Earnings Call Transcript - NOAH Q4 2023

Melo Xi, Director of Investor Relations

Good day, and welcome to the Noah Holdings Fourth Quarter and Full Year 2023 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Melo Xi, Director of Investor Relations. Thank you, operator. Good morning, and welcome to Noah's 2023 Fourth Quarter Earnings Call. Joining me on this call today are Ms. Wang Jingbo, our Co-Founder and Chairlady; Mr. Zhe Yin, our Co-Founder, Director and CEO; and Mr. Grant Pan, our CFO. Ms. Wang will begin with an overview of our recent business highlights, followed by Mr. Pan, who will discuss our financials and operating results. They will all be available to take your questions in the Q&A session that follows. Before we begin, please note that the discussion today will contain forward-looking statements that are subject to risks and uncertainties and may cause actual results to differ materially from those in our forward-looking statements. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC and the Hong Kong Stock Exchange. Noah does not undertake any obligation to update any forward-looking statements except as required under applicable law. In addition, today's call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. Lastly, this call should not be interpreted as a solicitation to sell or purchase any interest in any Noah or Noah-affiliated products. Please also be aware that a link to a live webcast with presentation materials is available on our Investor Relations website. With that, I would like to pass the call over to Ms. Wang. Please go ahead.

Wang Jingbo, Co-Founder and Chairlady

Certain non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. Lastly, this call should not be interpreted as a solicitation to sell or purchase any interest in any Noah or Noah-affiliated products. Please also be aware that a link to a live webcast with presentation materials is available on our Investor Relations website. With that, I would like to pass the call over to Ms. Wang. Please go ahead.

Melo Xi, Director of Investor Relations

I'd like to begin today's call by sharing some recent thoughts on the industry and macroeconomic landscape before I review our performance for the fourth quarter and full year and dive into our strategy going forward. Over the past year, the Chinese wealth management industry faced considerable challenges. Fundamental shifts are taking place across the sector that require a different strategy and approach to asset allocation for management speaking high-net worth individuals. Noah's relentless focus on client needs spearheaded our transition from a product-focused model to a solution-driven approach over the past year, ensuring our ability to increase the resilience of clients' portfolios in a challenging market environment. Our proactive decisions to prematurely exit the domestic real estate in 2016 and nonstandardized single counterparty private credit products in 2019 earned significant trust from clients. Our semiannual CIO house view and CCI model continued to reflect our strategic foresight over the past three years, which resonated strongly with clients. We adopted a three-pronged strategic approach to navigate this challenging market environment over the past year. Firstly, we're laser-focused on ensuring our resilience and adaptability through economic downturns. Secondly, we are actively accumulating strength to emerge as a leader in the forthcoming recovery. And finally, prioritizing the development of our core capabilities to position us for future growth when opportunities arise. Noah is a company built on both pragmatism and ambition, allowing us to drive a careful balance between long-term positioning and seizing new opportunities. By enhancing operational efficiency, retaining top talent, strategically calling cuts while simultaneously investing in new international markets, channels, technologies, and the development of global product and service metrics, we are ideally positioned to help clients traverse this market. Over the past year, we strengthened our full suite of wealth management products and services for Mandarin-speaking clients globally. One key focus has been expanding our ability to offer clients alternative investments on a global basis. We're also seeing global fund managers increasingly focusing on underserved private wealth channels to fill primary markets' fundraising. As a leading private wealth manager, recognized for our expertise in alternative investments and extensive network of Mandarin-speaking professional investors, this trend presents enormous opportunities for Noah. Going forward, we'll be amplifying these strategic global investments. This includes: expanding our service network, bolstering investment research capabilities, and significantly enhancing product selection and technological infrastructure. These investments will solidify our foundation as a leader, enabling us to meet growing demand among clients for globally diversified wealth and asset management services.

Wang Jingbo, Co-Founder and Chairlady

Speaking to professional investors, this trend presents enormous opportunities for Noah. Going forward, we'll be amplifying these strategic global investments. This includes expanding our service network, bolstering investment research capabilities, and significantly enhancing product selection and technological infrastructure. These investments will solidify our foundation as a leader, enabling us to meet growing demand among clients for globally diversified wealth and asset management services.

Melo Xi, Director of Investor Relations

Looking at our financials for the year, Noah generated total revenues of RMB 3.3 billion, an increase of 6% year-on-year. Our domestic business contributed RMB 1.9 billion, an increase of 18.1% year-on-year, and accounted for 56.8% of the total revenue. Within revenue from our domestic business, revenue generated by legacy distributed products was RMB 1.4 billion, accounting for 73.9% of the domestic revenue. Our overseas business generated RMB 1.4 billion, a significant increase of 73% year-on-year, driving overseas revenue contribution from 26.5% of the total net revenues last year to 43.2% this year. Of revenue generated from new business and products in 2023, our overseas and domestic business accounted for 68.1% and 31.9%, respectively. Breaking it down by segments, our Wealth Management business generated RMB 2.5 billion in 2023, an increase of 13.1% from last year. Within Wealth Management, domestic business contributed RMB 1.4 billion, a decrease of 11.7% from last year, which was primarily composed of RMB 0.9 billion in revenue generated by legacy distributed products, accounting for 67.7% of the domestic wealth management revenue. Our overseas business contributed RMB 1.1 billion, a 71.3% increase year-on-year. Our Asset Management business generated RMB 769 million revenue during the year, a decrease of 8.4% from last year. Within Asset Management, our domestic business generated RMB 469 million, a decrease of 30.3% from last year, which was primarily composed of RMB 467 million in revenue generated by legacy distributed products, accounting for 99.4% of the domestic asset management revenue. Our overseas business contributed RMB 299 million, an increase of 80% year-on-year, driven primarily by growth in overseas AUA and AUM. On the comprehensive services side, revenue from domestic insurance products increased by 1.6% in 2023, of which, 88.9% was generated by new businesses. Revenue from overseas insurance, trust, and other comprehensive services surged 301.5% from last year. In tandem, the number of active overseas clients for comprehensive services also grew by 376.3% year-on-year. Over the past year, we continued to make upgrades to our technology stack, aimed at improving client experience globally. We are working with leading insurers to streamline our underwriting process across markets globally. We were the first broker in Hong Kong to launch a fully online underwriting process and allow clients the option to make insurance premium payments through our Hong Kong nominee account, which was a significant enhancement for client experience. Operating profit for the year came in at RMB 1.1 billion, with an operating profit margin of 33.3%.

Wang Jingbo, Co-Founder and Chairlady

We are working with leading insurers to streamline our underwriting process across markets globally. We were the first broker in Hong Kong to launch a fully online underwriting process and allow clients the option to make insurance premium payments through our Hong Kong nominee account, which was a significant enhancement for client experience. Operating profit for the year came in at RMB 1.1 billion, with an operating profit margin of 33.3%.

Melo Xi, Director of Investor Relations

Looking at our domestic wealth management business, we continue to carry on the strategy to focus on first-tier and core cities in China. Through our ongoing organizational restructuring, we decreased the number of offices we have from 77 to 44 by the end of the year, and further relocated resources to 18 core cities as of now. As of the end of 2023, the number of domestic relationship managers decreased by 7.6% year-over-year and 12.6% sequentially to 1,163. On the domestic wealth management front, our primary focus has been on strengthening the service capabilities of our relationship managers and enhancing the user experience of technological upgrades to our staff, allowing us to continuously generate new leads from ongoing client services. The small treasury platform for corporate and institutional clients we launched in 2022 now serves nearly 6,000 clients, a 28.9% increase from last year. Over the past year, the number of active clients served increased by 73.7% year-over-year with average client AUA exceeding RMB 600,000. Turning over to fees, our Wealth Management business continued to expand its presence as more relationship managers are brought on board in Hong Kong and Singapore. As of the end of 2023, we had 89 relationship managers onboarded, an increase of 15.6% sequentially. We are committed to further expanding our international RM team, targeting a headcount of 200 by the end of 2024. As of the end of 2023, we had over 14,900 overseas clients, reflecting a 14.2% increase from last year. The number of clients who purchased our cash management products reached 3,093, a sequential increase of 19.1%, while the number of discretionary investment clients reached 803, an increase of 23% sequentially.

Wang Jingbo, Co-Founder and Chairlady

We onboarded 89 relationship managers, showing a 15.6% increase sequentially. We are dedicated to expanding our international RM team, aiming for a headcount of 200 by the end of 2024. By the end of 2023, we had over 14,900 overseas clients, which is a 14.2% increase from last year. The number of clients who purchased our cash management products reached 3,093, marking a sequential increase of 19.1%, while discretionary investment clients grew to 803, reflecting a 23% sequential increase.

Melo Xi, Director of Investor Relations

We continue to expand the product offer through our overseas wealth management app, providing an expanded array of solutions for clients, businesses, and agencies. The number of overseas active high-net-worth clients reached 4,629 in 2023, a significant 38% increase from last year. Total transaction value during the same period reached USD 3.3 billion, up 83.4% year-on-year. The number of active clients for our U.S. dollar mutual fund products reached 3,130, up 72% year-on-year with transaction value of USD 1.2 billion, up 110.1% from last year. On the 2B side, we have successfully onboarded more than 230 overseas corporate and institutional clients, which resulted in transaction value of overseas mutual funds, reaching approximately USD 200 million. On the agency side, our overseas online wealth management business began trial operations in late 2023, aiming to empower EAM and family office clients with the SaaS platform integrated with our full suite of products. As of today, we have signed 9 agency clients with a long-term target of serving 300 EAMs and family offices in overseas markets.

Wang Jingbo, Co-Founder and Chairlady

We have 230 overseas corporate and institutional clients, leading to a transaction value of approximately USD 200 million in overseas mutual funds. On the agency side, our overseas online wealth management business started trial operations in late 2023, with the goal of empowering EAM and family office clients through a SaaS platform that integrates our complete range of products. Currently, we have signed 9 agency clients, with a long-term objective of serving 300 EAMs and family offices in overseas markets.

Melo Xi, Director of Investor Relations

In terms of asset management, Gopher's total AUM was RMB 154.6 billion in 2023, a decrease of 1.6% year-on-year. RMB AUM decreased by 4.8% from last year to RMB 118.6 billion. This was primarily driven by exits from RMB private equity assets and decline in the net asset value of some RMB public market products. Internationally, we continue to enhance our global investment product metrics. Overseas AUM reached USD 5.1 billion in 2023, an increase of 7.6% from last year, driving an increase in its contribution to total AUM from 20.7% to 23.3%. Overseas AUA, which includes distributed products, reached USD 8.4 billion, an increase of 10.2% year-on-year. Beyond traditional PE and VC products, we have gradually expanded our alternative offerings to include infrastructure, GP stake, PE secondary and private credit products to provide a more comprehensive product matrix. We also recently launched the Series 4 of our actively managed U.S. dollar, U.S. real estate funds, focusing on development opportunities in the suburban rental apartments in the U.S. subarea. This fund is well positioned as an upstream player within the institutional real estate value chain. As of the end of 2023, AUM for overseas private equity and other primary market funds reached USD 4 billion, an increase of 4.7% year-on-year. Turning to public markets, we intensified the screening coverage and inclusion of the top hedge fund managers globally. We have launched 10 of the global top 50 hedge fund products, with 10 more in the due diligence process. While enhancing the diversity of fund managers and product strategies, we are simultaneously expanding to include structured products with principal protection mechanisms. In 2023, the transaction value of overseas public markets and structured products reached USD 180 million, an increase of 95.9% from last year.

Wang Jingbo, Co-Founder and Chairlady

We have launched 10 of the global top 50 hedge fund products, with 10 more in the due diligence process. While enhancing the diversity of fund managers and product strategies, we are simultaneously expanding to include structured products with principal protection mechanisms. In 2023, the transaction value of overseas public markets and structured products reached USD 180 million, an increase of 95.9% from last year.

Melo Xi, Director of Investor Relations

Lastly, we announced a change to our leadership structure last year by separating the roles of Chairperson and CEO. Mr. Zhe Yin was appointed CEO, while I will retain my position as Chairwoman of the Board. This decision will enhance corporate governance, organizational efficiency, promote collective decision-making, and facilitate Noah's succession plan, generating opportunities for Noah's deep bench of management talent. As a co-founder, Zhe Yin has been part of Noah's journey since the beginning. He played a pivotal role in building Gopher Asset Management and possesses a deep understanding of Noah's operations and our client-centric company culture. I'll firmly support Zhe Yin in his new role while continuing to steer Noah's overall strategy and be responsible for Board management and corporate governance. Please also kindly note that our CEO, Zhe Yin, and CFO Grant will be reporting quarterly results starting from last quarter. I will still take part in the Q&A session. I would now like to turn the call over to Grant to go over our financial results in more detail. Before opening the call to Q&A, where Zhe Yin and I will also participate. Thank you, everyone.

Grant Pan, CFO

Thank you, Melo. Thanks, Chairlady. I'm sure most investors are familiar with Mr. Zhe Yin, and we welcome him to join our future earnings releases, meetings, and calls with our investors. 2023 was a challenging year for China's wealth management industry. China's post-pandemic economic recovery was slower than expected, with persistent housing and local government debt issues affecting domestic capital markets and growth. The performance of China's domestic market, Asia market, and Hong Kong stock market experienced significant adjustments, impacting the issuance of new investment products domestically. For example, the issuance of mutual fund products in the domestic market decreased by 22.7% over the year. In contrast, in 2023, the Dow Jones Industrial Average rose by 13.7%, with the S&P 500 Index and MSCI World Equity Index increasing over 20%. On the alternative side, global fund managers are increasingly focusing on underserved private wealth channels for primary market fundraising. According to McKinsey, as of June 30, 2023, total assets under management in private markets reached USD 13.1 trillion, growing nearly 20% annually since 2018. The significant differences in economic and capital market conditions between onshore and offshore markets have created considerable challenges for high-net-worth clients seeking global asset security and diversification. Insurance products and other defensive strategies are continuing to grow. As a leading wealth management company recognized for our expertise in alternative investments and extensive network of Chinese professional investors, these trends align with our strategic shift from a product-based to a solution-based offering, along with our ongoing investment in overseas products and services. In this context, we delivered solid financial results, demonstrating our resilience and adaptability in a challenging market environment. Net revenues for the year continued to grow, with a healthy operating margin of 33.3%. Our asset-light model, which generates strong operating cash flow and ample cash on the balance sheet, gives us confidence in the resilience of our business and our ability to drive growth even amid complex economic conditions. Now, let's review the details of our fourth quarter and full fiscal year 2023 financial performance. Quarterly net revenues were just under RMB 800 million, a 6.6% sequential increase. Our net revenues for the year totaled RMB 3.3 billion, up 6.3% year-over-year. Regarding the revenue breakdown for the year, one-time commissions amounted to RMB 1.1 billion, a 60% increase year-over-year, mainly due to robust distribution of insurance products. Recurring service fees, which stabilize our revenue mix, were RMB 1.8 billion, a slight decline of 4.8% year-over-year because of a drop in onshore assets under management resulting from NAV changes and structured products. Performance-based income was RMB 137 million, down 55.5% year-over-year, primarily because of underperforming domestic capital markets and limited exit opportunities. Other service fees reached RMB 258 million, an increase of 23.4% year-over-year, largely due to additional value-added services offered to our clients. Breaking down net revenues by region, overseas net revenues for the year grew to RMB 1.4 billion, a 73% year-over-year increase, accounting for 43.5% of total net revenues. We have responded to our clients' demands by making significant progress in expanding our international presence in 2023, successfully recruiting over 100 overseas Relationship Managers to date. Additionally, we will continue to enhance our product offerings and foster collaboration with top global primary and secondary market fund managers and insurance companies, resulting in increases in overseas transaction value and assets under administration by 83.4% and 10.2%, respectively. In 2023, we officially launched our office in the AUA and are actively exploring opportunities to roll out services and products in various regions, including Dubai and other Southeast Asian nations. Concerning transaction values, we distributed RMB 16.5 billion in products during the year, which reflects an 8.1% decline year-over-year and a 25% drop quarter-over-quarter. By region, transaction value for RMB products in the quarter was RMB 10.7 billion, down 17.4% year-over-year and 30.5% quarter-over-quarter. However, our transaction value for U.S. dollar products grew by 12% year-over-year, despite a 13.4% decrease quarter-over-quarter, totaling USD 828 million. Total transaction values for the year reached RMB 74.1 billion, an increase of 5.4% year-over-year. When broken down by region, the transaction value for RMB products was RMB 50.3 billion, down 13% year-over-year, while the transaction value for U.S. dollar products rose 83.4% to USD 3.3 million, driven by U.S. dollar cash management and structured products. As of the end of the year, our overseas assets under management increased by 7.6% year-over-year to USD 5.1 billion, making up 23.3% of total assets under management. Operating costs and expenses rose by 9.2% throughout the year, mainly due to the low base effect from COVID lockdowns in 2022, which limited marketing activities and business travel, in addition to an increase in international travel this year supporting global expansion. Combined with our strategic cost controls, our operating costs remained reasonable and aligned with revenue growth. Included in our operating costs for the year were several one-time expenses expected to yield long-term cost savings. With the continuous urbanization of Chinese high-net-worth investors moving primarily to first-tier cities, we have been consolidating teams and resources from smaller cities into nearby hubs, mainly in capital and first-tier cities and international regions. We anticipate that this consolidation will save roughly RMB 10 million annually moving forward. We have also focused on enhancing human capital efficiency. Total headcount decreased by 10.4% overall in 2023, primarily in mid- and back-office personnel, which dropped by 17.2%. This is expected to save RMB 64 million annually going forward. At the same time, we are reallocating resources and firmly implementing overseas talent development, with total overseas headcount rising by 16.1% to 426 in 2023. Operating profit for this quarter was RMB 221 million, flat in comparison to the same period last year and down 11.3% sequentially. The operating profit margin for the quarter improved year-over-year to 27.6%, although it decreased compared to the previous quarter due to typically higher marketing and client activities during Q4. Operating profit for the year was RMB 1.1 billion, a slight 0.9% year-over-year increase, with the operating profit margin for the year remaining healthy at 33.3%. Total other income for the year was RMB 111 million, a year-over-year increase of 82.2%, mainly attributed to improved capital management and currency mixes. This was partially offset by noncash investment losses from certain balance sheet investments due to mark-to-market adjustments. Non-GAAP net income for the quarter was RMB 234 million, up 56.7% year-over-year, and RMB 1 billion for the year, a slight 1% increase from last year. Looking at the results from each segment during the year, net revenues from Wealth Management were RMB 2.5 billion, and net revenues from asset management were RMB 766 million, accounting for 75.26% and 23.3% of total net revenues, respectively. On the client side, by the end of the quarter, we had 7,369 Diamond Card clients, down 2.8% year-over-year and 1.2% quarter-over-quarter. However, the number of Black Card clients, our high-end tier clients, increased by 8.8% year-over-year and 1.7% quarter-over-quarter to reach 2,289. The total number of Diamond and Black Card clients was 9,658, slightly down 0.3% year-over-year, mainly due to a sluggish equity market and low investment sentiment. Nonetheless, we remain confident in capturing more market share through ongoing enhancements to our global product service offerings, with the goal of achieving a 1% market share in the high-net-worth individual wealth management market. The number of overseas registered clients at the end of the year rose by 14.2% year-over-year to 14,929, while overseas active clients for the year increased by 38% year-over-year to 4,629 as we continue to bolster our overseas presence. On our balance sheet, we have maintained a healthy liquidity position, with a current ratio of 3.8x and a debt-to-asset ratio of 17.8%, with no interest-bearing debt. We have RMB 5.2 billion in cash and cash equivalents, providing sufficient resources to support our global expansion plans and improve shareholder returns, which the Board considers a priority. I am pleased to announce that based on our strong and sound balance sheet, significant liquidity, and after factoring in necessary investments for our global expansion plan, the Board has approved an annual dividend of RMB 509 million for 2023. This is equivalent to 50% of this year's non-GAAP net income attributable to Noah shareholders, in line with our capital management and shareholder return policy announced last quarter. Additionally, the Board has approved a nonrecurring special dividend totaling RMB 509 million for 2023. Therefore, total cash dividend returns for 2023 will be RMB 1 billion, representing 100% of the non-GAAP net income for 2023, subject to final approval at the AGM in June 2024. At the current market value, our recurring payout plan offers an attractive dividend yield of over 10%, and the total payout plan, including the special dividend, will yield over 20% for shareholders. In conclusion, we believe that Noah's share price is significantly undervalued relative to its intrinsic value. We are highly confident in our long-term growth prospects and remain committed to improving our return on equity and delivering greater value for our shareholders through enhanced returns. We sincerely appreciate our shareholders' ongoing trust and support. Thank you for your attention. I will now open the floor for questions.

Operator, Operator

The first question today comes from Helen Li with UBS.

Helen Li, Analyst

So this is Helen from UBS. I have two questions, if I may. First, the number of covered cities has dropped to 44, and RMs decreased 11% in the fourth quarter. Is this due to the loss of RMs from branch closures, or are you laying off RMs? What are your future plans for the onshore business regarding RMs? For my second question, at last year's open day, you mentioned structured products and hedge fund products as potential drivers for one-time commissions in the future. What is the penetration rate of these products, and what is your product strategy for this year? Additionally, what is the business outlook for 2024?

Grant Pan, CFO

Thank you, Helen. I will address the first question. In response, it seems to be a combination of factors. One factor is the consolidation of networks. Some of the Relationship Managers opted not to relocate from smaller cities to the hub city, which has resulted in some commuting issues. However, this doesn’t account for a significant portion of the decrease. The second reason involves optimization. We are improving our criteria for assessing the efficiency of these RMs, which means they must meet a higher standard to remain on the team. We are also making adjustments to our structure, with increased investments on the global side for our CRMs, and we are focusing on enhancing the overall capabilities and skill sets of the RMs.

Zhe Yin, CEO

The decrease is not largely attributed to one factor. The second reason is related to our optimization efforts. We are continuously enhancing the criteria for evaluating the efficiency of the RMs. Consequently, the RMs must meet a higher standard to stay on the team. Additionally, we are making significant adjustments to the structure with increased investments in our global CRMs. We are also placing more emphasis on the overall skill sets and capabilities of the RMs.

Melo Xi, Director of Investor Relations

Yes, Grant, I will take the translation for Zhe Yin. Regarding the optimization of our domestic network, we consistently follow our clients' movements. In recent years, we have observed that high-net-worth individuals are moving from lower-tier cities, where they initially established their wealth, to core and first-tier cities, and our strategy reflects that shift. Additionally, due to the current challenging macroeconomic environment, we must focus and reallocate our core strengths and resources to enhance operational efficiency. Consequently, in the fourth quarter of last year, we limited some underperforming relationship managers and professionals. This approach marks a departure from our previous expansion strategy. Now, we are concentrating on utilizing our key strengths and resources for high-performing individuals. In fact, our top performers have seen their KPIs and assets under management or transaction value per person increase by more than 30% over the past year.

Wang Jingbo, Co-Founder and Chairlady

In the fourth quarter last year, we primarily focused on reducing the number of underperforming relationship managers and professionals. This marks a shift from our previous expansion strategy. We are now concentrating on utilizing our key strengths and resources for high-performing individuals. Indeed, our top performers have seen their key performance indicators and assets under management or transaction value per person increase by over 30% in the past year.

Melo Xi, Director of Investor Relations

So in conclusion, in the past few quarters, we have focused on consolidating our domestic network. You can probably see that the speed of RM headcounts domestically, the decrease in the headcount is actually slower than the decrease in the number of cities we consolidated, which means we are still undergoing further evaluation for our workforce. In terms of your second question, on the penetration rate for hedge fund products, structured products, and cash management products, we are not seeing that the penetration rate for hedge fund and structured products is still very low. However, in the first quarter of this year, in 2024, the penetration rate for structured products, especially those with the principal protection mechanism, has been increasing. We are also seeing the potential of clients whose wallet with us is currently in cash management-related products. As the interest rates begin to trend down in the future, we see the opportunity to convert these wallet shares into other alternative investment products, including hedge fund and structured products. Helen?

Helen Li, Analyst

Very clear.

Operator, Operator

The next question comes from Peter Zhang with JPMorgan.

Peter Zhang, Analyst

My first question is about the dividend. I would like to understand the reasoning behind this year's special dividend payment. Given our strong cash position, are there any plans for share buybacks or other long-term strategies for returning value to shareholders? My second question pertains to the investment losses reflected in our P&L, specifically the RMB 54 million loss in the fourth quarter. I would like to know the rationale for this and the details regarding the underlying investments.

Grant Pan, CFO

Thank you, Peter. I'll address the first question, with Wang and Zhe Yin available to contribute as necessary. Regarding the special dividend, after thorough discussions with our investors and conveying this to the Board, we expect to see strong cash flows from our upcoming operations. After carefully considering the capital requirements for global expansions and finding no clear targets for significant capital spending, we feel it's the appropriate time to return more to our shareholders through a larger special dividend. Given the pressure on the Chinese ADS share price, which is largely disconnected from our fundamentals, we don't think stock repurchases would be beneficial at this point. While we won't rule out that option in the future, for this year we will focus on cash dividend distributions through a special dividend. Our minority adjustment on the valuation aligns closely with the market.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Grant Pan for any closing remarks.

Grant Pan, CFO

Thank you very much for our shareholders and analysts for your continued trust and support. This will conclude today's earnings release. If you have further questions, we have arranged one-on-one sessions. We'll be very happy to share more insights with you. Thank you.

Operator, Operator

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