in the market, continuously enhancing the professional service skills of our relationship managers, constructing correct wealth use with our customers, enhancing our asset allocation capabilities and strengthening our asset management team and actively investing in development of our internet finance business.

For the past 3 quarters of 2015, Chinese equity markets have experienced significant increase in volatility. Despite the government's attempts to shore up confidence, the market and the investor confidence were badly damaged, with lead -- which lead to a cautious and wait-and-see attitude. However, in the long run, we believe this will lead to a healthier and more mature wealth management and asset management market. Thanks to our consistent focus on cultivation of relationship managers, adherence to the principles of asset allocation, ongoing investor education, promotion of cross-cyclical products and commitment to long-term investing with diversified asset allocation, Noah's clients were better placed to face this market volatility.

Secondary market funds accounted for 15.6% of the products distributed to Noah clients during the quarter. The fund managers that we selected implement value investing and long-term investment strategies. In addition, our secondary market products were not leveraged, aside from the IPO fund products in the second quarter. Overall, Noah protected our clients' assets as a result of the stable performance of the assets allocated in the secondary market. Later, Ms. Wang will share more information about our product mix as well as investment strategy.

In our wealth management business, I will briefly cover 2 areas that we are focused on over the mid- to long term. First, we are focused on developing our new family office and discretionary portfolio management services and deepening customer relationships through enhancing the capabilities of our relationship managers. Second, we are committed to systematically optimizing transaction platform for customers and relationship managers so that it's more open, faster and more convenient. At the same time, we will increase the number and quality of the clients of each relationship manager.

In our wealth management business for the high-net-worth clients, we believe there's a lot of room for growth both online and offline, so we're continuing to develop our online and offline network this year.

In terms of our offline network, we have expanded our network of offices to cover more cities and optimize our network and improve the ability of relationship managers to serve high-net-worth clients. We are maintaining a balance between breadth of coverage and depth of coverage. By the end of the third quarter, we had 130 offices, cover 65 cities. We also expanded our team of relationship managers from 953 at the end of the second quarter to 1,038 at the end of the third quarter. We believe that this high-quality growth will form a solid foundation for our future development.

At the same time it's expanding our team, we're also improving the stability by continuing to provide professional training to our relationship managers, expanding marketing activity to build our client base. As a result, we had no turnover of top-performing relationship managers during the quarter. In the third quarter, 100 of our top-performing relationship managers went to Switzerland to participate in a 7-day training on core content, including family office, wealth management and asset allocation. It was very effective.

We believe high-net-worth clients continue to demand one-on-one service, and we can service our white-collar clients through our Internet platform. Our new family office and discretionary portfolio management services business has performed well since the launch earlier this year. We've found that ultra-high-net-worth and family office clients are more than willing to proactively learn about and embrace asset allocation and discretionary portfolio management services. They're also motivated to learn about global asset allocation and wealth management planning. By the end of the third quarter, our family office business unit manage an aggregate of over 50 client accounts.

We have also witnessed growing demand from the clients. We believe global asset allocation will be our next growth point. After we established the strategic partnership with the McKinley Capital Management and UBP in the third quarter, we recently announced a partnership with UK Trade & Investment, or UKTI, to provide our clients with tailor-made investment channels in the U.K. Noah is the first wealth management firm in China to partner with UKTI.

Now I'd like to provide an update on Gopher Asset Management. Established as a multi-boutique investment firm, Gopher Asset has continuously enhanced its investment in asset management capabilities and increased assets under management. It is now one of the most prominent players in terms of venture capital and private equity funds of funds in China and continues to innovate in terms of product line and asset class. Gopher Asset has already developed matured teams for each product line, including PE/VC funds of funds, real estate fund of funds, open market fund of funds and alternative credit products, denominated in both renminbi and U.S. dollars; and has launched, sales in products and continues to enhance its investment capabilities.

As of September 30, 2015, Gopher Asset had CNY 77 billion assets under management, a 63.8% increase from the end of third quarter of 2014. In terms of asset categories, real estate funds and real estate funds of funds accounted for CNY 30.7 billion, private equity funds of funds accounted for CNY 32.1 billion, and secondary market funds of funds accounted for CNY 10.4 billion, and other funds of funds accounted for CNY 3.8 billion. This is the first time that private equity funds of funds under management have surpassed real estate funds of funds.

Gopher Asset Management has made excellent progress, building the teams to manage every product line. Going forward, Gopher Asset Management will continue to invest in building investment capabilities. In terms of private equity and VC funds of funds, we will systematically review the more than 1,000 projects that we've invested in to develop an insight into specific industries. This will improve our co-investment capabilities and enhance our ability to evaluate different fund products. We believe real estate funds will be increasingly fragmented in the long term, so the project investment we'll be more cautious on selecting good quality partners and focus on familiar regions.

For the previous assets, our focus on exit strategy has delivered good results. For real estate funds of funds, we've started to focus more on real estate-related equity investments. In terms of the secondary market, we've increased our coverage and made strategic investments in nonperforming asset disposal of funds and good operators. In the public market, our hedge fund of funds and quant fund of funds have passed the test of the market. Both our team and strategy have received significant recognition by the market and our clients. Despite significant market volatility, our scale has not only increased but so has customer satisfaction and our brand image. Gopher plans to take more initiatives to diversify public market products going forward.

Lastly, I would like to discuss the progress of our mid- and back-office initiatives. Earlier this year, we talked about building a forward-looking mid- and back-office platform that could service the growth of our business in the mid- to long term. So far, development of our core business systems, including CRM and the finance system, are all progressing on schedule, and some have already come online, greatly improving our operational efficiency. At the same time, we believe attracting talent and helping them achieve their full potential is critical to Noah's long-term growth.

In the first half of this year, we've launched a training program for future business leaders. We've selected over 100 high-potential mid-level employees from each business unit to join this program so that we can develop Noah's management team for the next decade. Our senior management team has also been very stable this year and has demonstrated ability to collaborate closely and integrate and implement our strategies.

Now I will turn the call over to Chairman Wang to give an update on the development of our open global architecture product platform, progress in internet finance and other strategic initiatives.

(foreign language) Thank you, Kenny. November 10 was the 10-year anniversary of Noah's founding and the 5-year anniversary of our IPO in the New York Stock Exchange. To us, it was also the beginning of the second phase of innovation and development of our company. The wealth and asset management industry in China is massive in scale and has huge potential. And with our deep experience and understanding, Noah is an important player in the industry. In the next 10 years, we are confident that we will have even more stable growth.

Noah is positioned as a wealth management firm with outstanding asset management capabilities that serves Chinese people all over the world. Over the past 10 years, we have maintained our focus on building our core competitive advantages in wealth and asset management. We have continuously improved our capabilities in research, product selection, risk control and asset management capabilities. We have also enhanced the professional service of our relationship managers and continuously strive to understand our customers' needs. By starting from customers' long-term goals, we've worked with our customers to protect and build their assets.

By maintaining our commitment to Noah's core values and our focus on long-term goals, we may give up some short-term profit and even lose some customers. But this approach has enabled us to build a high-quality base of long-term customers that recognize Noah's value.

(foreign language) Protecting client assets through appropriate asset allocation and staying true to our principles of long-term investing and value investing have helped us maintain strong, high-quality relationships with our clients and also have contributed to the healthy development of Chinese wealth management market.

In the first 3 quarters of 2015, we saw irrational activity and panic in the domestic capital markets. In the third quarter, investors in the market started the process of post-disaster recovery, which has seen a rebound in confidence, improved policies and investor education on risk management. As a participant in these markets, we have learned and reflected a lot. The market has once again reminded us that we need to maintain our focus on the long-term and sustainable approach.

In the third quarter, due to the volatility in the capital markets and slowdown in the economy, we saw a reduction in invested assets across the broader market. We believe that this trend will continue for a period of time. But the most important thing in wealth management at the moment is not generating income, it is managing risk.

In the third quarter, the allocation to secondary market products declined from 44.7% in the second quarter to 15.6% in the third quarter, of which 25% was invested in quant funds and hedge funds. At the same time, we selected value-oriented funds with exceptional risk control and volatility management and recommended them to our clients. Although the cost of capital continued to decline, and there's substantial institutional liquidity, we still maintained our principle of not participating in any secondary market financing or distributing any leveraged secondary market products.

(foreign language) In terms of the primary market, we did a lot of preparation and selected the best fund managers in the market. We took a countercyclical position by expanding the scale of PE funds, including angel funds, VC and PE funds, funds of funds, privatization funds, distressed asset funds and M&A funds, to lock in the best fund managers.

In the third quarter, the aggregate value of new investments in private equity funds was CNY 10.3 billion, a 464.5% increase year-on-year. These products accounted for 39.4% of wealth management products distributed in the third quarter. We are confident that our future performance will underscore our competitive strength in this asset class.

In terms of fixed income products, we increased the proportion of these products from 20.3% in the second quarter to 29.0% in the third quarter. Despite this, we still maintained restraint as we have found that all types of fixed income products available in the market have substantial risk. Our core principles are locking in high-quality counterparties and improving systematic risk management capabilities. We have made considerable progress in this asset class, particularly in relation to consumer credit and supply chain finance.

In the third quarter, our fixed income product strategy was focused on controlling volume and strengthening risk management. And we continued to enhance the quality of the underlying assets and the strength of our counterparties.

(foreign language) In terms of strengthening our overseas product platform, we understand that improving product selection and research capabilities will be the foundation of our future development, and building the team is key.

In the third quarter, the Noah Hong Kong team reached 79 people, and overseas asset allocation increased by CNY 3.5 billion, a 252.2% increase year-on-year and a 14.2% increase from last quarter. As of the end of the third quarter, overseas cumulative assets under management reached more than 1 -- CNY 11.2 billion, a 265.2% increase year-on-year and a 31.8% increase from last quarter.

Looking at the culture and medical industries has always been a focus of our research. As these industries develop and we increased our efforts to research and collaborate with high-quality counterparties, we are confident that Noah's competitive advantages in this area will come increasingly clear.

Looking at our history, it is clear that we are not a company that is significantly impacted by cyclical volatility, and this round of volatility has presented us both challenges and opportunities. We have noted that the exceptional wealth and asset management firms always lose market share during bull markets and gain market share during bear markets. The recent market volatility has also helped our clients and relationship managers mature. We continue to emphasize the importance of asset allocation and wealth management. Our high-net-worth clients are increasingly accepting of this concept, and the recent rise in systemic risk has helped them to recognize this even more.

In the third quarter, we launched the Enoch wealth management class, a series of investor education sessions and forums to help our clients better understand asset allocation strategies to take account of cycles, geographies, asset categories and currency exposure.

At the same time, a growing proportion of high-net-worth clients are increasing their overseas asset allocation. Noah Hong Kong's product platform provides Chinese clients with many opportunities to select outstanding overseas assets. From product selection to overseas asset management, we continue to invest in continuous communication and training for clients and relationship managers and heavily promote international asset allocation.

(foreign language) Now I would like to share an update on our rapidly developing internet finance initiative. On the 11th of October, Noah's Yuan Gong Bao platform officially changed its name to Taikoo Pai [ph]. This name-change is a brand update that has expanded the positioning of the platform from enterprises plus white-collar professionals to the broader target market of all white-collar professionals. Taikoo Pai ph is a comprehensive online financial service platform built on trusted referrals between white-collar professionals. We believe this new brand will better serve this high-potential group, with investable assets of CNY 100,000 to CNY 1 million, who pursue wealth, have dreams and are accustomed to using the Internet.

Due to significant volatility in the third quarter, the quality of fixed income products declined very rapidly. Taikoo Pai's ph and Noah's strategy were fully aligned. We proactively limited the volume of fixed income products and benchmarked asset quality to ensure that only high-quality assets were distributed. At the same time, Taikoo Pai ph focused on building the user base. And by the end of the quarter, registered users increased by 3,470% over the year-ago period.

The average transaction value per client was approximately CNY 100,000. By the end of the third quarter, Taikoo Pai ph added more mutual funds and collateralized loan products. We also completed the product transfer platform and continue to optimize the customer experience and build recognition amongst white-collar professionals.

The ongoing diversification of products and services will be the basis of Taikoo Pai's ph transformation into an online wealth management supermarket for white-collar professionals.

In the third quarter, we also started to set up regional teams at Noah's subsidiaries to promote the platform and expand our customer base. We are very pleased to see Taikoo Pai ph reached the first level of development. And now we are entering a new phase of rapid growth. Taikoo Pai ph has the right team for the job. They have deep understanding of the Internet, and Noah has in-depth knowledge about finance and risk management. We believe that this combination of expertise will enable Taikoo Pai ph to stand out from the competition.

(foreign language) Lastly, I would like to talk about some developments in the capital markets. As ever, value investing, long-term investing and asset allocation remain our core principles. After this round of market volatility, investors, industry professionals and regulators are becoming more mature, which we believe will lead to the sustainable development of the market. We are confident that the wealth management and asset management industries in China have a bright future.

In terms of policies, China has officially entered a period of negative interest rates, with the People's Bank of China announcing an interest cut -- rate cut in October. At the same time, China's interest rate liberalization is close to complete. On the 23rd of October, the People's Bank of China announced listing of the floating ceiling on deposit rates at commercial banks and other financial institutions. China has essentially ended interest rate controls, which will result in the liberalization of interest rates. Currently, interest rates cannot cover losses caused by inflation, which essentially means that there is a negative interest rate. This, in turn -- which is, in turn, causing bank deposits to shrink. This will speed up the transfer of wealth from bank deposits to wealth management.

Recently, we have seen the speed of corporate debt issuance increase, and the process become more convenient. Market interest rates have continued to decline, and the IPO market has reopened. These signs all give us confidence because the major function of capital markets is to supply the capital needed to drive economic development, and financing is a key part of this.

We believe that the ongoing improvement in the market, development of standardized financial products, reopening of the IPO market and expected reform of the registration system will lead to the sustainable development of China's capital markets. And in turn, this will create huge opportunities for Chinese wealth management companies, including Noah.

Since Noah was founded 10 years ago, we have now been operating in the capital markets for 5 years. Helping our customers keep their wealth through more than 3 generations is our long-term goal. When compared to the huge scale of the wealth and asset management industries, we are still a start-up, and we have a long way to go. In this era of rapid development, continuous reinvention and disruptive mobile Internet applications, Noah needs to constantly reflect on our progress and optimize our business model. We are confident that if we continue to strengthen our core competencies, adhere to the values of sustainable development, reflect and then act, then we will continue to optimize our business and deliver value to our shareholders and customers.

(foreign language) Now I will turn the call over to our CFO, Ching Tao, to review our financials. Thank you.

Ching Tao;Chief Financial Officer^ Thank you, Chairman Wang, and hello, everyone. Today, I'll give you a high-level overview of our Q3 results and then open up the call for questions.

As Kenny and Chairman Wang have noted, Q3 was another solid quarter for us. We had a year-over-year increase in net revenues of 31.4% to $82.6 million. Non-GAAP net income grew 34.8% year-over-year to $26.2 million, both of which are largely in line with our expectations. We distributed approximately $4.1 billion worth of wealth management products in the third quarter, a 41.8% increase from the same period a year ago. You can find a breakdown of operating metrics of our wealth management business at the back of the earnings release.

The weighted average onetime commission rate for the third quarter was 0.72% compared to 0.91% in the same period last year and 0.78% in the second quarter of 2015. The minor fluctuations in the commission rate are primarily due to shifts in our product mix.

Recurring revenues were $41 million, accounting for 50% of net revenues in the third quarter of 2015 compared to $34.8 million in Q3 of 2014 or 55% of net revenues. The decline in recurring revenues as a percentage of net revenue was primarily due to a change in product mix of our wealth management business and a change in the composition of asset types in our asset management business. Going forward, we still expect recurring revenue to account for around 50% of net revenues in the long term.

We had impressive revenue growth in internet finance of 304.6% year-over-year, though from a lower base, reaching $2.5 million. We're pleased with the way this segment is growing, and we'll continue to invest in what will be an important product, the Noah offering, in the long term.

We received $9.5 million in net revenues from performance-based income during the third quarter related to the positive performance of secondary market products compared to $2.1 million in the year-ago period. We recognize performance-based income when the cash flow can be reasonably assured.

And now for profitability, the operating margin in Q3 was 33.9% compared to 36.4% in the year-ago period. The decline was primarily attributable to the faster growth of operating expenses in the wealth management and internet finance businesses compared to revenues. Non-GAAP net income margin was 31.8% compared to 31% a year ago.

Our balance sheet remains very healthy. As of September 30, 2015, the company had approximately $428.1 million in cash, short-term investments and long-term investments, an increase of about $17 million from the previous quarter. We posted positive operating cash flow in the third quarter of $64.2 million, which is primarily due to the cash inflow along with an increase in the accrual for compensation and benefits and income tax payables.

I would also like to provide an update on our share repurchase program. On July 8, the Board of Directors authorized a share repurchase program of up to $50 million worth of outstanding ADS over the course of 1 year. As of September 30, 2015, the company has repurchased 356,515 ADSs for approximately $7 million under this program, inclusive of transaction charges.

Accounts receivable turnover was 76 days compared with 61 days last quarter.

And finally, I would like to reiterate our net profit guidance for 2015. We expect non-GAAP net income to be between $90 million to $95 million for the full year of 2015. The midpoint of this range represents year-over-year growth of about 20%. This growth rate reflects the strong fundamentals and steady profitability in our core businesses.

With that, Chairman Wang, Kenny and I would be happy to take any questions. Operator?

(Operator Instructions) The first question comes from Sam Dubinsky from Carlson Capital.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ I saw you had a very big uptick in government subsidies this quarter. What exactly is that? How much is repeatable going forward?

Ching Tao;Chief Financial Officer^ Government subsidies are a form of rebates from business tax which is taken off of gross revenue to get the net revenue. We typically receive these every year, but they're negotiated with the local tax authorities, and they're -- it can be lumpy in terms of payment. So I would suggest you look at them on a year-over-year and annualized basis. So generally speaking, we receive them over the past several years. These are typically long-term arrangements, 8 to 10 years, that we have with local tax bureaus. For example, when we open up new branch or regional offices in new areas, that's where they're happy to give us a little bit of tax break because we're helping with economic development. But because it's related to business tax, they're booked above the operating income line in the form of a government subsidy as opposed to below the operating income line as a tax rebate.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Okay. In terms of magnitude, going forward, like I know it's lumpy, but Q4 or next year, like this is a pretty big quarter, how much do you think is a good number to think of going forward?

Ching Tao;Chief Financial Officer^ I can't really say. We receive them every year, and they typically are lumpy in payments quarter-over-quarter. But on an annualized basis, I'd suggest you take a look at the relationship to, perhaps, net revenue. It's not something where, as you can imagine, the local tax bureau will sign a contract with us and commit to paying a certain amount at a certain time. But these are long-standing relationships we have, and they're supportive of us building out our branch network and hiring relationship managers and adding to the economic development of the local area.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Okay. And then in terms of active clients, you saw a sequential decline this quarter. What's the trend looking like for Q4, and how do we think about that?

Ching Tao;Chief Financial Officer^ Generally, as a typical for the previous years as well, Q4 is quite strong. We are about to do a significant client event that we always do around the end of the year. It's basically for our top-tier diamond-level clients. So about 3,000 of them are going to be attending the event over a series of 5 sessions. So we expect Q4 to be solid, consistent with previous guidance, so we're not changing our non-GAAP net income guidance.

Kenny Lam;President^ Sam, I'll add to that. This is Kenny here. For the third quarter, you see the market, there's indeed a structural change in terms of the economy, and therefore, the clients are sitting a bit on the sideline. We do see, on average, in terms of transaction value, there's an increase. And so we're actually quite comfortable that this is actually something that is not a long-term trend.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Okay. And then what about OpEx, how should we think about that in 2016?

Ching Tao;Chief Financial Officer^ In terms of operating expenses for 2016, we continue to believe they will trend the way they've been going accordingly. So as you know, we've been investing heavily in scale in our platform businesses. So we're going to continue to invest in the internet finance business, which is still currently loss-making. We're also heavily investing in IT infrastructure and talent because you'll see that employee-related expenses, comp and benefits has been growing a little bit faster than revenues historically. But I can't comment more specifically on 2016. We expect 2016 guidance to come out in first quarter of 2016. It would be in March, about the same time as we do our fourth quarter earnings. That's when we put out guidance for the following year.

Kenny Lam;President^ And I'll let -- Chairman Wang would also answer that question as well.

(foreign language)

Kenny Lam;President^ So what she said is that we -- our focus of investment would still be in the new businesses. So we see a lot of investment actually in the internet finance area. You'll also see that our relationship managers have actually grown substantially in the last year mostly as to ensure that we have a set of relationship managers that we've been able to train for a period of time in order for us to capture the new market share coming in a new year. So the investments are actually for both our core businesses as well as the new businesses.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Okay, great. And then in terms of your performance income, you're still recognizing some high-level performance income. I believe that some was due to the secondary market funds. How do we think about performance income going forward? Is that trending off in your guidance, or is it repeatable?

Ching Tao;Chief Financial Officer^ Again, I want to reiterate that in our accounting policy is we recognize carry or performance-based income on a cash settled, or close to cash-settled basis, so we do not accrue for it. I do have a little bit built into the -- I have a conservative visible estimate of performance-based income built into the non-GAAP net income guidance, which is $90 million to $95 million. But otherwise, I can't comment.

So for the longer-dated funds, and particularly the real estate and PE funds, it's only recognized upon the termination and cash settlement of the fund. For the secondary equity market products, typically, there's a redemption window every quarter or every 6 months at the end of the quarter, and so literally, we don't recognize until the end of the quarters.

Sam Dubinsky;Carlson Capital, L.P.;Analyst^ Okay. And my last question is how much of your Gopher AUM had increased this quarter? How much was money raised versus performance?

Ching Tao;Chief Financial Officer^ In terms of the Gopher AUM increase, we do -- we show that on a net cash or historical cost basis for 2 reasons. It's very difficult to get NAVs, so there's no direct mark-to-market reporting requirement onshore in China. So I want to know that the net increase in AUM is on a cash, historical cost basis.

Kenny Lam;President^ So it's all cash basis, not related to market.

(foreign language)

Kenny Lam;President^ So the increase in AUM, indeed, was a result of our performance in the market. So Gopher was actually able to attract a lot of new AUM as a result of our performance.

The next question comes from Anson Huang from Credit Suisse.

Jie Huang;Crédit Suisse AG, Research Division;Analyst^ This is Anson Huang from Credit Suisse. Actually, I have 2 questions for the management, like broader questions. First is about the lower rate environment. The second about -- is about the competitive landscape. As Chairwoman Wang has mentioned, that the low rate environment may last for a long time in China. So what will be the opportunity and the challenges for Noah? Previously, our clients made -- seek high-yield assets and then go to Noah for some help. So we see, rate environment continue to be low, so what will be the opportunity and the challenges for Noah? Secondly, about -- the question is about the competitive landscape. If you look at domestic OTC board, (inaudible) and JD, they've got listed in domestic OTC board. Although not comparable, but if we would look at the total market cap, actually, they are even larger than Noah, so (inaudible) and JD, they are not only competitors of Noah but also strong competitors of Noah. So what's the view of our management, firstly, in the competitive market cap? Do we think that we are undervalued compared to our competitors or not? And secondly -- the second question is that what will be the key initiative for us to compete with (inaudible) or JD if we want a higher market cap?

Ching Tao;Chief Financial Officer^ Okay, thank you. I suggest we take the questions one-on-one and give us a chance to translate for Chairman Wang. (foreign language)

(foreign language)

Ching Tao;Chief Financial Officer^ Okay. So Chairman Wang is saying that we've already seen that there's a lot of risk in the fixed income and the fixed-income types of products, and so we are carefully managing that risk. And we'd rather, in the short to medium term, do less business in this riskier products and not have our clients lose money.

(foreign language)

Ching Tao;Chief Financial Officer^ So regarding asset allocation, our products in particular, we do have some strategies where we're trying to actively help our clients diversify their risk and diversify their asset allocation to better preserve returns.

(foreign language)

Ching Tao;Chief Financial Officer^ But I'd rather not be specific as we also have some competitors here on the call with us. Thank you. (foreign language) So for the second part of your question, it sounds like, sir, you're able to speak Chinese, so can you please repeat your question in Chinese for Chairman Wang to hear it directly, and then we will translate the answer back into English? Thank you. (foreign language)

Jie Huang;Crédit Suisse AG, Research Division;Analyst^ (foreign language)

Ching Tao;Chief Financial Officer^ (foreign language)

(foreign language)

JD Capital and (inaudible) are somewhat different than us. For instance, JD Capital is more of a private equity, so their business model is different than ours. So going forward, we'll just have to see where all the risk and challenges are and make the best decisions going forward.

Kenny Lam;President^ But in terms of the PE market, we actually are already covering most of the PE management. So we think that in terms of competitive positioning, we're actually quite well placed. So we're not actually quite -- we're not concerned with these competitors? We're actually focusing on our core competitive advantages. We, of course, think that our valuation is actually low compared to many of these competitors, but we're not focused on that. We're actually much more focused on building our businesses.

The next question comes from Alex Harbin from DM Capital.

Alex Harbin;DM Capital;Analyst^ A couple of -- one is about the cash position. I mean, you guys, over the years, have pretty much just seen continuously increasing cash positions, and I'm wondering if you have any plans to deploy this into assets that could possibly build higher insurance [ph] for you.

And secondly, just how are you guys positioning yourself beyond HK expansion for capital account liberalization in really more and more about how Chinese wealthy individuals are fleeing Chinese asset classes and given the expected direction of the yuan and so forth, that this trend is probably going to continue? So how do you guys see that developing going forward and positioning yourselves?

Kenny Lam;President^ Alex, thanks for the questions. I think on the cash position, we are actually actively looking at the cash and ensuring that we're doing our best to get the best return on this. In terms of using -- usage of cash every quarter, the management would screen opportunities globally to see if there are things where we could actually deploy the cash. We can't say too much right now, but we're actually actively looking to ensure that we get the best return. This could -- potentially, could include acquisitions or JV opportunities. So we are actively looking at that, and we will deploy when we think it's actually at the right timing. We don't want to deploy cash for the sake of deploying cash. We've been quite cautious in how we think about acquisitions and JV. So that's the question on cash. In terms of expansion, I think it's a similar thought, which is we are focused on building a solid base internationally. I think Hong Kong, you've seen that we've grown quite substantially in Hong Kong the last year. I think what we wanted to do is to make sure that we focus on building a great mid-back office to service our clients out of Hong Kong before we consider expanding further globally. We think Hong Kong, you see the business actually has been tremendous, and so we're just making sure that we have a solidified platform is quite time consuming, and so we think that's actually a good start. We don't have any immediate international expansion plans beyond Hong Kong at the moment.

(Operator Instructions) The next question comes from Julie Chen [ph] from TICC.

I have 3 questions here. The first is for Ching. You see that selling expenses in the third quarter increased for like 36% quarter-over-quarter, while the transaction values decreased about 8%. We know that it's entirely affected by a bad performance in Asia market, but could you give us a prediction or guidance of what extent this relate to the -- I mean, the high marketing and related expenses? And I have not...

Kenny Lam;President^ Let's answer one question by -- can we answer it question-by-question, is that okay?

Okay, okay.

Kenny Lam;President^ Yes.

Ching Tao;Chief Financial Officer^ Yes, so taking it question-by-question, in particular, for the third quarter, our selling expenses grew a little bit because, in July and August, we did a number of client communication events across our 8 major regions to hand hold, reassure and continue to educate our clients on asset allocation portfolio diversification. So it was actually a really good time for us to be doing that. As Chairman Wang mentioned on the second quarter call, when the market's a little bit irrational and stock markets are going irrationally up, it's actually more challenging for us to communicate with clients. So right after the stock market crash, we felt it was a really great time to be communicating with them. And we've seen that even though transaction values quarter-on-quarter have been down, they're still significantly up year-over-year. And we continue to believe that with these client communication events, we can, over time, continue to gain market share. So I expect to be continuing to doing that a little bit, but not in any way that's going to significantly impact our margins. The main impact on margin is still investing in the new business area, as Chairman Wang mentioned.

(foreign language)

Ching Tao;Chief Financial Officer^ And just add to that, Chairman Wang is saying the other reason, over time, our selling expenses are growing is we are adding to our branch network and the cities we cover. So we have added one more city and are continuing to hire relationship managers. In particular, as you've seen one of our competitors has just gotten listed, we feel that this is a good opportunity to continue to expand our nationwide coverage in China.

Okay. Then the second question, to Chairman Wang, on a way, we also noted that the Yuan Gong Bao has updated to Taikoo Pai [ph]. And as you mentioned in this conference call earlier was that the new Taikoo Pai ph is going to expand from the online to kind of leverage our offline advantage. I want to know this kind of online to offline expansion, how it will it happen. And in next year, do you have any guidance of the budget you will invest in Taikoo Pai ph things now and see updates from a closed cycle to a more open cycle to like attract more investors from our -- will you give more advertise fees for this kind of investment?

Kenny Lam;President^ (foreign language)

(foreign language)

Kenny Lam;President^ Okay, so let me actually translate that into English first. So in terms of our strategic partners and investors for our Taikoo Pai [ph], we intend to continue to invite new strategic investors. We think that for this particular part of business, having strategic investors that would provide synergies to our business is actually key. In terms of investment for the upcoming year on Taikoo Pai ph , we can't give a specific number just yet, but we will continue to invest in this part of the business. So that will continue to be in an investment mode for this part of the business. In terms of the first question about the online-offline approach of the Taikoo Pai ph , we think that for this particular business, it is indeed necessary for us to provide an online platform combined with an offline team, partially, as a way to build communities and leverage our client base. We built Taikoo Pai ph as an adjacent business to our current client base, and therefore, it's quite natural for us to basically leverage both online and offline to build this online business.

The next question comes from Hong Chen [ph] from TBG Capital.

I just want to ask about the -- because right now, I see the OpEx is growing much faster than both revenue and net income. I don't know how much is your investment -- your heavy investment in the IT system contributed to that increase. But I just want to know like, right now, a lot of company, they're moving to cloud computing to reduce the cost of internal IT system. And how important is the cloud computing in your long-term IT strategy?

Ching Tao;Chief Financial Officer^ Hi, I'll take that question. Over the past year and, certainly, into, potentially, the first half of next year, we're going to continue to invest in our IT systems. We're currently upgrading a number of core systems, such as the CRM; and then by the end of the year, also the finance system. Overall, I expect the investment to be around RMB 100 million or roughly $15 million or in that ballpark, about 2/3 of which will be capitalizable in hardware, software; and 1/3 will be directly expensed. These or long-term system upgrade. As a financial services company, you have to upgrade your systems fairly frequently, at least every 3 to 5 years or so, so this is high time for us to be doing that. In terms of your question more specifically on cloud computing, that's definitely something we're looking into going forward, but we need to upgrade our overall ERP and enterprise software platform before we can then consider storage solutions. And so that's definitely part of the long-term strategy, but I have no immediate comment on cloud computing.

Kenny Lam;President^ I think just to add to that, this year, indeed, we were quite conscious in ensuring that we have upgraded our IT systems across different businesses as we build the next 10 years, basically. And so indeed, there's a lot more investment in terms of mid and back office than usual, but we're trying to make sure that we're running on a well-oiled machine than a broken machine.

(Operator Instructions) The next question comes from Matt Fortune [ph] from Duke ph .

Congratulations, Jingbo Wang on building a nearly $2 billion company, so congratulations for you and your management. My question is I know that Noah is a rapidly growing company. When do you foresee that Noah will be paying its dividends? And if so, when do you anticipate us long-term shareholders can expect to get like [ph] dividends?

Ching Tao;Chief Financial Officer^ Just to -- as a note, for the past 2 years, for 2014, 2013, we stopped paying a dividend. So we paid a dividend through 2012. The reason we stopped in the last 2 years was to take the operating cash flow and continue to invest significantly in our growth platform, consistent with what Chairman Wang was saying about completing the first 10 years of our operations. And now in the second -- in the early part of the next 10 years, we want to continue to invest in new businesses and scalable parts of our platform to achieve significant growth. And through that, we hope to continue to deliver good returns to our shareholders. More specifically, we will not be making a decision on whether or not we'll pay a dividend for 2015 until later this year when the board meets later this year. There's nothing specifically I can comment on that. And then I'd like to have Chairman Wang add a comment.

(foreign language)

Kenny Lam;President^ So let me translate what Chairman Wang said. Basically, we have continued to invest a lot beyond the obvious Taikoo Pai [ph] business. Actually, there's a lot that we don't see as quite apparent. For example, the payment system that we've actually invested. You see that in Taikoo Pai ph , our average transaction value was about CNY 100,000, which is actually way more substantial than many competitors, which is usually about a few thousand renminbi. The key reason for that is the payment experience that we've actually built in-house. And that's something that you'll see in our financial statements, where we've actually invested a lot in our own payment system, for example. That's one of a few areas that we are actually building behind the scene. And we believe that we will continue to invest in these infrastructures that will continue to build our business. Overall, we're very satisfied with the margin that we're able to maintain while investing heavily in the new growth platforms.

At this time, we're showing no further questions. I'll now hand back to Mr. Kenny Lam for closing remarks.

Kenny Lam;President^ So if there are no further questions, I want to thank all the participants and investors participating in this call. Thank you.

Thank you. That does conclude the conference for today. Thank you for your participation. You may now disconnect your lines.