equity research on Noah Holdings Limited

1. NOAH HOLDINGS LTD
28. 04. 2015
Internal Use Only
Tapping the Top Cream of
China's Wealth Market

2. Executive Summary
BUY
NOAH Holdings is a leading independent private wealth management services provider in China. It assists
third party product issuers in distributing RMB-dominanted OTC financial prodcuts to its propretary high net
worth clients, and in return earns one-time sales commissions and annual recurring services fees. Relevant
information as follows:
 Fundamentals:
• Strong growth momentum of RM numbers and active client numbers
• Growth of transaction value
• Stable fee structure
 Valuation:
• Target price $29.8 per ADS (two of ADS represent one ordinary share)
 Consideration:
• The company optimizes its business model from a distributor to asset manager
• The company is heading to the right direction by diversifying its product mix
•The progress of internet finance and international business layout also deserves attention, with an eye paid
on decreasing operating margin
•Potential industry consolidation or fast growth of strong niche players may reduce NOAH’s growth potential
and negatively impact its performance
 Recommendation
• The company should be more solid in bargining power to negotiate a favorable pricing strategy
•The company should keep a watchful eye on the regulatory matters in case the government may impose
new rules and stricter implementation of existing rules in the sector, negatively influencing NOAH’s business
Source: company report; author analysis

3. Source: Credit Suisse Global Wealth Databook 2013; author analysis
Note: NOAH accepts high net worth individuals with investable assets in excess of RMB3.0 million (US$0.5 million)
>USD 1m
USD 100.000 to 1m
NOAH serves the top of the ~USD$ 20 tn. China’s Wealth Pyramid
USD 10,000 to 100,000
<USD 10,000
Number of adults (percentage of China adult population)
1.3 m (0.13%)
24.5 m
(2.44%)
390.2m
(38.91%)
586.9m
(58.52%)
Total Wealth
(percentage of China)
USD 0.1 tn. (0.1%).
USD 2.4 tn. (2.4%)
USD 12.9 tn. (39.1%)
USD 4.3 tn. (58.4%)

4. NOAH gains large market share in China’s private wealth-management market
(2000+ companies) which is highly competitive with low entry barriers
Source: the Heading Report
Note: 1. market share is in terms of accounts opened in HNW management services industry
data are in 2009; absence of 2013 figures
2. NOAH's actual market share may be smaller than 35% because banks (as CSRC regulates) define HNWIs qualified
for private banking services as those with investible assets in excess of RMB6.0 million
NOAH Holdings Ltd
Others
Domestic Banks
Foreign Banks
Independent Wealth
Managers

5. The average yield of NOAH's is higher than other major financial products
Source: Wind, Company data
 Interval: 2011-2013
Noah fixed
income
products
Stock market
1-year
deposit
Banks’
WMPs
Trusts
products

6. Noah achieves high performance in features such as flexibility of product
supply and client centric services on value proposition line
High
Low
Product
sophistication
Flexibility of
product supply
Product
knowledge
Client-centric
services
Objectiveness
of advice
Value-added
services
Distribution
Channel
Source: JP Morgan research; author analysis
Note: asset management companies include Howbuy, Zhibo Financial Management, Zhanheng Finance, etc
Performance

7. NOAH is running a light-capital business model with direction to transfer from
a pure distributor to a distributor+asset manager
Clients
Wealth Management
Product Providers
• Banks
• Trust companies
• Securities firms
• Private Equity firms
• Other financial institutions
NOAH
Product design
Product supply
Product distribution
Independent WM
Advice
Fee and Commission Based Model
Value-Added Distribution Channel
Source: company reports
Note: *NOAH began offering internet finance in the 2nd quarter of 2014
*NOAH has 779 relationship managers across its 94 branches by 31 Dec 2014
Asset Management
Product Providers
Customized Wealth Management Solutions
Recurring Management Fee and Performance Fee Model
•a subsidiary of NOAH
investment
internet
finance*
RM*

8. NOAH serves three types of customers totaling 47k registered ones through its
extensive coverage network
HNWIs
Client Acquisition
& Retention
Source: company report; CICC estimation
Note: neither “active clients” nor “registered clients” include white-collar professionals who obtain internet finance products
or utilized internet financial services distributed or provided by NOAH
Enterprises
affiliated
with HNWIs
Wholesale
Clients

9. NOAH provides integrated financial products and services from its established
wealth management and asset management as well as internet finance business
Net revenues in the full year 2014 were US$247.9 million, a 51.3%
increase from 2013
 Income from operation in the full year 2014 was US$89.7 million, a
48.1% increase from 2013
Source: company reports
revenue
breakdown by
businesses
revenue
breakdown by
fees
revenue
breakdown by
clients

10. NOAH receives higher percentage of recurring service fees as it loads up wealth
management businesses
Source: company reports
revenue
breakdown by
businesses
revenue
breakdown by
fees
revenue
breakdown by
clients

11. NOAH's enterprises clients grow rapidly as it aims to expand services to family
office market
Source: company reports
revenue
breakdown by
businesses
revenue
breakdown by
fees
revenue
breakdown by
clients

12. NOAH maintains steady unit economics with revenue per clients exceeding cost
of acquisition per client
Source: company report; author analysis
Note: “active clients” for a given period refers to registered clients who obtain wealth management or asset management
products or services distributed or provided by NOAH during that given period
“registered clients” refers to high net worth individuals and enterprises registered with NOAH and wholesale clients
that have entered into corporate agreement with NOAH
2010 2011 2012 2013 2014
Revenue per
active client
Cost of
acquisition per
active client
USD$

13. Shareholding structure post-IPO with Sequoia Capital China invested in 2007
Source: company report
Management Angel Investors PE Investors
Noah
Management team
Wang
Jingbo Yin Zhe
He Boquan
& Chang
Chia-Yue
Yan
Qianghua
Sequoia
Capital (incl.
Nanpeng
Sheng)
Public
Other <5%
Investors
17.3%10.4%21.1%4.6%16.1%5.9%24.6%

14. Core management team has extensive experience in wealth management
Ms. Wang Jingbo, Co-founder, Chairman and CEO of Noah
With more than 7 years wealth management experience in the industry, Ms. Wang is well connected with both the client side
and product provider side. Albeit the company is much larger and with far more clients than five years before, her personal
relationship still plays an important role in the business. Ms. Wang's vision is not short-term fast growth, but long term growth
with stable clients and branch expansion as well as to maximize client benefits.
Mr. Yin Zhe, Co-founder, SVP of Noah
Mr. Yin Zhe is the key person whoi is in charge of prodcut line and risk control. His job is more internal management. Pior to
Noah, he also worked for Xiangcai Securities Co. with Ms. Wang Jingbo.
Mr. Tomas Wu, CFO of Noah
Mr. Thomas Wu is the best speaker to international investors with fluent English and understanding of accounting. Prior to
Noah, Mr.Wu worked as senior portfolio manager at Alliance Bernstein, analyst at Moody's and vice president at JP Morgan's
M&A division in the U.S.
Ms. Chia-Yue Chang, Indepedent Director of Noah
Ms. Chang has over 20 years of experience in the asset management industry with in-depth knowledge about developing
business in a dynamic financial world. Ms. Chang has been the chief executive officer for Greater China and South East Asia
regions of Robeco Hong Kong Ltd. Ms. Chang was the chairman of ABN AMRO Xiangcai Fund Management Co., Ltd and
worked at various positions at Kwang Hua Securties Investment & Trust Co., Ltd and entities affiliated with Jardine Fleming
Investment in Taiwan.
Mr. Kenny Lam, Group President of Noah
Pior to join Noah, Mr. Lam was a Global Senior Partner at McKinsey and is an expert in private banking and wealth
management. Under his leadership, McKinsey's private, retail and digital financial services line tripled the revenue. He also
sits on McKinsey's performance appraisal committee, in charging of Greater China's performance. Mr. Lam worked for
Shearman & Sterling LLP New York and Hong Kong office in his earlier career, advising MNCs on M&A and IPO in the U.S.
matters. Mr. Lam receives LLM (Honors) from Oxford Law School and BSc from Warton Business School, Penn.

15. Noah Holdings DCF Valuation ： Target Price $29.8
Source: CICC Research; author analysis

16. NOAH is trading below average valuation level compared to overseas AMCs
Source: Bloomberg; CICC Research