The group issued a profit warning and forecast a net return of about HK $220 million in 2018, down about 89 per cent from HK $2.048 billion in 2017. The decrease in profit expectations is mainly due to the decrease in income from performance fees as the returns of most of the related funds managed by the company did not exceed previous new highs at the end of 2018, which is expected to be about HK $56 million in 2018, compared with HK $2.571 billion in 2017. At the same time, the company recorded a net loss of about HK $170 million on its initial capital investment and its fund investments, compared with a gain of HK $199 million in 2017. Our earnings forecast is in line with this announcement, so we maintain our earnings forecast of HK $0.12 / HK $0.18 / HK $0.23 per share at 18e / 19e / 20e.

Net capital inflows. Despite weak market sentiment, the net inflow of assets under management in 2018 led to an increase in management fees, partially offsetting the impact of performance fees. As of the end of November 2018, the assets under management of the group reached US $15.1 billion (an increase of 2.7 per cent from the previous month and a decrease of 10.1 per cent from the same period last year). At the end of the third quarter of 2018, Weili recorded a net inflow of $1.3 billion, which we believe was mainly supported by continued strong demand from fixed income funds and the global expansion of the distribution network. However, due to the volatility of the market investment environment, we expect the size of assets under management to decrease year-on-year in 2018. Net management rates benefited from strong inflows of flagship fixed income products with higher management fees, which expanded to 60 basis points.

The distribution network is expanding. By joining the Hong Kong-China mutual recognition scheme to sell its traditional fund products to retail investors in mainland China, it is expected to triple its value fund management ($1.2 billion in October 2018). Subsequent high-interest equity funds ($2.4 billion in October 2018) are also expected to be included in the mutual recognition scheme. By the end of June 2018, the amount of capital management from mainland China had exceeded US $1 billion, an increase of about 30% since the end of 2017, thanks to new dedicated account entrustment products, strong capital inflows from existing accounts and the first private equity fund management product launched in June (the amount raised at the end of June was 150 million yuan). In addition to its business expansion in Greater China, the company plans to open a number of offices around the world to focus on alternative asset management products in the future, including private debt funds, fixed income hedge funds and real estate private equity funds.

Maintain the buy rating. Given that its main private-brand fund reached an all-time high at the end of 2017 and the current depressed global financial market environment. We believe that the company's performance fee income will be under pressure by the end of 2018. However, we still expect net inflows to be supported by continued strong demand for fixed income funds and global expansion. We update our earnings forecast based on the new asset management scale and product net worth performance forecast. The new 18e / 19e / 20e earnings per share forecast is HK $0.12 / HK $0.18 / HK $0.23, a year-on-year change of-89% / + 43% / + 29%. We adjusted our target price to 2019, down from HK $9.4 to HK $7.00, corresponding to 10% 19e P/AUM. The target price still has 31.8% room to rise from the current price, and we maintain our buy rating.