The financial results of Tian Tu Capital Co., Ltd. ("TC") have been negatively affected by highly volatile stock markets in 1H24. TC's (loss) profit for the year attributable to owners of the Company reached (RMB740.5m) in 1H24, against (RMB194m) in 1H23 and (RMB873m) in 2023. In our view, because of technical accounting treatment, TC's investment performance for a particular period will be significantly affected by short-term market volatility, regardless of whether the fundamentals of its portfolio companies experienced significant changes or not. In our view, TC is a leading private equity investor and fund manager specialising in China's consumer sector. In the medium- to-long term, TC is one of the geared beneficiaries of the sustained long- term growth of China's consumer industry. However, its financial results might continue to be negatively affected by volatile stock markets in the short term. We noted Wind Hong Kong Index (Consumer Discretionary) and Wind Hong Kong Index (Consumer Staples) dropped 3.7% and 21.5% YTD as of 2 September 2024, against decreases of 2.7% and 11.9% in 1H24, respectively. Downgrade to HOLD rating.
Key Factors for Rating
Its AUM reached RMB21.1bn as of end June 2024, down from RMB24.4bn as of end December 2023 and RMB25.1bn as of end December 2022.
As of end June 2024, external capital represented 81.3% of the total committed capital of its managed funds.
TC managed 13 Renminbi-denominated funds and 3 USD-denominated funds as of end June 2024.
Key Risks for Rating
Major risks include 1) macroeconomic volatility; 2) fluctuations in capital markets; 3) fair value changes of its investments; 4) delayed fund raising.
Valuation
TC's financial results have been significantly affected by the short-term market volatility in 2023 and 1H24, mainly due to volatile stock markets and accounting standards. According to the applicable accounting standards, mark-to-market valuation of the shares of each of its listed portfolio companies tracks its stock value at the balance sheet date of each reporting period, and the valuations of its unlisted portfolio companies typically make references to stock prices of comparable listed companies. We noted Wind Hong Kong Index (Consumer Discretionary) and Wind Hong Kong Index (Consumer Staples) dropped 3.7% and 21.5% YTD as of 2 September 2024, against decreases of 2.7% and 11.9% in 1H24, respectively. We decreased our target price from HK$8.57 to HK$3.12, based on about 0.35x 2024E P/B.
