Kenny Lam - Group President Jingbo Wang - Co founder, Chairman and Chief Executive Officer Shang Yan Chuang - Chief Financial Officer

Katherine Lee - JP Morgan Xue Yuan - CICC. X Stephanie Poon - Citi George Kyle - JPMorgan

Good day, ladies and gentlemen. And welcome to the Noah Holdings Limited Second Quarter 2018 Financial Results Conference Call. At this time, all participants are in listen only mode. [Operator Instructions] As a reminder, this conference is being recorded. After the close of the US market on Tuesday, Noah issues a press release announcing its second quarter 2018 financial results which is available on the company's IR website at http://ir.noahwm.com. This call also being webcast live and will be available for replay purposes on the company's website. I'd like to call your attention to the Safe Harbor statement in connection with today's call. The company will make forward looking statements including those with respect to expected future operating results and expansion of its business. Please refer to the risk factors inherent in the company's business and have been filed with the SEC. Actual results may be materially different from any forward looking statements the company makes today. Noah Holdings Limited does not undertake any obligation to update any forward looking statements as a result of new information, future events or otherwise except as required under the applicable law. The results announced today are unaudited and subject to adjustments in connection with the completion of the company's audit. Additionally, certain non-GAAP measures will be used in our financial discussions. Reconciliation of GAAP and non-GAAP financial results can be found in earnings press release posted on the company's website. With that, I'd now like to turn the call over to Kenny Lam, Noah's Group President.

Thank you, operator. I want to welcome all our investor and analyst friends to our earnings conference call today. In addition to myself, Ms. Wang Jingbo, Chairlady and CEO of Noah; our CFO, Shang will also be participating in our call. For today's agenda, we'll first review Noah's second quarter 2018 performance, as well as the development of our core wealth and asset management businesses. Chairlady Wang will then share her view on the current market and regulatory environment and company's product strategy. Our CFO, Shang will then follow up with a more detailed discussion of Noah's second quarter financial performance. We will conclude the call with a Q&A session. In the first half of 2018 the downward pressure on the Chinese economy increased. And market sentiment remains volatile. Measures aiming to strengthen financial supervision were steadily carried out. The strength of financial de-leveraging was quite clear. The growth rate of domestic money supply fell to a historic low of 8% in June. On the global front, the Sino US trade dispute escalated and the depreciation of Renminbi intensified recently. These factors have led to greater diversions of market expectations with investors generally lacking confidence. The expansion of Chinese financial institutions has by in large slowed down under such environment. In this context, Noah has continued to focus on deepening connection with clients in order to adapt to a new market environment. In the second quarter of 2018, the Wealth Management sector raised a total of RMB29.1 billion in financial products, down 12% year-over-year. AUM of our Asset Management Business reached RMB161.5 billion, up 17% year-over-year. In terms of financial results, the Group's net revenue in the second quarter was RMB798 million, and non-GAAP net income attributable to new Noah shareholders reached RMB252 million, up 13% and 11% year-over-year respectively. Non-GAAP net income in the first half of the year reached RMB509 million overall. Breaking down in business segment. In Wealth Management, we continue to steadily expand off-line physical channels and talent recruitment. As of the end of the second quarter of 2018, we are in 81 cities across the country and the number of relationship managers increased by 19% year-over-year to 1,495. Talent is at the core of Noah's development. With increasingly strict supervision of bank wealth management businesses, we have the opportunity to recruit high quality professionals this year to prepare for next round of development. At the client level, our efforts such as in-depth small group client communications, online client activities and investor education event have allowed us to establish multilevel connections with clients. Through small -scale activities such as those that provide post investment services and communications with our core management, we've increased the stickiness with our client and gained greater understanding of their individual and personalized needs. Enoch Education, our investor education subsidiary continues to help client build their investment knowledge through professional courses that target individual need of high net worth clients. In these efforts -- has helped us upgrade our business from a pure product driven model to a comprehensive service driven model. In the field professional services, Noah research team focuses on providing industry research reports targeting our relationship managers and high net worth investors. The research team has been fully integrated into product due diligence and sales processes. And is increasingly playing important role in providing systematic support for our frontline. In the first half of 2018, Noah research team published 225 internal and external research reports. Many of these original results have been quoted by external media which helps Noah establish its influence in the market. At the same time, the online knowledge database of Noah research has begun beta testing. It supports the frontline in searching data and sharing research report and is poised to further enhance the professional support for our relationship managers in the future. Our Asset Management Business is experiencing a transformation. As of the end of the second quarter 2018, Gopher assets under management reached RMB161.5 billion, representing a year-on-year increase of 17%. Within that the AUM of private equity investments increased by 30% year-over-year to reach RMB93.9 billion accounting for 58% of the total asset under management. It is also worth mentioning that the AUM of our real estate investment continues to rebound in the second quarter reaching RMB17.6 billion and accounting for 11% of the total AUM. These results from our adjustment in real estate investment strategy which helped us better understand the market momentous and capture investment opportunities. In June, Gopher won two major awards at China Private Equity Golden Bull Award recognizing our investment capabilities in secondary market fund-of-funds area. In terms of overseas business, Noah's journey towards globalization has continued. Our overseas offices in Canada and Australia have seen rapid growth with increasing number of clients across a variety of services. In the second quarter, we appointed the CEO of our Singapore office and will begin applying for licenses there. As of the end of the second quarter, Gopher's overseas asset under management reached RMB22.3 billion, increasing 22% year-over-year. Noah Hong Kong. The global center of the company is constantly driving to improve its service quality. In June, Noah Hong Kong updated its risk management system. The new KYC scoring mechanism can be more -- can more accurately reflect the clients' risk appetite and help our relationship managers with more suitable investment recommendations. We also completed an update of the clients' suitability assessment system in collaboration with an independent expert firm and a product due diligent system update is also close to completion. Lastly, I'd like to share the progress of our technology at a group level. We've built a comprehensive risk management information platform based on a new regulatory direction. The updated Noah app has also enabled online audio and video recording to ensure authentic and efficient transaction processes. And AI capability also covers customer service channel now 24x7. The client labeling technology has helped relationship managers better portray and understanding client needs. In 2018, Noah once again won the Best Wealth Manager in China award by Asia Private Banker, the Best Private Bank in China award by Private Bank International, as well as the Best High Net-Worth Independent Wealth Management Institution and Best Overseas Asset Management and Wealth Management Institution by AsiaMoney magazine. These international awards are recognition of our sustainable development and professional excellence. We entered the second half of 2018 with increased market volatility. We will remain steady in our approach and continue to investment for the long run strategically. With that I'll now turn the call to Noah's Chairlady and CEO, Wang Jingbo. She will speak in Chinese and her remarks will be followed by English interpretation.

Thank you, Kenny. In the first half of 2018 China's capital market faced both great opportunities and massive challenges. On one hand, the official launches in new asset management regulations led the Chinese asset management industry into a new stage of normalized development. On the other hand, accompanying the implementation of the new regulations and wider economically de-leveraging, many of the deeply rooted problems accumulated over the rapid development of the industry started surfacing as well. Examples includes a high leverage level of major shareholders of listed companies and the problem of duration mismatch, which overlapped financial institution de-leveraging and winding down of bank WMP funding pool. Since the beginning of this year, major shareholders of more than 1,000 Asia listed companies have reached the flat ratio of more than 90% among which 300 companies have touched the liquidation line. 25 bonds from 13 issuers have defaulted with the total amount exceeding that of the entire year 2017. During the past three months, the P2P industry has also --more than 200 internet-based funding platforms have experienced difficulties of varying levels, causing significant social concerns. On the client end, investor risk aversion has become more apparent due to the long-standing concept of implicit guarantee, Chinese investors are not accustomed to investment risks. With the mentality that investing in wealth management products is the same as bank savings, clients are complaining to regulators and media for the recourse of their defaulted investments. The pressure on government for social stability and crisis management has been massive. It can be said that this is challenging times for investors, industry practitioners and regulators alike. In the first half of the 2018, the accumulated domestic financing volume in China increased RMB9.1 trillion, down RMB2.03 trillion from the same period of last year. In particular, the scale of entrusted loans and trust company loans was significantly reduced, and banks on balance sheet funds used for off-balance sheet wealth management investment felled by RMB1.76 trillion. Both the supply and demand sides of the asset management industry have been facing challenges. At the same time however we also heard the good news, especially with the recent introduction with the series of policy measure. The regulators have appeared to gradually understand the market situation and are moving away from the previous hyper correction and one- size- fits-all approaches with increasing rationality. We continue to believe that both wealth management and asset management industries are some large industries in China. The new regulatory approach may affect the growth rate of the industries in the short turn, but from the long-term perspective it will allow the industries to develop into healthier and more orderly fashion. The process is indeed painful but the future is promising. At the same time, with ongoing risk discovery and elimination, the overall industry will enter into a more advanced and complex stage. The financial needs and psychology of high net worth investors will change significantly. And mature customers will tend to gather around leading companies such as Noah. Our comprehensive services capabilities built over the years in a global scope are beginning to show greater value. Next, I'd like to share with you a more detailed report on major product categories of Noah and Gopher. In terms of PE/VC investment, difficult funding situations in a market have continued in the second quarter. In fact, fund raised by the entire PE industry in China in the first half of the year decreased by 75% year-over-year according to CB Resource. Our strategy is to continue working with the first tier leading GP to maintain fewer but better partners to insist on raising cross cycle products and to pay greater attention to investor education and in-depth communication with clients. As the market valuation has trended downwards, our secondary fund strategy will show greater investment value and we will continue to strengthen in that area. In the second quarter of 2018, Noah private equity product transaction value remained stable at RMB6.3 billion quarter-over-quarter. As of the end of the second quarter, the total AUM of private equity funds managed by Gopher reached RMB93.9 billion, up 30% year-over-year. At the same time, the number and proportion of coinvestment and direct investment within the total AUM is also steadily increasing. Talking about historical performance of Gopher's product in terms of various indicators, the bond returns and distributed value to paid-in- capital, DPI are all significantly higher than the market averages. All of which is evidence of the value created for our plan. In terms of real estate funds, we practice the concept of contrarian investment and actively promote a strategy of preferred share and core and value- add strategy. In the second quarter of 2018, Gopher's real estate fund size increased RMB6.5 billion and the total AUM continue to re-bounce to RMB17.6 billion. At present, the main focus --we remain focus on tier 1 major cities like Shanghai to locking quality existing properties. This strategy is highly recognized by institutional clients such as insurance companies who have also been investing with us in this type of products. On the second market equity products fund, the Asia market in the first half of 2018 was both volatile and lackluster in terms of performance. Concerned by a series of internal and external risks, investors are generally pessimistic and hesitant, further contributing to the low valuation of the public market in China. In the second quarter, our secondary market equity products transaction value fell back to RMB2.8 billion quarter-over-quarter but still increase a 155% year-over-year. From product performance point of view, in the first half of 2018, 87% of the secondary market product distributed by Noah outperformed the benchmark. The CSI 300 Index fell 12.9% in the same period. A non product even achieved positive return. In a market environment with significant volatility, these selected products showed strong resilience. The NAV of Gopher's MoM flagship fund fell only 0.9% in the first half of the year significantly outperforming the CSI 300index and highlighting the value of a manager selection and portfolio investment strategies. Our customer recognition has also been greatly increased during this process. In the area of fixed income products, as the risk appetite of individual investors declined and the scale of bank WMP shrank, fixed income products once again are in high demand. Thanks to the transformation of our fixed income product strategies in the past three years, including diversified underlying assets and credit portfolio strategies, our fixed income products transaction value rebounded quarter-over-quarter to RMB19.3 billion in the second quarter. By the end of the first half of the year, AUM of Gopher's credit investments also stabilized at above RMB40 billion. At the same time, we also increase the supply of short-term credit products with less than one year duration in order to meet the relatively conservative risk appetite of our clients. The underlying assets for our investment mainly range from consumer financing, auto financing to supply chain financing. Our counterparties are all large sized leading companies with strong qualifications and relevant licenses. The strategy that we have been adhering to over the past years has provided us with a strong buffer amid the current market risk exposure. Gopher's discretionary investment in family office teams has also achieved great breakthroughs in 2018. For multifamily office services, we have helped our ultrahigh- net worth clients' allocated asset through the dual -currency and multi strategy fund within the Gopher Heritage Fund series. By the end of the first half of 2018, we will be serving around 700 black card customers and the AUM of Gopher's discretionary fund exceeded RMB4.4 billion. This year we also launched the new joint venture family office business. Gopher's professional team customizes investment strategies based on the deep understanding of client demand and shares the value added services resources of both Noah and Gopher to help customer construct their unique family investment culture and capability. These efforts support ultrahigh- net worth individual investors and their pursuit to institutionalize their investment activity. We are glad to report that in terms of cooperation with ultrahigh -net worth clients, our progress and scale have both exceeded our expectations. Lastly, I would like to briefly share our views on the recent market. Since the official release of the new asset management regulations at the end of April, strict regulations have been imposed on financial institutions especially for capital pools. Part of the domestic asset management businesses especially the bank wealth management businesses have basically been in a state of suspension, which directly leads to the scale contraction of China's overall asset management industry and financing activities. This further leads to heightened refinancing pressure and when combined with other factors contributed to increasing default events. With a series of follow up documents released on July 20th including PBOC's implementation of rules of the new asset management regulations, the draft opinion of CBRC's new regulations on bank wealth management products and CSRC new regulations for private asset management business for securities firms, it is safe to say that the regulators have reiterated their posters on dismantling the implicit guarantees through measures such as portfolio management, NAV management and capital prohibitions. And ultimately to reach the actual status of sellers bearing fiduciary duties and buyers taking their own investment risks. While this basic supervision logic remains intact for the sake of credit stability and risk reduction, we are also seeing some recent relaxation on the pace of implementations. We believe this is a rational approach to avoid short-term systemic meltdowns. It has also been witnessed that the pace of registration and filing of private funds in China has slowed down significantly by regulators recently. In the long run, we believe regulatory tightening is beneficial for good companies like Noah. However, in the short run, we expect that the overall size of China's asset management market will continue to experience a temporary period of contraction. The compliance cost in the financial industry is continually rising globally. We understand that compliance and risk management are the lifeblood of financial institutions. We're continuing to strengthen the compliance and risk control capabilities of Noah's global subsidiaries supplement relevant operating team and promote in-depth investor education, and multi-dimensional screening and selection of qualified investors, so as to prepare ourselves for the global business expansions and the group's next round of growth. In conclusion, we believe that with the rapid development of China's economy and growth of the private wealth, both wealth management and asset management industries still have lot of room for expansion. The asset management demand of individual and institutions have not yet been fully captured. After the recently released regulation being fully implemented and market risk cleared, the industry will enter into a new and more matured stage of development. At the same time, after undergoing multiple market risks, both domestic and international supervision of the asset management industry will become increasingly stringent. Thus, the possibility of ultra strict supervision and the continued decrease of both supply and demand cannot be ruled out in the short term. Having over come several economic cycles in the past, we are confident that we can weather the storm. We believe that there is no shortage of one-hit wonders in China, but companies that can sustain over time scarce. Reviewing the market -- adapting to the market, controlling risk and operating income plan will always be Noah's model. To summarize our core business strategies of the next stage. First, continue to improve our capabilities to service Chinese high net worth customers around the world and maintain a multi dimensional customer relationship through our global comprehensive services. Second, continue to focus on investor education, online and offline simultaneously. And third, continue to improve the quality of both our products and clients, strengthen risk management and compliance capabilities and establish a new and higher threshold for our core businesses. Winston Churchill once said, never let a good causes go to waste. We are optimistic for the long-term triumph and believe time will correct mistake. Companies that want to truly stand the test of time must face both themselves and the market honestly. They need to reduce unnecessary costs, sustain good cash flow and maintain a rational mentality and low profile in order to stand in line with the trend of time. Thank you all. Now I will turn the call over to our CFO, Shang to review our financial results.

Thank you, Chairlady, and hello everyone. We achieved another set of solid results for the second quarter. Net revenues in the second quarter increased 12.8% year-over-year to RMB797.6 and non-GAAP net income attributable to Noah's shareholders reached RMB232.1 million, an increase of 11.3% year-over-year. Strong double-digit growth in both recurring revenue and performance fee more than offset weaker one-time commissions. For the second quarter, recurring revenues reached RMB451.6 million, up 32.8% driven by continuous AUM growth. We achieved performance based income of RMB39.3 million, up 65.5% year-over-year, reflecting our ability to deliver investment returns to our clients through market cycles. Revenues from one-time commissions declined 22% year-over-year to RMB234.6 million due to lower transaction value. The effective one-time commission rate declined to 0.81% this quarter, as we distributed more shorter duration credit products to address client's uneasiness with the market volatility. For the first half of 2018, however, effective one-time commission rate was 0.97% relatively flat compared to last year. Now turning to our other financial services business segment. Net revenues were RMB45.6 million, a 73% increase year-over-year. And operating loss narrowed further this quarter to RMB15.1 million. In a second quarter, operating income with RMB221.2 million, a margin declined to 27.7% primarily due to increases in marketing expenses and compensation. The comprehensive marketing campaign we launched this year was well-received and further strengthens our brand value. We continue to build up our talent pool for both our wealth management and asset management businesses. These investments in brand equity and talent will enable us to grow faster than the industry growth rate on a long-term basis. Non-GAAP net income attributable to shareholders for the second quarter was RMB252.1 million, an increase of 11.3% year-over-year. This quarter, we adjusted for RMB49 million of loss from unrealized fair value changes of activities securities. The main difference between our non-GAAP and GAAP earnings. On a balance sheet side, as of June 30th, 2018 the company had RMB2.1 billion in cash and cash equivalents, slightly down from the previous quarter. The cash outflow of RMB302.7 million from operating activities in the second quarter was mainly due to the temporary increase of other current assets for financial leasing business. Overall, we are pleased with our first half results. Revenues grew 14.6% and we achieved non-GAAP net income attributable to shareholders of RMB508.5 million. Despite challenging headwinds, we are focused on delivering another year of profitable growth for shareholders. We maintain our full year guidance of RMB1 billion to RMB1.05 billion. And will keep the market updated with any changes. With that let's open up the call for question. Operator?

[Operator Instructions] Our first questioner it will be Katherine Lee with JP Morgan. Please go ahead.

Hi, good morning. Thanks for giving me the chance. Also I will ask you in English first, and I will translate for myself into Chinese. So I have two questions. My questions the first one will be whether your spent on the Huishan there, I don't know Huishan incidents. We know that local regulators, the injunction process has issued warning to Noah. So what is the development on that one? Second thing is that if we look at the first half profits do you think it's still on the good track towards your guidance of RMB1 billion given that there are some uncertainties in the markets, and a tough regulation to be implemented by the whole industry. Thank you.

Yes. Regarding your first question, so yes we did receive a warning letter from the local Jiangsu Bureau of the CSRC. We interpret this warning letter as the local bureau getting pressure from a couple of Huishan clients who are making quite a lot of complaints regarding this product. The clients have asked us to bail them out but this is against our business principle. So we are in the process of making an administrative appeal because content of the warning letter differs from the favorable ruling we received from court proceedings regarding the bankruptcy. On a bankruptcy side, for Huishan, overall it's making good progress, and we're cautiously optimistic that there will be a successful resolution. The local government as well as the national government has highlighted the strategic importance of developing the dairy industry. So we think there are favorable drivers for a successful resolution of --this is very public company. Katherine, I'll add one more point about the whole regulatory environment. I think we're all dealing with this as we speak. I think the regulators are trying to strike a balance between adhering to the principle of no implicit guarantee. And also balancing clients' aggressive active tactics sometimes with the regulators. I think this warning from the regulator is one way for them to understanding --what our understanding to relieve pressure on themselves, while maintaining the guiding principle of no implicit guarantee. I think that's our interpretation. Go ahead.

So my question is that is it a simple way to interpret is saying Noah's management saying that you are not going to bail out the investors because of this pressure? Thank you.

Yes. So in short we will definitely not bail out investors. Actually the regulator after issuing the warning letter called us and said despite the fact that they sent us this warning letter, we are now allowed to pay our investors. So really the way we interpret this warning letter is really a local bureau trying to balance on one hand client complaints but on the other hand the national regulation of trying to push the industry in a more healthy manner of making sure that investors are liable for their own limits and losses. So Katherine if you don't have any follow up on the first question, I'll tackle your second question.

Okay, thanks.

Okay, sure. So the second question is regarding a full year non-GAAP attributable to shareholder net income guidance. So overall for the first half of 2018, we were quite pleased with the financial results that we achieve despite difficulties in the first half in terms of the operating environment. We note that transaction value was down first half versus the same period last year, but we still achieve double-digit revenue growth. This is really attributable to the fact that over the last few years, we have been strongly developing our asset management businesses. We have a focus on improving our investment capability, which translate into higher fees and so you see for the first half of this year, our performance fee is significantly up versus the same period last year. So this overall puts us in a very good basis of trying to achieve our full your guidance. For the first half, we achieved non-GAAP net income attributed to shareholders of roughly about RMB510 million. So in terms of analyzing that results will be in the range of all your guidance. Now for the second half, obviously, there continue to be headwind primarily from the hyper regulation that Madam Wong and Kenny mentioned. I think regulators are fine-tuning that. Also there continues to be uncertainty in terms of capital markets whether is in the US or whether in China. So we are cautious but we continue to focus on delivering a profit of growth year for shareholders and for the second half in addition to continue to driving revenue, we will also be focusing on better cost management. So from increasing revenue, better controlling costs and our goal is to on our full year guidance.

Our next questioner today will be Xue Yuan with CICC. Please go ahead.

[Foreign Language]

Sure. So for the benefit of the audience I will translate the two questions from the research analyst of CICC. And the first question is we know that register client is significant or higher this year. However, active client is lower this quarter. Can you explain the difference in trends? Second is, we note that performance fee for both the first quarter and second quarter of this year is significantly higher than that of the last year. Can you provide a bit more details on these performance fees? So I'll answer both of these questions. So our register clients are up roughly about 30% this quarter. This reflects our successful brand campaign that we launched this year. So for investor traveling in Hong Kong, in China I'm sure you probably saw some advertisement of Noah. We in the past never have done such promotional campaign, but we felt that in an environment like this is really important to further strengthen our brand equities. So the increase in registered client really reflects that. So again registered kind is defined as those clients who signed up for an account or have gone through our basic know your client procedure. So they open account. Active client is a metric where a client who bought product in a given period. So in the second quarter of this year 4,461 clients bought products. So roughly flat compared to the same period last year. So in the uncertain macro-environment and uneasiness of investors, I think clients especially newer client are taking much longer time to observe before actually deciding and making an investment. So I think that it's quite understandable. At the same time, Madam Wang also mentioned that registering private fund on the last few months has taken much longer than our experience in the past. And so that has also put some pressure on product supply. So asset client didn't grow this quarter primarily of two reasons. One client, our newer clients are taking longer to evaluate and making decision to invest. And second, we're seeing some pressure on products applied due to regulatory reasons. On the second question regarding performance fee. We're quite pleased with the performance fees that we achieve in the first half of this year. The performance fee has been quite balanced. If you track our performance fee for the last three years, we have consecutively booked performance fee for the last 1.5 quarter. This really reflects the fact that we are a diversified strategy platform i.e. we do private equity; we do real estate; we do secondary market product. And so it really helps us deliver investment returns to our clients through the cycle. Specifically for of the second quarter and the first half for the first quarter as well, the performance fee is quite balanced. It comes from three of --all three of our major assets categories. Private equity, public markets as well as real estate. Also our offshore asset management also contributed roughly about 15%-20% of the overall performance fee. So our expectation is that we'll continue to deliver on investment return which will translate into performance fee in terms of our income statement.

Looks like we have a question from Stephanie Poon with Citi. Please go ahead hi.

Hi. This is Stephanie from Citi. So I got two or four questions. So, first, you mentioned about some cost-cutting measures potentially into second half. So actually I guess first related to the operating margin was done quite a bit on year-over-year or quarter-over-quarter basis, mainly because of the higher compensation expense. So I'm wondering what is your relationship nature or cost strategy here and also can you give us some update in terms of your brand promotion campaign? Whether you may consider like putting that update on given the challenging market outlook. And the second question is, I noticed there are the one-time commission fee raised for the wealth management products was done a bit on a quarter-over-quarter basis in the second quarter. So just wondering whether there's any specific reasons behind? Thank you.

Yes. I'll answer the first question and then Shang Yan will answer the second one. So the first question about the margin and the cost-cutting, we invested heavily in the first half in our brand promotion, the first time of such scale in the company's history. I think the whole idea is that we're now at a point where the brand can really be built and can further consolidate the market. The impact is quite significant in terms of brand recognition. So you see as Shang mentioned that our registered has gone up substantially. And the few other measures including online recognition rate has also increased substantially. For example, Baidu searches have actually gone up by over 200%. So the impact is quite substantial. We believe that will eventually convert into active clients over time. The margin in the first quarter --in the first half was actually largely affected by our investment in advertisement. So that one I think it is will be slowed down in the second half. That's point one point. Point two is we are looking to be much more conservative in the second half in terms of not only in advertisement, but also in terms of recruitment. We will continue to invest in strategic areas. For example in frontline training, in frontline staff; we will be much more conservative in areas such as mid and back office, we will maintain quality over quantity. We will be more strategic in terms of investments also in client education, in global expansion. So that's basically what we intend to do. The whole idea is that we do foresee that there will be more volatility in the second half and maybe early next year. And therefore we need to be a lot more prepared.

Yes. On the second question regarding effective one-time commission rate. As I mentioned earlier, the second quarter was lower roughly around 81 basis point. This is primarily because we wanted to really lock in client capital in this time of uneasiness of global volatility. So we distributed more shorter duration credit product, but if we look at for the first half, I think the general trend is that we are still focused on the medium to long term increasing our fees. So for the first half fees compared to that of the full year 2017, so roughly around 1%. It is in a very comfortable range of 80 to 120 basis point. We have always been in this range since we were listed in 2010. So for the full year of 2018 I was --my expectation is that we'll continue to be in this range. Probably in the mid to higher part of it as we continue to focus on rolling out a product that's better demonstrate our investment capability. But again I think one of our competitive advantages is being flexible and nimble because there's a lot of macro changes. And then the key issue can be engage with your client. And I think that is important and we have demonstrators that we are able to do that throughout different cycles of the market.

Okay, thank you. So maybe just quick follow up. So is it right to say that a lower fee rate or the offering of a shorter duration products just may be our temporary pressure given this market environment.

Yes. I would say it's temporary pressure or another way to phrase it is actually reflect our proactive strategy to better lock in client capital because clients are hesitant to put money for the long term especially in May and June. So we were still able to engage them with shorter duration products.

And our next questioner today will be George Kyle with JPMorgan. Please go ahead.

This is George from JPMorgan. I have two follow-up questions. I think the first one is on OpEx. I think Shang mentioned in the previous call that whole marketing campaign in the full year guidance is RMB80 million to RMB100 million for the marketing and advertisement. So we're wondering, what's the current run rate of the marketing campaign? And do we majorly impact the result in marketing? And do we any quantification on conversion ratio into profits? This is my first question. And then the second question is on the -- a follow-up question on fee rates. I think besides the wealth management fee rate decline quarter-over-quarter, on the asset management side, I think overall, management recurring fee, it's staying flat. So we are just wondering the outlook for the management fee in the Gopher side. So this is my second question.

Yes. So on the first question regarding OpEx, so I think if you look at the details the first half operating expenses margin was primarily down because of selling or marketing expenses. So as I mentioned in the past, we had never launched any brand campaigns. We are toward the end of that brand campaign. We have been roughly about to RMB60 million to RMB70 million for the first half. So I think the cost pressure in this regard for a second half would be much lighter. If you look at the other major line item, I think the increase has been in line or reasonable. And so for the second half as Kenny mentioned, we will be very focused on cost --better cost management and so we want to keep our margin for the full year at around 30%. So we're now around that ballpark and so that will be our goal for the full year as well. Now in terms of contribution of our brand campaign to profit, I think that will take time to realize. We're already seeing increased traffic. We're seeing some the initial conversion into after client, but given the market environment and as well as time for our relationship manager to follow up with these potential client, I think it will take several quarters if not into 2019 for to really see a bigger impact.

That one, I could give more numbers. I just gave that in the last answer partially. So there are two or three metrics we're looking at specifically. I think one is in terms of enquiries to our customer client hotline and that one we've seen about to 8x to 10x increase in the second quarter. Second is our online search rate and how our brand name has been searched. That one has gone up by over 200%. Third is as Shang reported in terms of our registered clients that one has gone up by 30% year-over-year. So, overall, we were happy with the brand campaign. The conversion will take time in terms of conversion from enquiries into active clients. The immediate conversion rates, I don't think we track directly to with increase yet. But I think it would be shown over time. But, overall, as I said the three metrics have shown the right direction and matches our expectations.

Yes and regarding your second question about effective fee rates. The effective one-time commission rate, I already explained earlier. But I wanted to clarify and point out that our asset management effective fee rate, it's actually higher of this quarter, whether is compared to the second quarter of 2017 or to the first quarter of 2018. So the asset management, effective management fee income rate is about 42 basis point. So it continues to be in an upward trend starting from the beginning of 2017. This is reflection of our expansion into coinvestment and direct investments, demonstrating our investment credibility and with that we're able to generate better return to our client, and also be able to increase our fee take up. So our goal and strategy continue to improve our overall fee across our different core businesses because we think having a better grip on the underlying asset, it's beneficial to the clients, as well as our business development.

And the next questioner today will be Chen Gu with Artisan Partners. Please go ahead.

Hi. I just have a quick question and you recorded cap gain from equity disposal. I am just curious if there is more capacity for you to recognize disposals gain in the future?

Yes. So, if you look at our balance sheet, we have long-term investment of roughly about RMB800 million. So I think, we obviously depending on the market environment. We may decide to exit or dispose some of our long-term investment. So for the second quarter we decided to exit some, to offset some of the brand campaign that we are investing in. But in short, there are definitely more room for us to realize gain from that regard.

Okay. And there looks to be no further questioners at this time. So I'd like to turn the conference back over to Kenny Lam for any closing remarks.

Well, thank you all for taking time to do this call. Our IR team will continue and I think there is one more question right. I think we are good. Okay. We will take more meetings and calls post this conference call. And our IR team would be more than happy to answer any questions from the analyst friends okay. Thanks so much.

Okay, thank you everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.