Core ideas:
Strong revenue and profit growth in 2017
Thanks to the good performance of major Asian stock markets (except Japan), the company's total revenue and net profit grew strongly in 2017, up 193.6% and 1389.5% respectively over the same period last year.
Total assets under management (AUM) continue to rise, further enriching the product line
The company's AUM rose from $13.249 billion at the end of 2016 to $16.594 billion at the end of 2017, up 25 per cent from a year earlier. But judging from the split of AUM, the main contribution to AUM growth in 2017 came from fund performance rather than net inflows. From a product line point of view, the share of fixed income funds rose sharply to 30% in 2017. At the same time, the Group has enhanced its ability to allocate diversified and alternative assets. Including the issuance of two new multi-asset allocation funds and the expansion of real estate private equity business.
Mainland China Market: the next important growth Point
The company has been actively expanding its business in the mainland. According to the company's annual report and press release on the company's website: (1) the company obtained the mainland private equity fund license in November 2017 and launched its first private equity fund in January 2018; (2) the subsidiary established in Shenzhen has obtained the license of qualified overseas Limited partner (QFLP); and (3) the company's flagship fund continues to await the approval of the mutual recognition scheme between the mainland and Hong Kong funds. We believe that the approval of mutual recognition of qualifications between the two funds may become an important catalyst for the explosive growth of the company's AUM.
The valuation is in the lower limit of the historical reasonable range, and the rating should be increased cautiously.
Under the assumption that the investment achieves a positive return and a steady AUM growth of 15%, we expect the company's revenue from 2018 to 2020 to be 29.7% and HK $3.91 billion respectively, an increase of-28% and 15%, respectively, and a net profit of 11.7% and HK $1.58 billion, an increase of-43% and 16% respectively. The decline in the proportion of funds charged for performance fees and the increase in market volatility are the main reasons for the expected decline in income and net profit in 2018. From the historical valuation, the P/AUM of Huili Group is basically in the range of 10% 14%. (P/AUM is market capitalization / total assets under management, or stock price / assets under management per share, which corresponds to the ability of asset management companies to make profits by managing assets. ) the current share price is HK $8.10, corresponding to a P/AUM valuation of about 10 per cent (based on US $AUM184 at the end of January), which is at the bottom of the historically reasonable valuation range and is cautiously overrated.
Risk hint
The large redemption and performance fees of fund products are lower than expected due to the large fluctuations in the market; the AUM growth of assets under management is weaker than expected due to the lag in the development of new products or new markets; the underperformance of flagship products leads to net redemption of funds; and the large-scale turnover of the management team may damage the company's core research ability.