2023 results are in line with previous earnings forecasts
Value Partners announced 2023 results: Total revenue of -12% to HK$5.1 billion, total net revenue of -13% to HK$360 million, net profit attributable to mother of HK$23.08 million (vs. loss of HK$540 million in 2022), which is basically in line with the company's previously disclosed performance forecast (positive profit forecast of approximately HK$23 million). The profit margin was mainly due to a sharp recovery in investment income combined with prudent cost control.
Development trends
Management fees have been lowered, and proprietary investment has improved significantly. 1) Management fee: Revenue of -15% to HK$4.7 billion, corresponding to AUM of -9% YoY to US$5.6 billion, mainly due to a net capital outflow of US$300 million recorded during the reporting period (subscription of US$1.16 billion +redemption of US$1.45 billion) compounded fund losses of US$150 million (vs. US$1.34 billion loss in 2022), annualized management rate +15 bps to 102 bps (increase in the size of products with higher rate rates), net management fee after deducting rebates from distribution channels +3 bps to 61 bps; 2) Performance fee: Revenue was -100% zero, mainly due to market fluctuations, the performance of most funds failed to surpass their new high prices, corresponding to overall fund performance of -2.5% in 2023 (with two major equity flagship products, Value Partners High Yield Equity Fund +4.1% /Value Partners Greater China High Yield Bond Fund +4.3%); 3) Investment income: net investment income recorded a profit of HK$60.76 million (vs. loss of HK$340 million in 2022), mainly due to the initial investment profit of its funds (significant increase in value gold exchange trading funds) ; 4) Cost aspect: Operating expenses under strict cost management were -18% to HK$390 million (-24% to HK$250 million).
Product richness continues to increase, and Hong Kong customers are relatively sticky. 1) Product: The share of product AUM in 23 years — 72% of absolute returns, 13% of fixed income, 6% of diversified assets, 3% of alternative investments, and 5% of quantitative and ETFs. Flagship stock funds continued to flow in, but were offset by net outflows from products such as themes and healthcare strategies; in terms of product development, in the context of increased market volatility, the company used fixed income products as a strategic focus and launched the Value Dollar Monetary Fund in September 23. In addition, alternative investment funds, real estate funds, and crypto asset ETFs continued to enrich the product matrix. 2) Regions/channels: 23 years of AUM customer distribution — Hong Kong, China 67%, Europe 12%, Mainland China 7%, Japan 5%, Hong Kong customers remained sticky in a volatile market environment (vs. 65% in '22).
Focus on the company's strategic cooperation and international business process. Currently, GF Securities holds 20% of the shares in Value Partners Group and is the company's new strategic shareholder and main business partner. We believe it may help broaden distribution channels in China in the fields of mutual fund recognition (“MRF”), private equity fund management (“PFM”), and wealth. Furthermore, the company established a strategic partnership with Star AM in July 23, which is an important milestone in the company's Southeast Asia expansion strategy, and the company is expected to jointly launch the first product in 2024.
Profit forecasting and valuation
Based on the AUM reduction, we lowered our 2024 profit to HK$130 million and introduced a profit of HK$180 million in 2025. The company is currently trading at 2024e 6.7% P/AUM and 26x P/E; considering the company's leading position among local asset management institutions in Hong Kong, China, and the boost to the company's valuation due to improved market margins, the target price was only lowered by 26% to HK$2.5, corresponding to 24/25e 9.1%/7.6% P/AUM and 36% upward space; maintaining an outperforming industry rating.
risks
Risk of market fluctuations; market competition exceeds expectations; business development falls short of expectations.