20180109-申万宏源-惠理集团-00806.HK-Performance_boost_12页_1mb

Diversified Financials - Company Research Summary

Core Content Overview

This report provides a detailed analysis of Value Partners Group (806:HK), focusing on its financial performance, valuation, and investment potential. It highlights the company's significant turnaround in 2017, driven by performance fees, and its strategic position in the financial services sector.

Key Financial Highlights (2015–2019E)

• Revenue:

  • 2015: HK$1,768.26m
  • 2016: HK$1,433.12m
  • 2017E: HK$4,059.29m (+183.25% YoY)
  • 2018E: HK$2,840.60m (-18.90% YoY)
  • 2019E: HK$3,017.05m (+6.21% YoY)

• Net Profit:

  • 2015: HK$270.79m
  • 2016: HK$132.59m
  • 2017E: HK$2,011.90m (+1417.39% YoY)
  • 2018E: HK$1,127.91m (-38.43% YoY)
  • 2019E: HK$1,168.30m (+3.58% YoY)

• EPS (Earnings Per Share):

  • 2015: HK$0.15
  • 2016: HK$0.07
  • 2017E: HK$1.09 (+1363% YoY)
  • 2018E: HK$0.61 (-38% YoY)
  • 2019E: HK$0.63 (+3% YoY)

• ROE (Return on Equity):

  • 2015: 7.01%
  • 2016: 3.53%
  • 2017E: 40.15%
  • 2018E: 20.13%
  • 2019E: 20.73%

• Dividend Yield:

  • 2015: 1.89%
  • 2016: 1.41%
  • 2017E: 5.12%
  • 2018E: 2.96%
  • 2019E: 3.06%

• P/AUM (Price to Assets Under Management):

  • 2017E: 7.81x
  • 2018E: 8.22x
  • 2019E: 13.20x

• Target Price: HK$9.40 (as of 18 December 2016), representing a 12% P/AUM ratio for 2018E, with a 10.6% upside.

Main Views and Key Information

Performance Boost in 2017

• The company reported a positive profit alert, with 2017E net profit expected to reach HK$2.0119 billion (vs. our estimate of HK$1.8 billion), a 1417.39% increase from 2016.
• The substantial improvement is primarily due to a significant increase in performance fees, which rose to HK$2.5 billion (vs. HK$10.8 million in 2016).
• Net fund inflow in the first nine months of 2017 was HK$400 million, compared to a net outflow of HK$1.8 billion in 2016.
• The company expects continued net fund inflow by the end of 2017, which should lift full-year margins and support stable management fees.

Fee Crystallisation and Fund Performance

• Most of the company’s major own-branded funds crystallise at the end of the year, leading to higher performance fees.
• A 1% increase in NAV (Net Asset Value) is projected to raise performance fees by 4%.
• The net NAV of major funds (approximately 50% of total AUM) averaged 31% above previous high watermarks, mostly from 2014.
• The company is expected to generate net fair value gains and realised gains from treasury operations of around HK$1.5 billion due to favorable market conditions.

Uncertainty Alleviated

• The potential acquisition discussions involving chairman Dato' Seri Cheah Cheng Hye and his business partner Yeh V-Nee have been terminated.
• This reduces uncertainty and shifts investor focus back to the company's fundamentals.
• The substantial improvement in performance fees is expected to drive earnings growth.

Maintain Outperform Rating

• The company's products are expected to perform better in 2017, which should trigger higher performance fees.
• The EPS forecast for 2017E is raised to HK$1.09 from HK$0.99, a 1363% YoY increase.
• The Outperform rating is maintained, with a target price of HK$9.40 and a 10.6% upside.

AUM Capacity and Fund Management

• AUM (Assets Under Management) as of end-November 2017 reached US$16.8 billion, a 21.7% YoY increase.
• The company maintains a forecast of US$17.0 billion in AUM by end-2017, a 28% YoY increase, which should result in stable management fees.
• The company manages a diverse range of funds, including:
  • Asia: High-Dividend Stocks Fund (★★★★★), China Convergence Fund (★★★★), Chinese Mainland Focus Fund (★★★★), etc.
  • China A-share: China A-Share Opportunity Fund, China A-Share Select Fund (RQFII)
  • Alternative Investments: Hedge Fund, Big Data Fund
  • Fixed Income: Greater China High Yield Income Fund, Greater China Preference Shares Income Fund (QDLP)
  • Multi-Asset and Relative Return Strategies: Multi-Asset Fund, Asia ex-Japan Equity Fund, etc.
  • Thematic Strategies: New China Policy Fund, Health Care Fund (UCITS)

Valuation and Investment Rating

• The target price of HK$9.40 reflects a 12% P/AUM ratio for 2018E.
• The Outperform rating is based on the expected 10.6% upside from current levels.
• The company is a subsidiary of Shenwan Hongyuan Securities and a qualified securities investment consulting institute.

Disclosure and Disclaimer

• The analyst and company have no financial interests in the target company.
• No compensation was provided by the target or third parties for the report.
• The Company fulfills its duty of disclosure, and clients are advised to review the full report and consult independent investment consultants if necessary.
• The investment ratings are relative to the market and not personal advice.
• The report is not an invitation to buy or sell securities.
• All rights to the report are reserved by the Company, and no unauthorized use is permitted.

Conclusion

The report outlines a significant improvement in Value Partners Group's financial performance in 2017, driven by performance fees and fund inflows, with a positive outlook for 2018 and 2019. The Outperform rating is maintained, supported by strong EPS forecasts and a 10.6% upside to the target price. The resolution of potential acquisition discussions alleviates uncertainty, and the diverse fund offerings indicate a robust portfolio management strategy. The valuation metrics suggest a favorable investment opportunity, but the report emphasizes the need for independent analysis and client discretion.