Noah finds second life in overseas voyage

The wealth manager’s international businesses drove it back to revenue growth in the second quarter as challenges continued to linger at home

Key Takeaways:

• Noah Holdings’ overseas revenue increased about 6.5% year-on-year in the second quarter to drive a 2.2% increase in its overall revenue
• The asset manager launched its international expansion in 2022, targeting wealthy Chinese living overseas, extending a pivot away from ordinary investors

By Warren Yang

Overseas expansion is the new game in town for many Chinese companies these days as the country’s lackluster economy makes it difficult to grow at home. But the reality is that many don’t succeed because of a range of difficulties, from local competition to cultural differences. A key factor for the ones that succeed, especially in consumer-facing sectors like finance and retail, has been targeting markets with large overseas Chinese populations.

In that regard, Noah Holdings Ltd. (NOAH.US, 6686.HK) deserves some credit for attaining some fast results after setting out on its overseas voyage only a few years ago.

Last Thursday in Hong Kong, the wealth manager said its net revenue for the second quarter grew 2.2% year-on-year to 629.5 million yuan ($87.9 million). Such low single-digit growth may seem quite unimpressive at first glance. But a deeper look at the company’s results shows that it’s making meaningful progress outside China to counter a domestic business slowdown. Noah’s overseas net revenue increased about 6.5% year-on-year to 296.7 million yuan, accounting for nearly half of its total. By contrast, its domestic sales shrank.

Remarkably, 85% of the company’s newly generated revenue came from products sold outside China, it said in a subsequent press release issued on Friday, where the word “overseas” was prominently highlighted throughout. In one instance, the company pointed out that its number of overseas relationship managers increased by more than a third from a year earlier to 152 at the end of June, covering more than 18,900 clients.

One of China’s oldest private asset managers, Noah only embarked on its international expansion in 2022, targeting Chinese-speaking high-net-worth individuals (HNWIs) globally. Prior to that, the company shifted its focus to wealthy investors in China from average Joes after a crisis involving a fraudulent shadow banking product in 2019.

Noah is turning overseas — while staying focused on affluent investors — as a series of challenges have cooled the economic climate in China, including the Covid-19 pandemic, a prolonged real estate downturn and the ongoing trade conflict with the U.S. That’s making the country’s wealthy become increasingly risk-averse, preferring to hoard their cash instead of trying to generate better returns through services provided by wealth managers like Noah. More than a quarter of HNWI money in China was parked in cash or equally low-risk investments in 2024, well above an average of about 18% for the Asia-Pacific region, according to a survey by GlobalData.

Noah’s revenue dropped 28% in 2022 as it grappled with many of these difficulties. It rebounded a bit the following year, but then fell 21% again last year. The company’s slump continued through the first quarter of this year, with a 5.4% revenue decline. So, its second-quarter performance, however modest it seems, may mark the start of a year of recovery after six consecutive quarters of declines. Analysts expect the recovery to continue, with the average of five polled by Yahoo Finance projecting its revenue will rise about 5% this year.

Even more encouraging, Noah boosted its net income by a substantial 79% to 178.6 million yuan in the second quarter, partly by slashing operating costs for its domestic businesses to improve its overall profitability. Noah’s net profit this year is expected to rise about 15% from 2024, faster than its revenue growth, according to the Yahoo Finance consensus.  

“We are pleased to report a solid performance that reflects our flexibility and resilience in navigating a challenging period for the wealth management industry,” Noah CEO Zander Yin said. “Profitability and revenue from investment products rebounded strongly on the back of our strategic initiatives over the past few quarters to improve operational efficiency and accelerate our overseas expansion.”  

Bragging rights

In March this year, Noah won bragging rights for its achievements outside China when reputable trade publication Euromoney named it “China’s best wealth manager for overseas” as it demonstrated “exceptional professional capabilities and a robust global presence in overseas asset management.”

Noah’s formula for overseas success appears to be its focus on Chinese millionaires living abroad who may be familiar with its brand, instead of completely foreign investors. Noah’s appeal to such investors comes partly from its Chinese linguistic ability, both in its sales representatives and app interfaces, along with its sensibilities about what products might appeal to such customers.

At the moment, Singapore, Japan and Hong Kong, financial powerhouses in Asia, are Noah’s main overseas markets. Other Chinese companies that have found success in those markets include online brokerages Futu (FUTU.US) and UP Fintech (TIGR.US), and it’s quite likely they will increasingly clash as companies compete for a relatively limited pool of overseas Chinese customers.

In the first half this year, Noah set up a global headquarters for its ARK wealth management brand in Singapore. It also signed a strategic partnership with Tokyo Star Bank in Japan for its wealth management business. Such collaborations may help Noah to quickly expand in such markets by giving it access to its partners’ locally established networks to distribute its products. Noah plans to expand its clientele in advanced markets like Japan, the U.S. and Canada in the second half of the year through a similar “business partner” model.

Noah is also dabbling in the crypto universe. It’s partnering with Coinbase to establish a stable coin fund for its overseas asset management business under the Olive brand, which focuses on U.S. dollar-denominated private equity funds and private secondary products.

Noah shares have rallied since its latest earnings report, more prominently in Hong Kong where they jumped 8.7% on the day of its earnings release. They now trade at a price-to-earnings (P/E) ratio of about 11 both in Hong Kong and New York, not a bad level but still far below 27 for global giant BlackRock, and also well below the 20 for UP Fintech and 27 for Futu.

Noah’s financial performance in the past few years has been anything but impressive as it grappled with numerous challenges at home. But its latest quarterly results seem to signal that it’s on the right track to reviving its fortunes, which could ultimately help to narrow its valuation gap with both its global peers and other Chinese financial companies seeking global diversification.

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