Although the volatility of equity markets remained quite high in 4Q23, we expect Noah to report large increase in net profit 4Q23, mainly due to relatively low comparison base in 4Q22 and its rapid expansion in overseas business. Noah made contingent litigation expenses of RMB99m due to the first-instance ruling in December 2022. It is less likely that Noah will make such contingent litigation expenses in 4Q23. We expect its adjusted net profit to increase about 60% YoY in 4Q23 and 1% YoY in 2023, against 8.7% YoY decrease in 9M23. Despite high volatility in domestic equity markets, we believe Noah's AUM may be stable in 4Q23, mainly thanks to its rapid expansion in overseas business, further reflecting its strong competitiveness in the wealth management industry. In our view, its overseas net revenue and AUM may continue to report decent growth in 4Q23 and 2024.

Key Factors for Rating

Overseas business would continue to grow rapidly in 4Q23. We expect its number of overseas active clients to maintain decent growth in 4Q23 after increasing 78.6% YoY in 3Q23. We expect its overseas net revenue to surge about 80% YoY and accounted for about 60% of its total net revenue in 2023, up from 26.7% in 2022.

Overseas AUM may expand decently in 4Q23. As Noah focused on expanding overseas business, we expect its overseas AUM to have increased about 10% YoY in 4Q23 and accounted for about 23% of total AUM as of end December 2023, up from 20.8% as of end December 2022. We expect its AUM may reach RMB156bn at end December 2023, against RMB157.1bn as of end December 2022.

Dividend payout ratio will increase. Noah will raise its dividend payout ratio to 35% from previous target of 10%, which should bode well for shareholders' interests. In our view, Noah will maintain its competitiveness in China's wealth and asset management market in the next few years.

Key Risks for Rating

Noah might be negatively affected by increasing 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 that Chinese equity markets sentiment has improved in recent weeks. Meanwhile, its overseas business may continue to report decent growth in the near future. Noah is now trading at 5.6x 2023E adjusted P/E, which is undervalued. We slightly revised down our target price from US$22.58 to US$22.5, based on 10.7x 2023E adjusted P/E, at about 15% discount to its average forward P/E over the past ten years. Maintain BUY rating.