The company's 2019 performance is in line with our expectations

China Everbright Holdings announced the company's 2019 results: the company's net profit fell 28% year on year, in line with our expectations. Meanwhile, the company's overall asset management scale (AUM) increased 9% year over year in 2019. The company's dividend per share fell 27% year over year to HK$0.48 in 2019.

Development trends

The company's annual net profit fell 28% year-on-year, mainly due to the decline in investment project valuations, which put some pressure on the company's fund management business profits. The company's overall asset management scale (AUM) increased 9% year-on-year for the full year of 2019, up from the growth rate in the first half of 2019 (1%). The company's cornerstone investment fell 12% year over year in 2019.

Company strategy in the context of market fluctuations. China Everbright Holdings plans to increase its investment in high-quality assets that have seen sharp declines in price. At the same time, the company plans to temporarily reduce the withdrawal of investment projects.

Profit forecasting and valuation

As many listed assets invested by the company were affected by stock market adjustments and their fair value fell, which in turn affected the company's net profit, we lowered the company's 2020 earnings forecast per share by 35% to HK$1.34, while introducing the 2021 earnings forecast of HK$1.54 per share.

Currently, the company's stock price corresponds to 0.4 times the 2020 net market ratio.

Considering the sharp adjustment in the Hong Kong stock market and the reduction in profit forecasts, we lowered the company's target price by 13% to HK$13 (corresponding to 0.53 times the 2020 net market ratio), leaving room for 27% of the company's current stock price. We maintain the company's “outperform the industry” rating.

risks

The growth in the scale of asset management fell short of expectations, and there is a risk that the fair value of financial assets will fluctuate.