At the end of August this year, the assets under management (AUM) of the group reached US $16.3 billion, an increase of 2 per cent from the previous month and 19 per cent from a year earlier. The net asset value (NAV) of the company's main funds (about 50 per cent of assets under management) averages 25 per cent above the high water mark (most of which was recorded in 2014). We believe that the recovery of the Hong Kong stock market and the continued improvement of investor sentiment, coupled with the opening of the Shenzhen-Hong Kong Stock Connect, will enable the company to record considerable performance fee income in 2017. As a result, we raised our 17-19 EPS forecast from HK $0.20 to HK $0.99, 0.61 and 0.63 (an increase of 1314% over the same period last year). We have raised the target price from HK $8.58 to HK $9.98. We maintain our buy rating for a 21% upside.

A bright future. The company recorded a net profit of HK $219 million in the first half of 2017, an increase of 4290% compared with HK $5 million in the first half of 2016. The main reason is that against the backdrop of improved market conditions, operating profit increased by 28% (to HK $140 million) while net fair value income and recognised income reached HK $99 million. We expect the company's assets under management to reach $17 billion by the end of 2017, which we believe will increase the company's full-year profit margin and allow the company to receive a stable annual management fee. The average net asset value of the company's main funds exceeds the high water mark by 25%. Since most of the company's main funds will make profits and losses by the end of the year, we expect the reversal of the company's main fund NAV to help the company earn substantial performance fees by the end of 2017. According to our sensitivity test, a 1% increase in net asset value will increase the company's 2017 table fee by 4%. At the same time, we also believe that the company will recognize significant net fair value income and recognised income for the whole of 2017.

The choice of value. In may this year, the media reported that HNA may be in discussions with Huili to acquire a total of 41.1% of the shares of company chairman Xie Haiqing and non-executive honorary chairman Ye Weiyi for US $2 billion (HK $14.5 billion). The reported purchase price is HK $10.4 per share, a significant premium to the current market price.

Keep buying. We expect market sentiment to continue to improve, so we expect the company's products to perform better in 2017, resulting in higher performance fees. Based on the assumption that the company's main fund returns will be 25% in 2017 and 15% in 2018 and 2019, we have raised the company's 17-19 EPS forecast from HK $0.31 to HK $0.99, an increase of 1314%, 38% and 3% year-on-year. We raised the target price from HK $8.58 to HK $9.98, corresponding to 14% of the 2017 P/AUM. We maintain our buy rating for a 21% upside.