I have a Hold rating for Noah Holdings Limited (NYSE:NOAH) [6686:HK] following my assessment of the company’s recent financials and its shareholder capital return potential. On the negative side of things, NOAH’s recent second quarter results were below expectations. On the positive side of things, the stock’s potential shareholder yield might be as high as a mid-teens percentage.

This article analyzes NOAH’s latest Q2 2024 results and the company’s new share buyback program which drew my attention. The company’s first quarter performance was the subject of the earlier May 30, 2024, update.

Noah Holdings’ Key Q2 Financial Metrics Were Below Consensus Forecasts

NOAH published the company’s most recent second quarter earnings release on Thursday, August 29, 2024.

Noah Holdings reported a revenue of RMB 615.8 million and a net profit attributable to shareholders of RMB 99.8 million for Q2 2024. Its latest second quarter top line and net income fell short of the sell side’s consensus estimates by -4% and -17%, respectively. According to S&P Capital IQ’s consensus data, the analysts had anticipated earlier that NOAH will deliver comparatively higher revenue and earnings of RMB 642.0 million and RMB 120.0 million, respectively in the second quarter of this year.

The company’s top line and bottom-line fell by -35% and -68%, respectively on YoY terms in Q2 2024.

NOAH’s businesses in both domestic (Mainland China) and international (outside Mainland China) markets performed poorly for the second quarter of the current year. In Q2 2024, Noah Holdings’ revenue derived from Mainland Chinese and foreign business operations dropped by -39% YoY and -29% YoY to RMB 337.2 million and RMB 278.6 million, respectively.

At its Q2 2024 results briefing, NOAH indicated that the company’s “concerns over the underlying asset quality of insurance firms” in Mainland China led it to “temporarily suspending the distribution of domestic insurance products.” On the other hand, the company highlighted that its “revenue from global insurance products slowed” as a result of a “competitive market environment” in international markets.

Noah Holdings’ management commentary suggests that its domestic and international businesses have been hurt by a shift away from riskier Mainland Chinese insurance offerings and stiffer competition, respectively. As such, NOAH’s most recent quarterly top line missed expectations and decreased substantially on a YoY basis.

In its Q2 2024 earnings release, the company revealed that it had put in place “cost control measures” like “streamlining our branch network to reduce overhead costs” in the recent quarter. However, the -19% decline in total operating expenses was insufficient to offset a -35% drop in revenue for the latest quarter. As a result, Noah Holdings’ operating profit margin and net margin contracted by -15.3 percentage points YoY and -16.4 percentage points YoY to 21.8% and 16.8%, respectively in Q2 2024. This provides an explanation for NOAH’s significant -17% bottom-line miss.

A meaningful turnaround for Noah Holdings might not happen anytime soon. NOAH disclosed at its Q2 analyst briefing that it has introduced new “insurance products centered on retirement and global health care solutions” in Mainland China, and it is targeting to “expand the coverage of global top-tier GPs (General Partners)” for its international operations. The company probably needs more time to market new offerings in the domestic market, and enhance its competitive edge in foreign markets with a wider GP coverage.

But NOAH’s New Share Buyback Plan Could Boost Its Shareholder Yield

Noah Holdings disclosed a new two-year $50 million share buyback plan on the same day as its Q2 2024 results announcement.

The company noted at its second quarter analyst call that “our stock is deeply undervalued, and this share repurchase program will effectively enhance our ROE and capital allocation efficiency.”

NOAH is now trading at a pretty low trailing P/B multiple of 0.35 times. Noah Holdings’ most recent fiscal year or FY 2023 ROE was 10.3%, which is much lower than its FY 2018-2022 average ROE of 14.2%. These metrics were obtained from S&P Capital IQ.

There is sufficient motivation for Noah Holdings to complete the buyback program, as its P/B valuation is undemanding and the company’s ROE can be enhanced by shrinking the equity base via buybacks.

NOAH could potentially boast an annualized buyback yield (share repurchases divided by market capitalization) of 5%, assuming that the company is able to spend the full $50 million on repurchases in the coming two years.

Separately, Noah Holdings’ consensus FY 2024 and FY 2025 dividend yields are 12.8% and 13.7%, respectively.

It is reasonable to be conservative considering NOAH’s Q2 results miss and assume that the stock’s actual FY 2024 and FY 2025 dividends are 30% lower than the current consensus dividend forecasts. In this scenario, Noah Holdings’ adjusted forward dividend yields will still be attractive in the 9.0%-9.5% range.

Taking into account the estimated 5% buyback yield, NOAH’s potential shareholder yield (sum of dividend yield and buyback yield) could be at the mid-teens percentage level.

Closing Thoughts

Noah Holdings’ Q2 2024 results missed expectations and I think that a swift turnaround for the company’s business operations is unlikely. But NOAH could potentially offer a very attractive shareholder yield in the mid-teens percentage range, if one considers the company’s new repurchase program announcement. NOAH is still rated as a Hold, taking into account its unfavorable business prospects and its favorable shareholder capital return outlook.