Although its net revenue increased 13.8% YoY in 1H23, Noah reported 17.3% YoY decrease in adjusted net profit in 1H23, mainly due to relatively high comparison base in 1H22 and rising expenses/weak investment income in 1H22. We noted that its 2Q23 results improved compared to 1Q23 results. Its adjusted net profit decreased 11.8% YoY in 2Q23 after dropping 23.6% YoY in 1Q23. Its adjusted net profit increased 30.7% QoQ in 2Q23. Noah's AUM was largely stable in 2Q23, mainly thanks to rapid expansion in overseas business, further reflecting its strong competitiveness in the wealth management industry. In our view, Noah's YoY earnings growth may resume in 2H23 as top policymakers vow to maintain sustainable economic growth and 2H22 comparison base was relatively low. Meanwhile, its overseas net revenue and AUM increased rapidly in 1H23 and may continue to report decent growth in the near future. Furthermore, the completion of dual- primary listing should bode well for its long-term development.

Key Factors for Rating

Core clients increased in 1H23. We expect its number of Black and Diamond Card clients increased 13.1% YoY in 1H23 as Noah has increased its marketing activities to approach more clients. Looking ahead, Noah will continue to focus on high-net-worth and ultra-high-net-worth clients which typically contributed to over 70% of total transaction values and the AUM. Noah established multi- level Noah Triangles centered on core clients, with 1 AR + 1 FR + several SRs for collaborative team work.

Its AUM remained stable in 1H23. As Noah focused on expanding its overseas business, Noah's AUM reached RMB156.9bn as of end June 2023, against RMB157.6bn as of end March 2023 and against RMB157.1bn as of end December 2022. Its overseas AUM accounted for 21.8% of total AUM as of end June 2023, up from 20.8% as of end December 2022. We expect its AUM may reach RMB158bn at end December 2023.

Key Risks for Rating

Noah might be negatively affected by rising volatility in the equity markets; risk events in investments such as Camsing incident may negatively affect Noah's value and brand image.

Valuation

We noted Chinese equity markets sentiments dropped in recent months amid uncertainties in domestic demand recovery and high unemployment rate among young people. However, its overseas business may continue to report decent growth in the near future. Noah is now trading at 6.1x 2023E adjusted P/E, which is undervalued. We revised down our target price from US$23.55 to US$22.19, based on 10.7x 2023E adjusted P/E, at 20% discount to its average forward P/E over the past ten years. Maintain BUY rating.

Noah's earnings growth may resume amid rapid expansion in overseas business in 2H23. Although Noah may report YoY decrease in net profit 1H23, we still believe Noah may report positive growth in net profit for 2H23 and 2023 full year. In our view, Noah's earnings growth may resume in 2H23 as top policymakers vow to maintain sustainable economic growth, its overseas business will continue to expand rapidly and 2H22 comparison base was relatively low. Its overseas net revenue surged 63% YoY and accounted for about 41% of its total net revenue in 1H23 (up from 26.7% in 2022). Noah has successfully completed dual-primary listing on both the Hong Kong Stock Exchange in Hong Kong and the New York Stock Exchange in the United States), which should bode well for its long-term development. Noah will maintain its competitiveness in China's wealth and asset management market.