Noah Holdings Ltd (NOAH) 2017 Q3 法說會逐字稿

Good day, everyone, and welcome to the Financial Results for the Third Quarter of 2017 Conference Call. (Operator Instructions) And please note that today's event is being recorded. I would now like to turn the conference over to Kenny Lam. Please go ahead.

Thank you, operator. I want to welcome all our investor and analyst friends to our earnings conference call today. In addition to myself, Chairlady Wang; and CFO Shang will also be participating on our call.

For today's agenda, I will first summarize Noah's overall performance for the first 3 quarters of 2017 as well as the performance of our 2 core businesses, wealth and asset management. Then I will talk about recent developments in our overseas business and our mid- and back-office initiatives. Chairlady Wang will then talk about products by segment and provide her views on the current macro and regulatory environment. Our CFO, Shang, will then follow with a detailed discussion of Noah's third quarter financial performance. We will conclude the call with a question-and-answer session.

In 2017, China's economy has shown resilience and strength, and its capital markets are also on solid ground for recovery. However, financial deleveraging and risk control remain as key concerns of Chinese domestic regulatory framework. Within this environment, we strive to uphold the highest standards and due diligence in all operations, continually providing a wide offering of diversified global asset allocation and integrated financial services that best cater to the demanding needs of our high net worth clients. Our stringent risk management processes ensure that our overall group operations run smoothly and our financial performance remains solid.

In the first 3 quarters of 2017, we distributed a total of RMB 89.2 billion worth of financial products, up 16.6% year-over-year. As of September 30, 2017, AUM in our Asset Management segment reached RMB 142.9 billion, a 24.4% increase over the same period last year.

In terms of financial metrics, the group achieved net revenue of RMB 2.1 billion in the first 3 quarters of 2017, representing a 12.7% increase over the same period of last year. Non-GAAP net profit attributable to shareholders reached RMB 680 million, up 14.8% over the same period of last year. We are satisfied with the overall results achieved in the first 3 quarters of this year.

I will now discuss our individual business segments. For wealth management, as of September 30, 2017, we had 175,979 registered clients, an increase of 35% compared with the same period of 2016. In the third quarter, average transaction value per client reached RMB 5.28 million, maintaining our industry-leading position. Meanwhile, more than 30% of our clients made repeated transactions in the second and third quarters, similar to trends seen in recent years. We also continue to optimize our product mix with the proportion of equity products rising to 41% of total transaction value in the third quarter. In particular, the quarterly transaction value of secondary market products which we have been promoting exceeded that for the first half of this year. While continuously providing high-quality products, we are also firmly committed to providing a wide selection of high-quality, integrated financial services to our high net worth clients. Our family office now provides trust planning, immigration planning, tech advisory services and insurance.

We also continue to optimize our coverage network for traditional wealth management services. As of the end of the third quarter, we have presence in 78 cities with 222 branch offices, with a robust team of 1,286 relationship managers, representing a 17% year-on-year increase. It is worth noting that amongst our relationship management team, our elite relationship managers recorded below 3% internal growth in the first 3 quarters, which is very low in this industry. We're making a concerted effort to strengthen our online training programs and recently launched Noah private banker program in cooperation with Shanghai University of Finance and Economics. The 37 national relationship managers entering this program were carefully selected, after passing a strict screening process and will, over the next 3 years, receive rigorous training. As they matriculate, our goal is to create a team of top-notch Chinese private bankers, possessing exceptional skills in financial perspective and long-term vision, while firmly grounded in China and uniquely capable of providing sophisticated services to our clients.

For our wealth management -- for our asset management business, as of September 30, 2017, Gopher's AUM reached RMB 142.9 billion, representing an increase of 24.4% year-over-year. The AUM of private equity investment funds increased by 59% over the same period last year to RMB 81.3 billion, accounting for 57% of total AUM.

In the recently published China's Best VC and PE Institutions Annual List, Gopher won the China Best Venture Capital Limited Partners Top 10 and China's Best Renminbi Fund of Funds Top 10 awards, once again demonstrating Gopher's recognition within China's private equity industry. Gopher also invest in credit, real estate and secondary markets, with respective AUM as of September 30, 2017, accounting for 28%, 8%, 4% of our total assets under management.

Going forward, Gopher will continue to leverage its many years of platform experience, cooperating with leading GPs in China. It will further strengthen its own investment capabilities and increase its coinvestment and direct investment ratio within the existing asset classes.

In terms of overseas business. As of the end of the third quarter, AUM of the group's overseas asset management reached RMB 19.8 billion, an increase of 25% over the same period last year. We believe that investing overseas financial assets not only captures more global investment opportunities, but also helps catch domestic cyclical economic risk that should be an important part of Chinese high net worth in individual assets. We have executed well on our globalization initiative. Following the establishment of our Canadian office in Vancouver, we have recently appointed the CEO of our Australian office. Additionally, our U.S. subsidiary is now established both in the East Coast and West Coast. Our first U.S. data venture capital fund has also been successfully launched out of our Silicon Valley office.

Finally, I'd like to conclude with a brief summary of our mid- and back-office developments. As financial technology becomes more integrated in our everyday life, we are increasingly aware that technological innovations are disrupting traditional business models. Against this backdrop, we are launching an effort to transform Noah into a technology-driven wealth and asset management company. An illustrative example with this theme is the new Noah app that clients can download and conveniently use to complete transactions online and keep abreast of updates within the portfolio and investor education. The proportion of online channel usage has exceeded now 50%. We're also analyzing the massive data accumulated over the past decade, and integrating and upgrading the overall data system of the group in order to enhance our overall service capabilities. It will help us better understand our clients' needs and optimize our service quality. By doing these, we're laying the foundation for Noah's development for the next decade.

With that, I will now turn the call to Chairlady Wang. She will speak in Chinese and the remarks will be followed by English interpretation.

(foreign language) Thank you, Kenny. A month ago, the 19th party Congress convened, thereby attracting worldwide attention to address China's current development stage and the major issues that are facing our society. As a deep thinker and an active participant in China's wealth management and asset management industries, we're fortunate enough to witness the starting, shaping and substantial growth of many industries in China, from product driven to integrated service driven is the new trend that we have observed in wealth management industry. The asset management industry has also begun to shift from scale driven to investment capability and brand driven. Superior asset management companies might lower their market share in bull markets, but significantly increase their market share in bear markets. We sincerely believe that for the world as a whole, the greatest opportunities in the future will be found in China because of the strengthening of China's economy and the new round of technological revolution. As a business, our biggest challenge is how to keep up with China's rapid rise, continue our adaptive learning and iterate and evolve our capabilities. Wealth management and asset management industry in the long run will benefit from the economic growth in China.

(foreign language) Year 2017 represents the 12th anniversary of Noah's inception and seventh anniversary of our IPO. We're pleased to see that in November, many Chinese companies representing new financial technologies were listed in the United States and Hong Kong. Many of them are also on our partners. We believe that 2017 will not only be a year of succession, but also a year of new beginnings. We're ready to embrace the unprecedented growth stage.

(foreign language) Now I will provide a more specific report on several major product categories of Noah and Gopher. Noah has always been a preferred channel for domestic leading GPs in the VC/PE market while Gopher has become one of the top fund of fund managers in China. In this asset class, we have conducted 10 years of business. With our products demonstrating solid performance, we're able to be recognized by more and more high net worth and institutional investors. In the third quarter of 2017, total transaction value of VC/PE products distributed was RMB 9.6 billion, up 78% from the same period last year. Total transaction value in the first 3 quarters reached RMB 26.9 billion, approaching the full year figure of 2016. As of the third quarter, Gopher's VC/PE AUM reached RMB 81.3 billion, accounting for 57% of total AUM with over 3,000 cumulated investment projects.

In terms of asset projects, 40 companies in our portfolio have successfully gone public and 4 have received regulatory approvals and are awaiting IPO. These figures in the first 3 quarters of 2017 are already approaching the sum of the last 3 years, with the normalization of Asia IPO market and the opening of another round of overseas listing of Chinese companies, we believe this product category that we have worked so hard for the last 10 years, is entering its harvest season.

While continuing to leverage the advantages of our existing platform, we actively deepen the GP resources, strengthening our industry coverage as well as our active management capability. We have put forward multiple innovative product strategies such as (inaudible) funds with coinvestment strategy, PE secondary funds and mezzanine funds. By increasing coinvestment and direct investment in the portfolio, we aim to enhance the investment value for our clients and future revenue generation capability for the company. In the future, we will also increase the allocation of coinvestment and direct investment projects in the financial, cultural, consumer, health care and TMT sectors. In addition, we will support the government's resolve that financial services need to serve real economy and use our PE/VC financing to support the growth engine of China's new economy.

(foreign language) In the area of secondary markets, the Asia Index has started to pick up since mid-2017, while overseas markets such as Hong Kong and the U.S. stock market have been performed above expectations. The confidence and investment enthusiasm of domestic investors is gradually recovering. In the third quarter, total transaction value of our secondary market investments was more than the sum of the entire first half of this year to reach RMB 3.1 billion and Gopher's AUM has maintained above RMB 6 billion. From a product strategy point of view, the vast majority of secondary market products that Noah helps distribute a leading value investment products such as Perseverance and Greenwoods, whose performance has significantly outpaced the market so far this year. Gopher adheres to a model that combines fund of fund and manager of manager, which further enhances its risk management capability and investment performance. The latest MoM product has significantly outperformed the index by increasing 23% year-to-date by the end of October 2017. With strict control of replacement Gopher help investors to achieve steady and sustainable return.

(foreign language) In the category of fixed income products, with the recent increase in corporate credit risk event and regulatory oversight for financial risk, Noah is actively reviewing and innovating its product strategy. In the third quarter, we launched a new alternative credit portfolio fund, which diversified our underlying assets in our existing covered areas such as consumer finance, auto finance, supply chain finance and private bonds and with already familiar counterparties. By doing so, we significantly reduced our investment risk concentration and created access returns through our proactive management. As we were in a phase of product transformation and because we need to catch up with supply capacity and investor education for the new products, the amount of credit products sold in the third quarter dropped to RMB 10.8 billion. However, we believe that adoption of an NAV-based mechanism for products like our new credit fund is an inevitable trend and it's the only way to say goodbye to guaranteed repayment of fixed income products in China. As a front-runner of our industry, we should guide our investors to develop a rational and mature investment philosophy and to promote a healthier and more standardized development of our entire industry.

(foreign language) In terms of real estate products and investment, we believe that generating real estate funds, which focus on existing operating and yielding assets and appreciate them by enhancing their operational capabilities has just begun in China. The real estate fund team of Gopher participated in the active management of over 120 projects in more than 30 cities by covering high-quality assets in core cities involving in property operations, transforming distressed properties into opportunistic assets as well as managing real estate acquisition mezzanine bonds. Of the 94 projects that Gopher has already exited, the average IRR of equity funds exceeded 15%. Take Gopher Center as an example, it was acquired, constructed and operated through a Gopher-managed real estate fund since 2 years ago. At present, the commercial property is fully opened. The occupancy rate of the office building reached more than 90% and many Fortune 500 corporations have chosen this location. It has become one of the highest quality office buildings in Shanghai's World Expo riverbank area. In the third quarter, we successfully locked in several similar large-scale and high-quality commercial real estate projects. These reserved projects will further enhance the performance and product quality of our real estate investments. Our new real estate strategy has also been recognized by institutional investors such as insurance companies. We think by next year, this asset class will have a larger investment opportunity to invest in assets at relatively reasonable prices.

(foreign language) In the third quarter, we formally established a special asset management department, hoping to accumulate and inherit our past experience in disposing of distressed assets. Going forward, this asset class will also be our focus. We believe our capability of special asset disposal is a competitive strength differentiating us from the rest of the market.

(foreign language) Noah's Internet finance and innovation subsidiaries, which were hatched from within the group around customer needs, have also made great strides since the beginning of 2017. Caifupai established a platform based on standardized mutual funds and (inaudible), a trading system, through a unique approach of blending quantitative analysis and artificial intelligence, Caifupai has enhanced its information processing capabilities and formed an intelligently focused portfolio selection investment platform. Noah Financial Express, our small, short-term loan subsidiary, is also targeted at high net worth individuals. We continue to promote its product diversification and strive to establish a nationwide network layout.

(foreign language) The shift from product driven to integrated service driven is a trend that we have witnessed in the wealth management industry. It is also the direction that Noah's aiming for and moving towards. At present, apart from investment-based financial product, we can also provide in-depth, integrated services to our customers in areas such as global insurance, trust, family offices and education. We also spend a lot of time and energy on investor education to bring wisdom to our clients' wealth development process. In the first 3 quarters of 2017, we hosted 7 Noah university events, 17 Noah open classes as well as various nationwide professional investment forums and regional events, covering nearly 180,000 investors. Through these activities, we help our clients to take a more rational perspective to investment management and wealth inheritance. Our public welfare foundation, Noah Foundation, brought about spiritual charity courses to meet growing spiritual demand of our customers and help us to achieve greater customer resonance and connectivity. For example, Noah Foundation launched the Hard Journey to Desert (sic) [Desert Hearty Journey] project in 2017, challenging life limits in a 53-kilometer desert walk in 3 days, and influencing more people to participate through fundraising for public welfare. The event was well supported by more than 16,000 participants and donors, and raised more than RMB 3 million in donations.

(foreign language) Lastly, I would like to briefly discuss our views regarding the recent regulatory environment. At the end of August, interim regulations for private equity fund management went for public comment, coupled with pre-promulgated proper measures for securities and futures investors management as well as a series of rules and regulations regarding private equity fund filing, capital raising, information disclosure, it will guide the entire asset management industry towards a more standard and orderly direction. Noah as an enterprise that adheres to regulatory compliance and a company with strong core competencies, we believe these regulations will be long-term beneficial to us, and we have already maintained discipline communication with regulators.

Just last weekend, the central bank lent a formulation of guidelines on regulating the asset management business of financial institutions and started to solicit public opinion. It explicitly prohibits some long-standing issues in our industry such as farming pools, maturity mismatch, guaranteed repayment and multilayered investment in asset management product. In particular, it explicitly requires that all assets under management should be managed in a net asset value manner. It also stipulates the specific identification and punishment for any sort of guarantees for principles and yields, demonstrating regulatory -- regulators' strong determination. We consider this to be an important milestone for the long-term improvement of our industry.

On the other hand, in addition to promoting coordinated supervision and risk control, the speeding up of renminbi internationalization was once again brought up during the 19th Party Congress. During President Trump's visit to China, the Chinese government clearly indicated that it would significantly lower access thresholds in the financial industry, which gave the market a clear signal of opening up and development. In our view, this dual focus of promoting development and controlling risk will be been the main theme of financial regulation in the near future. A new pattern of China's economy and financial system will also be constructed in this process.

(foreign language) I was quite touched by a phrase that I recently read, "we thought our competitors were our peers, but in reality, our competitor is the time." Faced with the changing times, we must maintain our commitment to deepening our learning and optimizing our cognitive capabilities in order to more accurately understand our customers' needs and provide the right product and services at the right time. While we continue to leverage our competitive strength, we will use our professionalism and innovative products and services to create more value for our customers, employees and shareholders, and contribute to the healthy development of China's wealth management and asset management markets.

Thank you. Now I will turn the call over to our CFO, Shang, to review our financial results.

Thank you, Chairlady Wang, and hello, everyone. (inaudible) we are pleased with our financial results for the third quarter of 2017, and we are on track to deliver a solid result for the full year.

We realized RMB 684.3 million of net revenues for the third quarter of 2017, an increase of 12.5% year-over-year and non-GAAP attributable net income in the same period was RMB 215.4 million, up 19.9% year-over-year. By revenue contribution, reoccurring services in the third quarter 2017 were RMB 346.5 million, up 17.5% from the same period last year, contributing to 50% of total revenue. The growth of our accumulated distributed product and assets under management continue to provide strong revenue streams going forward.

Onetime commission received in the third quarter were RMB 213.1 million compared with RMB 281.2 million in the same quarter last year. The decline was primarily due to lower effective commission rate year-over-year as distribution of insurance product was lower.

Total transaction value per financial product we distributed during the quarter was RMB 23.5 billion, relatively flat from the year ago. However, I would like to highlight the robust transaction value growth of equity product, which have strong reoccurring service fees and most have performed [stayed] positive.

Total performance-based income for the third quarter of 2017 rose to RMB 74.8 million, driven by the successful exit of several real estate funds. We are pleased that performance-based income as a share of total revenues increased to 11% this quarter. As demonstrates our effort to build a leading multi-strategy asset management platform with strong investment capability and performance. We have now realized performance-based income for 13 consecutive quarters and we expect carry revenue to increase in the future as we generate strong fund performance for our clients. This will also be positive to our income from equity and affiliates, which I will explain a bit later.

By segment, net revenue from the Wealth Management business continues to contribute over 70% of total revenues, with RMB 488.9 million. Net revenues from the Asset Management business amounted to RMB 164.6 million, up 34.3% year-over-year. Our Internet financial services has achieved RMB 30.9 million in net revenues in the third quarter, representing a large 172% increase from year ago as well as 17% growth quarter-on-quarter.

Total operating expenses in the third quarter of 2017 were RMB 524 million, up 17.5% from a year ago, driven primarily by a decrease in government subsidies and an increase in relationship managers' sales commission due to a larger portion of equity products in total transaction value.

Operating income stayed relatively flat year-over-year at RMB 163.3 million for the third quarter, and operating margin was down to 23.4% from 26.7% a year ago. However, excluding government subsidies, operating margin in the third quarter was 22.7% compared to 19.6% in the same period of 2016, reflecting our continued focus on cost management.

We realized RMB 45.7 million of income from equity and affiliates in the third quarter, mainly representing the increase of fair value of the funds which Gopher manages and invests in as a general partner. This strong performance in the funds we manage contributes to both performance-based revenue and income from equity and affiliates.

As of September 30, 2017, the company had RMB 1.98 billion in cash and cash equivalents, down from RMB 2.0 billion in the previous quarter as operating and investing cash inflows were offset by financing cash outflow, which was mainly because of the repurchase of Sequoia's stake in Gopher in the third quarter.

Finally, I would like to reiterate that our performance year-to-date reflects strong fundamentals and steady possibility in our core businesses, and the RMB 825 million to RMB 860 million non-GAAP attributable net profit guidance for the full year remains unchanged.

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

(Operator Instructions) And our first questioner today will be Katherine Lei with JPMorgan.

I would like to ask a question which, I think, I wonder -- elaborate -- can you help me elaborate more on the fixed income product sales? I think the transaction volumes are actually significantly down from second Q and also comparing to the same quarter last year. Yes, so please help us to understand what led to this. And then going forward, what should we expect? This is the first question. The second question is I noted that on the revenue side, I think a fund fee is also lower compared to last quarter and also same time last year. Is that because of the slowdown in fixed income sales? But recurring fees is improving. And then is it due to

(technical difficulty)

Can you repeat your second question?

I think the upfront fees actually -- I mean, the upfront fee is slightly weaker this quarter. So but then the recurring fee make up for that. So I just want to understand the dynamics there. And also going forward how should we expect, because actually we increased distribution of PE product in recent years. Should we expect that the recurring fee will continue to be strong? Can we extrapolate the result of this quarter into future quarters on the recurring fee side?

Yes. So Katherine, I will answer both of your questions. So on the first question, regarding the fixed income transaction value in the third quarter, as madam Wang has mentioned in her remarks, I think for fixed income product, I think our strategic plan going forward is to [approach] more alternative credit portfolio. So, effectively, we're doing -- distributing less single-project fixed income fund and we're doing more portfolio-like fund. We think the new type of portfolio fund is better for the client and ourself because it really helps diversify better in terms of the underlying assets. And so we are evolving the type of product we're doing. I think this will take time for our relationship managers as well as our client to adopt, but we're seeing the results on the last few months. So I wouldn't be too worried about the fixed income transaction over the third quarter. I would like to highlight that if you look at our product mix over the last few years, I think there will be a rotation among the asset classes and this is because of the changes in the macro environment as well as our top-down strategy approach in terms of helping our clients in terms of rebalancing the portfolio. So I think our goal in terms of transaction value is to continue to increase overall transaction value, but from time to time, the product mix will alter. Now in terms of your second question, which is onetime commission revenue lower year-over-year and quarter-over-quarter, I think this is because of 2 reasons. One is compared year-over-year, we did less insurance products. Last year was a very strong insurance year. Insurance products are more front-end loaded in terms of revenue, less reoccurring. Third quarter compared to the second quarter, we get more equity products as opposed to fixed income products. Again, our equity product has most -- a lot of the revenue come in recurring rather upfront one time. So to some extent, I think you can say that -- see more equity product helped in terms of building a bigger base of reoccurring service fee going forward. And so as you noted, reoccurring service fee has continuously to grow over the last 2 years and makes up more than 50% of our total revenue and from a CFO perspective, I think it helps lay the foundation for a strong start in 2018 because more than half of our revenue are reoccurring in nature.

(inaudible)

(inaudible) early years was mostly real estate backed. I think were shifting it to other types of underlying assets. That's one. And two is, we think it's actually healthier -- it's a healthier mix of products for clients. If you look at the first 2 quarters, it was over -- 70% of the allocation was on what we call, fixed income. The market indeed has demand for that, but we're actively helping clients to reallocate assets to lower allocation of fixed income products.

May I have like a follow-up questions on that? Because I look at that -- on the revenue side, actually we do not -- even on the (inaudible), there is like some decline, but the decline is not -- I think (inaudible) not as much as in the sales -- in the fixed income sales. And then, can I say that for (inaudible) product like the multi-portfolio fixed income product that you mentioned about, it actually has a higher fee than the single project product?

Yes. I'll comment a little bit in terms of the revenue contribution from single-based fixed income. Single project based fixed income product versus portfolio -- so for the single project-based, it's mostly upfront. So you could (inaudible). We charging like a bid-ask and we'll see it recognized upfront and received upfront. Whereas the portfolio credit fund is almost like (inaudible) where in addition to upfront discretion fee, they are ongoing, reoccurring service fees. So for our credit portfolio that we have been working with clients on over the last few months, its general duration is 2 plus 1. So it actually helps us lock in that fixed income investment for a much longer than 1 year. So we will see a part of the revenue being contributed in reoccurring service fee. And in addition to that, for some of the portfolio funds, we actually have performance policies as well. So this in terms would be for the return above us, preferred rate, let's say, 6% or 7% when we receive 5% to 10% in carry. So we actually think, both for the client, in terms of diversification risk and, second, in terms of market sector building up our asset management capability, we think moving into credit portfolio is the strategic right move.

And our next questioner today will be Haifeng Cao with Haimura (sic) [Nomura].

This is Haifeng Cao from Nomura. I have 3, actually, questions. Firstly, in terms of the new asset management regulation rollout last Friday, one of the regulation is nonfinancial institution cannot delegate to distribute asset management products going forward. So I wonder how much in our (inaudible) business is actually the asset management products. This is the first question. The second question, I noticed that the average transaction value per client for the third quarter decreased by around 4.1 percentage. I wonder what's the reason behind this decrease. And thirdly, can the management team share our strategy for the next year, especially from the perspective of products, (inaudible) and our clients?

Yes, if you give me a minute, just let me quickly translate your 3 questions. Sorry, one second. So let me answer the first 2 questions and Madam Wang will answer the third question. So your question is regarding the latest safeguard comments -- guideline that was promulgated by PBOC, I believe. And that -- it mentioned that nonfinancial institutions cannot distribute financial product. And I think this is in line with the regulation we have been seeing over the last 2, 3 years, where regulation is stepping up in terms of both wealth management and asset management. And we think it favors established players. Because obviously we have had licenses now for many years. And it's really a crackdown on those institutions that are active in the industry, but they're not noncompliant, they don't have licenses. So overall we think it's a very strong benefit for leading players in the industry. And also as Madame Wang mentioned, it's a crackdown on [gouging] (inaudible) so guaranteed repayment. It's pushing for [math-based] products, which again highlights our strategy into credit portfolio. And so -- in short, the comment about the nonfinancial prohibition doesn't affect us because we have the relevant licenses for both our wealth management and asset management businesses. The primary regulator is CSRC. Your second question is regarding the average transaction value per active client is down this quarter year-over-year. This is primarily due to the increase in transaction value for public market product. Public market product compared to private equity and credit products have lower minimum starts so the minimum start for hedge funds in China is RMB 1 million. So it's really due to product mix rather than anything else. We still expect, for the full year of 2017, average transaction value per client should be stable around RMB 7 million to RMB 8 million per year. Now regarding your third question, I will ask Madam Wang to comment on our strategy next year and I'll help with the translation.

(foreign language)

So first, Madam Wang would like to comment that overall, she thinks the market will be much healthier next year. Clients are now starting to understand the direction of the regulation. And several -- many clients actually over the last few years have got hurt by products that were not managed properly. So high net worth individuals, she believe, next year, will be focusing more on brand and quality. And obviously these 2 will direct client's ROA because obviously we have very strong brand in the market.

(foreign language)

Now Madam Wang would like to comment on our product strategy for next year. I think for our product strategy next year, it will be centered around value investing. In particular, very strong focus on public market product. So A-share and shares in Hong Kong or globally. We think it's really to help our clients in terms of value investing. Now -- so our goal is to increase the overall transaction value for our secondary market product. And, well, we are seeing result in the third quarter, and we expect that to go forward next year. Now in terms of credit product strategy, as I mentioned, we are rolling out and launching a new type of credit-related product such as credit portfolio funds, mezzanine funds and preferred funds. We think these types of new funds are better for our clients as opposed to historically we were doing a lot more of single-based project funds. And I think after -- it will probably take 2 to 3 quarters of investor education and then we can see the volume really pick up next year. In terms of VC, venture capital and private equity, we have already locked in or secured several leading GPs who will do new rounds of fundraising next year. And so that really gives us a good foundation in terms of our VC/PE fundraising next year. In addition, now for several years, we have been managing our own private equity secondary funds and given our leading position in this asset class, we have a strong advantage in terms of managing a secondary fund. And we think we have now built, if not the leading, if not the #1 brand, and we expect it to grow in overall AUM and attract a lot more institutional investors. On the real estate side, I mentioned -- well, I mentioned earlier, we have also launched into several very high-quality commercial buildings, which will help us with rolling our new product for real estate. So overall, we feel quite confident in terms of our product pipeline for next year. For overseas products, I think the focus on innovation and also our renewed efforts in terms of building or developing product around Shanghai Connect. I also want to add 2 more points (inaudible) Madam Wang talked a lot about the product strategy, which is a substantial transformation for [long-term] market trends. We're also doing 2 things to substantially increase the growth rate of the company. One is, there will be substantial transformations of the frontline that includes, as I mentioned in my speech, a training program that will take training for RMs to the next level. We're also launched a new approach in terms of network expansion that we'll detail out later that would allow us to grow much faster in terms of client wallet and productivity of the RMs. So that's one thing we are growing quickly. The second thing that I mentioned is around technology. We will be investing heavily on new technology to ensure that we are way ahead of the curve in terms of technological innovations. And that includes not only online transactions for (inaudible) clients but also high-level clients, plus also how we use and leverage data in a very systematic way. We are expected to increase not only in technological investment and infrastructure, but also in talent. That's the 2 things. The whole idea is that we're looking at pushing on the growth of the company through not only product transformation, but also front-line technology.

Yes. This will conclude the question-and-answer session. I would like to turn the conference back over to Kenny Lam for any closing remarks.

Operator, is there more questions? Why don't we wait for another 1 or 2 minutes.

Yes, to see if there's more questions.

Okay. (Operator Instructions) And our next question is a follow-up from Katherine Lei with JPMorgan.

I have a follow-up question from the -- on the recurring fees. I would like to ask if the recurring fees, like what's the portion for performance related and what is the portion that is like nonperformance related?

Right. So we actually booked our performance (inaudible) fees and performance fee as income. So if you look at our quarterly end disclosure, there are 3 main revenue items: one-time commissions, recurring service fee revenues, and performance-based income, so it's separate. In terms of our AUM, about 50% to 60% of the AUM that we currently manage has performance-based fee clauses. Typically, equity products would have performance-based fee income more often than fixed income products. So I had mentioned earlier that the third quarter, more than half of the product mix was equity product. This actually helps in terms of our reoccurring service fee and also helps potentially if we do well in terms of managing these funds on performance-based fee income. I would like to remind investors that in terms of our performance-based fee income, we take a very conservative approach in terms of revenue recognition. We only recognize performance-based income when it is actually realized, so we do not mark-to-market. So well, with that in mind, over the last 13 quarters, we have consecutively booked performance fee income despite the Asia market volatility. It's because we have built a multi-strategy asset management platform. So it helps us achieve returns for our clients and revenue for performance fee income in all weathers almost.

(Operator Instructions)

Okay. If there are no more questions -- oh, there's one more? Great. [Wayne].

And we did get another question from [Wayne Helm], a private investor.

Could you please repeat your outlook for the balance of 2017?

Yes, sure. It (inaudible).

Or for the full year 2017, if you would.

Yes, yes. We estimate for full year, non-GAAP attributable net income of RMB 825 million to RMB 860 million.

And there looks to be no further questions so this will conclude the question-and-answer session. I would like to turn the conference back over to Kenny Lam for any closing remarks.

Thank you all for dialing in. As before, if you've any questions, please reach out to our Investor Relations team. We'll gladly return your request and answer your questions. Thanks very much.

Thank you.

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