The group reported a net profit of HK $251 million (up 29.1% from a year earlier) in the first half of 2019, mainly due to the company's strict cost control (down 9.8% from a year earlier). And the company's investment in its own fund is included in mark-to-market investment income (HK $102 million in the first half of 2019 compared with a loss of HK $67 million in the first half of 2018). However, performance fees were reduced to HK $5340 (down 93.3 per cent from a year earlier), which also led to a 34.2 per cent year-on-year drop in operating profit because the returns of most actively managed equity funds did not exceed the previous high water mark. We have adjusted our earnings per share forecast for 2019 / 2020 Universe from HK $0.28 / HK $0.34 / HK $0.30 to HK $0.14 / HK $0.18 / HK $0.22, an increase of 13%, 32% and 23% respectively over the same period last year. We lowered our target price from HK $8.10 to HK $5.50, equivalent to 8 per cent of 2019 P/AUM, and maintained the buy rating with 35 per cent room for price increase.

Net capital inflows. Despite the weakening market sentiment, the group maintained a net inflow of assets under management at the end of June 2019. The company's assets under management reached $18.1 billion (up 5.2 per cent year-on-year), with a net inflow of $1.8 billion. The strong growth in asset management in the first half of 19 benefited from the market recovery in the first quarter of 19 and continued investor demand for fixed income funds, particularly high-yield funds in Greater China, as well as the rapidly expanding Chinese mainland business. Chinese mainland's assets under management have grown by more than 35 per cent to $1.5 billion and now account for 8 per cent of the company's total assets under management. However, net management fees decreased by one basis point in the first half of 2019 due to rising distribution costs and low management fees for Chinese segregated account products. The company believes that in the long run, there is no sustained pressure on profit margins.

Performance fee is under pressure. Most of the benefit private brand funds will be settled by the end of the year, and we predict that the company's performance fee income will be under pressure by the end of 2019. As of the end of July, the net asset value of the company's own-brand funds (more than 40 per cent of assets under management) was on average 7 per cent lower than the previous high water mark (all recorded in 2017). However, we hope to see positive gains based on market capitalization by the end of the year.

Future development. We regard the company's ambition to develop business in China as the bright spot of the company's potential development in the future. In addition, the company tries to diversify its product portfolio through a good balance between stocks, fixed income and alternative investment products (including real estate, private equity funds, etc.).

Keep buying. While we expect performance fee income to be under pressure at the end of the year, we expect net inflows to continue on the back of strong demand for fixed income funds and the company's global expansion. We have adjusted our earnings per share forecast for 2019 / 2020 Universe from HK $0.28 / HK $0.34 / HK $0.30 to HK $0.14 / HK $0.18 / HK $0.22, an increase of 13%, 32% and 23% respectively over the same period last year. We lowered our target price from HK $8.10 to HK $5.50, equivalent to 8 per cent of 2019 P/AUM, and maintained the buy rating with 35 per cent room for price increase.