1H23 performance is in line with our expectations
1H23 results: total revenue from-17% to HK $280 million, total net income from-14% to HK $190 million, and net profit from home to HK $4.88 million (vs. 1H22 lost HK $430 million), basically in line with our expectations, mainly due to a significant decline in company compensation and benefits expenditure compared with the same period last year, and a substantial pick-up in own-capital investment and positive gains.
Trend of development
Management fees and performance fees fell, and proprietary investment improved significantly compared with the same period last year. 1) Management fee: income 1H23-20% to HK $250 million year-on-year, corresponding to AUM-20% year-on-year / year-1.9% to US $6 billion, mainly due to net capital outflow of US $60 million during the reporting period (subscription of US $680 million + redemption of US $740 million) stacked fund recorded a positive return of US $8 million (vs.1H22 annual loss of US $1.76 billion) Annualized management fee year-on-year + 7bps to 102bps (increased proportion of products with higher rates), net management fee after deducting rebates from distribution channels + 6bps to 63bps 2) performance fee: the company has no performance fee income during the period. Although the overall fund performance of 1H23 Company is + 0.2% (of which the flagship product benefits high-interest equity fund + 8.3% / Greater China High yield Bond Fund + 4.2%), most funds fail to exceed their new high prices after 2021. 3) Investment income: net investment income significantly improved to HK $9.16 million compared with the same period last year (vs.1H22 lost HK $320 million). In the same period last year, the initial investment capital of the company's funds recorded a large floating loss, while the market performance was stable during the 1H23 period. 4) cost: the company strictly controls labor costs, 1H23 compensation and welfare expenses (including bonuses) decreased by 33% year-on-year to HK $120 million, operating expenses-28% to HK $190 million, the company will continue to reduce costs and efficiency measures.
The company is concerned about wealth management opportunities in Hong Kong, China and overseas. 1H23 AUM distribution: Hong Kong, China 66% / Europe 11% / mainland 7% / Japan 5% / Singapore 4%. In Hong Kong, China, the company continues to expand the coverage of family offices in a diversified product category, resulting in an increase in 1H23 wealth management demand; in Singapore, the company continues to target resources locally; at the same time, it has established a strategic partnership with Indonesian international investment group Aldiracita Group to accelerate its penetration in Southeast Asia.
It is proposed to introduce GF Securities Co., LTD. 's strategic investment to promote business development and future growth. Guangfa and Huili announced on June 1 that Guangfa Holdings (Hong Kong), a subsidiary of Guangfa, intends to buy no more than 20.2% shares from its founding shareholders at a total consideration of not more than 1 billion yuan. We believe that on the one hand, it is conducive to the construction of the sales channel of Huili, and can make full use of Guangfa's customer resources in the Chinese market, especially in the Greater Bay area (at present, the company cooperates with Guangfa to expand the distribution channel in the three aspects of mutual recognition arrangement between mainland and Hong Kong funds, private equity fund management PFM and wealth management); on the other hand, it also helps to strengthen the investment ability of Huili in research and development.
Profit forecast and valuation
We keep our profit forecast of HK $290 million / HK $710 million in 2024. The company is currently trading on 2023e 7.6% P/AUM and 17x P P/AUM E, maintaining its target price of HK $3.40, corresponding to 2023e 9.3% P/AUM, 21x Pmax E and 22% upside space, and maintaining an outperforming industry rating.
Risk
The risk of market fluctuation; the market competition is higher than expected; the business expansion is not as expected.