Core ideas:
The sharp decline in performance in 2018 is mainly due to the impact of performance fees.
There was a big decline in the company's performance in 2018: the company's total revenue was HK $1.64 billion, down 60 per cent from the same period last year, mainly due to a 98 per cent drop in performance fee income in a depressed market environment. The company's homing net profit for 2018 was HK $230 million, down 89 per cent from a year earlier. In a depressed market environment, the company's assets under management (AUM) fell by about 9 per cent from $16.594 billion at the end of 2017 to $15.025 billion at the end of 2018.
The proportion of fixed income continues to grow, and the variety of products is further enriched.
The company's absolute return is biased towards long-position funds (ordinary equity funds), but the share has dropped to 62%, while the share of fixed-income funds has risen to 36%. Hui Li currently plans to focus on expanding alternative investments, including projects in three directions: private equity, private debt and real estate private equity.
China's mainland market is expanding steadily
In 2018, the company's assets under management in China increased by more than 28% year-on-year to US $1.1 billion. According to the company's annual report, Hui Li has successively issued four private equity investment funds in the mainland, the first QFLP fund is in the raising stage, and the flagship value fund has obtained the MRF qualification, establishing a connection channel between the company and mainland retail customers. China's mainland market channels are expected to further promote AUM growth in 2019.
Under the expectation of active market transactions, the size of assets is expected to grow further.
From the perspective of historical valuation, the P/AUM valuation range of Huili Group is basically within the range of 10% Murray 14%. The current share price is HK $6.33 (closing price on March 12, 2019), corresponding to a P/AUM valuation of about 9.3 per cent (based on US $AUM161 billion at the end of January), which is at the bottom of the historical reasonable valuation range. In the current active trading environment, the company's active expansion of external market channels in Hong Kong may promote the further growth of the scale of assets under management. We expect the company's assets under management to grow by 20 per cent year-on-year in 2019, with an overweight rating based on a 10 per cent valuation of 2019 P/AUM, with a fair value of about HK $7.50 per share.
Risk hint
Due to the large fluctuations in the market situation, the large redemption and performance fees of fund products are lower than expected; the expansion of new channels is not as expected; the investment and research team is unstable.