The group issued a profit warning yesterday and expects its 2017 net profit to rise from HK $137.5 million in 2016 to HK $2 billion in 2017 (our forecast is HK $1.8 billion). The significant improvement in the company's performance is mainly due to the increase in the company's performance fee from HK $10.8 million in 2016 to HK $2.5 billion in 2017 (our estimate is HK $2 billion). At the same time, the management of the company is considering asking the board of directors for a special dividend. Therefore, we raised the company's EPS in 2017 from HK $0.99 to HK $1.09, an increase of 1363% over the same period last year, while we maintained an EPS of HK $0.61 in 2018-2019, compared with-38% in 2017. We maintain the target price of HK $9.40, corresponding to 12% of P/AUM, with 10.5% room for increase and maintain the overweight rating.

The performance fee is cashed. The vast majority of the company's own-brand funds will be settled by the end of the year, and we expect the reversal in the net asset value of the company's main funds to enable the company to record substantial performance fees in 2017. According to our sensitivity test, a 1% increase in net asset value will increase the company's 2017 table fee by 4%. The net asset value of the company's main funds (about 50% of assets under management) averages 31% above the high water mark (most of which was recorded in 2014). At the same time, under the current favourable market conditions, we expect the company to record substantial fair value net income and recognised income of approximately HK $150 million.

A net inflow of capital. At the end of November 2017, the asset management scale (AUM) of Weili Group reached US $16.8 billion, a decrease of 2.9% from the previous month and an increase of 21.7% over the same period last year. In the first three quarters of 2017, the fund grew by a net $400m (a net outflow of $1.8 billion in the first nine months of 2016), of which subscriptions were $5.9 billion (up 103 per cent from a year earlier) and redemptions were $5.5 billion (up 17 per cent from a year earlier). We believe that continued net capital inflows will help the company improve its profit margin for the full year, while we maintain our forecast of $17 billion under management in 2017, an increase of 28% year-on-year. This will increase the company's profit margin for the whole year and ensure that the company records a stable year-on-year management fee income.

The uncertainty is alleviated. The group also announced that shareholders Xie Qinghai and Ye Weiyi had terminated discussions with potential offerors about a possible deal and had not reached any weakly binding agreement on a potential deal. We believe that the end of this potential agreement will bring investors' attention back to the fundamentals of the company, which will be significantly improved by the significant increase in performance fees in 2017.

Maintain and increase holdings. We believe that the increase in market sentiment led to the excellent performance of the company's products in 2017, resulting in higher performance fees at the end of the year. We raised the company's EPS in 2017 from HK $0.99 to HK $1.09, an increase of 1363% over the same period last year, while we maintained our EPS at HK $0.61 for 2018-2019, compared with-38% for 2017. We maintain the target price of HK $9.40, corresponding to 12% of P/AUM, with 10.5% room for increase and maintain the overweight rating.