Noah’s development arc takes overseas turn as life at home only gets tougher

The asset management firm’s overseas revenue growth partially offset a decline in its core domestic business in the third quarter

Key Takeaways:

• Noah’s overseas revenue grew 29% year-on-year in the third quarter, while its domestic revenue dropped 33%
• The asset management company is stepping up its overseas expansion as China’s economic slowdown persists, weighing on investor demand for its services

By Warren Yang

Pressure is building on Noah Holdings Ltd. (NOAH.US; 6686.HK) to step up its global expansion efforts as life at home gets increasingly difficult. For now, the asset manager appears to be making quick progress in its overseas expansion, giving investors reason to stick with the company.

Last Tuesday, Noah, one of the oldest private asset managers in China, reported that its revenue for the third quarter fell 8.8% year-on-year to 683.7 million yuan ($97.4 million) while its operating profit declined 3.2% to 240.8 million yuan. The company’s ability to defend its operating profit relatively well suggests some success in controlling costs, which is always important for any company. But such belt-tightening doesn’t fix its underlying problem.

That problem is directly tied to China’s prolonged economic slowdown, compounded by a lingering property market slump. Both factors are weighing on asset values in the country and depressing investor sentiment, which makes it difficult for Noah to drum up demand for its wealth and asset management services.

There’s no shortage of downbeat signs coming from China’s economy these days. The country’s GDP grew at the slowest pace in more than a year in the third quarter, while home prices in October dropped the most year-on-year in nine years. Donald Trump’s election as the next U.S. president won’t help either, as his new term promises to ratchet up U.S.-China tensions and potentially bring new tariffs on Chinese goods.

All things considered, the outlook for China remains rather cloudy, which will continue to dampen sentiment for investment products from companies like Noah. In a note published late last month, Morgan Stanley analysts warned that China’s equity market will be in for a bumpy ride next year amid pressure on company earnings, geopolitical risks and potential tariffs.

Against this backdrop, Noah, like many other Chinese businesses these days, especially in the financial sector, is turning overseas to reignite growth. Others making a similar shift include online brokerages Futu (FUTU.US) and UP Fintech (TIGR.US), insurance broker AIX (AIFU.US), formerly known as Fanhua, as well as online lender FinVolution (FINV.US).

Noah’s revenue in China dropped 33% year-on-year in the third quarter to 306.8 million yuan to account for less than 45% of its total, down from 61% in the same period of 2023. By contrast, its overseas drive performed well in the latest quarter, with its revenue outside China increasing about 29% year-on-year during the three months as the number of offshore clients and assets under management grew.

Yet the boost for its offshore business wasn’t enough to offset the decline at home. The company’s overseas expansion also isn’t without risks, notably posed by currency fluctuations. Its third-quarter net profit dropped 42% from a year earlier, far more than its revenue decline, partly due to factors related to foreign-exchange losses.

Chinese-speaking investors

The bottom line for Noah is that it will need to boost its overseas revenue enough to outweigh sales at home that look likely to continue falling in the near term. It will also need to get better at managing the risks related to currency-related losses. It remains to be seen how quickly the company can step up its global capabilities to achieve such results, but investors may find its third-quarter results rather encouraging. Noah shares rose on two consecutive days after its earnings release last week, before paring some of the gains.

For its international growth, the company is specifically targeting Chinese-speaking investors who live overseas or plan to do so.

“As we establish a global client service model, we are seeing significant demand for our overseas services among overseas Mandarin-speaking clients,” Noah CEO Zander Yin said on the company’s conference call to discuss the third-quarter earnings. “Our new vision is to become the preferred wealth management platform for global Mandarin-speaking investors.”

This strategy may be easier to employ than going after offshore investors without any Chinese background, although it also narrows the pool of potential customers and can limit opportunities in countries without large Chinese communities.

This year the company launched new brands for its global businesses — ARK Private Wealth, Olive Asset Management and Glory Family Heritage — while accelerating the rollout of wealth management services in key foreign markets with large Chinese presences like Southeast Asia, Japan, Canada, the U.S. and Europe.

Noah’s overseas pivot comes after it tried to target high-net-worth individuals in China with its wealth management unit. But the company suffered a setback as costs to augment the business swelled far faster than revenue from it.

As it shifts its focus to overseas expansion, Noah’s asset management business serving ordinary investors is becoming increasingly important. Revenue from wealth management, which targets wealthy individuals, fell about 15% year-on-year in the third quarter. By comparison, revenue from the more mainstream asset management business grew 9%. The latter apparently was driven by demand in overseas markets, given that the company’s assets under management in China actually shrank.

In the grand scheme of things, Noah is faring better than some of its peers. Take Hywin Holdings for example, which got into trouble last year over some problematic investment products it distributed linked to real estate companies. The difficulties eventually led the company to abandon its wealth and asset management businesses altogether and try its luck in the technology sector under a new name, Santech Holdings (STEC.US).

Noah shares currently trade at a trailing price-to-earnings (P/E) ratio of about 9, which isn’t too bad but is also way below the 31 for Charles Schwab (SCHW.US), among other international asset management firms, and the 22 for Futu. This large gap may narrow if Noah emerges as a truly global player, reducing its vulnerability to risks in China.

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