20170622-广发证券_香港_-惠理集团-00806.HK-Visible_earnings_growth_in_2017__initiate_at_Accumulate_with_TP_of_HK_8.30_14页_1mb

Value Partners Group (806 HK) Summary

Core Content

Value Partners Group (VPG), founded in 1993 by Dato' Seri CHEAH Cheng Hye and V-Neo YEH, is a leading asset management firm in Asia. It was the first asset management company to be listed on the Hong Kong Stock Exchange in 2007. VPG has a strong focus on value investing and has built a solid track record in the industry. The company has a diversified range of products, including absolute return long-biased equity funds, fixed income products, hedge funds, ETFs, and quantitative funds.

Key Points

• Target Price: HK$8.30 (Accumulate rating initiated)
• Market Cap: HK$13.8 billion
• Shares in Issue: 1,852 million
• Major Shareholder: CHEAH Cheng Hye (27.96%)
• AUM Growth: From US$5.6 million in 1993 to US$13.2 billion at end-2016, with a CAGR of 40%
• Revenue Sources: Management and performance fees account for over 80% of total revenue, making the company's revenue highly sensitive to AUM and market conditions
• Performance Fees: Performance fees are highly dependent on market performance, with a typical 15% of NAV appreciation charged when the fund exceeds its high watermark (HWM)
• Cost Management: The company has a fixed cost coverage ratio of 2x-3x, indicating strong cost control and financial stability
• Investment Team: VPG employs approximately 60 investment professionals with a proven track record, having won over 140 performance awards since establishment

Key Funds and Performance

• VP Classic Fund: Achieved a net return of 2,446% from 1993 to end-2016, outperforming the Hang Seng Index significantly
• High-Dividend Stocks Fund: Second largest fund, with a substantial AUM and performance above HWM
• HWM Achievements: In 2017, all eight funds under the absolute return long-biased equity strategy had a per unit NAV above their respective HWM
• Performance Fee Forecast: Estimated performance fees for 2017 are HK$894 million, compared to HK$11 million in 2016

AUM and Revenue Projections

• AUM Growth Drivers: Expected to grow to US$15.8 billion, US$18.1 billion, and US$20.7 billion in 2017, 2018, and 2019 respectively
• Revenue Growth: Projected to be 25%, 7%, and 14% for the same years
• Net Profit Growth: 338%, 9%, and 20% respectively

Growth Opportunities

• Chinese Investors: The rising demand for asset management among Chinese investors, especially high-net-worth individuals, is seen as a key growth driver. VPG has expanded its presence in mainland China through QDLP and MRF schemes
• QDLP Quota: VPG has a QDLP quota of US$100 million, allowing it to offer cross-border private funds to Chinese investors
• MRF Scheme: The company has applied for the inclusion of its flagship Value Partner Classic Fund into the mutual recognition of funds scheme, which could significantly boost AUM growth
• Potential Acquisition: There is a possibility of an acquisition by HNA Group, which may affect the valuation and future growth trajectory

Risk Factors

• AUM Growth Shortfall: If AUM growth does not meet expectations, it could negatively impact revenue and profits
• Market Turmoil: Higher-than-expected fund redemptions due to market volatility or investor preference changes
• Fund Underperformance: If flagship funds significantly underperform benchmarks
• Investment Team Reshuffle: Potential changes in the investment team due to a possible acquisition

Valuation Highlights

• P/AUM Ratio: VPG is valued at a P/AUM ratio of 12.5%, which is higher than its global peers but reflects its unique exposure to mainland Chinese investors
• P/B and P/E Ratios: The target price of HK$8.30 is based on a 3.7x 2017E P/B and a 26.2x 2017E P/E
• Historical Valuation: The company is expected to maintain its historical valuation, which is relatively stable over the past five years

Investment Strategy and Client Base

• Client Base: Hong Kong remains the largest market for VPG, with a growing contribution from mainland Chinese investors
• Retail Clients: Account for 42% of total AUM in 2016, up from 13% in 2009
• High-Net-Worth Investors: Represent 18% of total AUM in 2016, up from 5% in 2009
• Institutional Investors: Their share of AUM has declined from 44% in 2009 to 16% in 2016

Conclusion

VPG is positioned as a strong asset manager with a proven track record and a solid business model. The company's growth in AUM and revenue is expected to be driven by market sentiment recovery, expansion in mainland China, and high performance fee income. Despite the potential risks associated with market volatility and the possibility of an acquisition, the company's strong fundamentals and strategic positioning make it a promising investment opportunity.