1H21 performance is higher than we expected.

China Everbright Investment Management 1H21 operating net income + 74% to HK $2.39 billion, including total revenue attributable to joint venture / joint venture company profits + 56% to HK $3.13 billion, homing net profit year-on-year + 133% to HK $1.78 billion, corresponding to earnings per share of HK $1.06%, annualized ROE 7.7% (+ 4.0ppt YoY), the performance exceeded our expectations. It is mainly due to the release of fund business management fees and investment income exceeding expectations and the pressure drop at the end of superimposed fees. In addition, the company's dividend per share is + 100% to HK $0.28 year-on-year, and the corresponding dividend rate is-4.3ppt to 26.5% year-on-year.

Trend of development

Under the centralized release of management fees and investment income, the growth of fund management business is strong, and the transformation of alternative asset management model continues to be promoted. In the first half of the year, the company's fund management business income reached HK $1.48 billion (vs.1H20 lost HK $320 million), total income contributed 47%, profit reached HK $1.21 billion (vs.1H20 lost HK $460 million) and profit contributed 68%. Business performance and income contribution increased significantly: 1) AUM: through the establishment of S funds and other rich product lines, asset management scale increased against the trend. In the first half of the year, AUM increased by HK $3.7 billion to HK $182.8 billion, a record high. 2) Management fees: the funds raised in the fourth quarter of last year began to contribute management fees, and the management fee income in the first half of the year was + 41% to HK $180 million compared with the same period last year. 3) Investment income: the company actively grasped the IPO window under the deepening of the registration system, fully / partially withdrew 19 projects in the first half of the year, returned HK $1.8 billion in cash, and the investment income of the fund management business turned around to HK $1.2 billion. Dragged down by the correction in market valuation, the investment business of own funds has declined. In the first half of the year, the self-owned capital investment business income was-29% to HK $1.65 billion, and the profit was-30% to HK $1.5 billion, of which: 1) the profits of strategic industrial platforms were-47% to HK $130 million, or mainly due to the continued impact of the epidemic. Industrial platforms such as China Flying Rent and Everbright are under a little pressure. 2) in terms of stone business, Everbright Bank and Everbright Securities performed steadily, with a year-on-year profit of + 11% to HK $970 million in the first half of the year. 3) in terms of financial investment, due to the impact of the epidemic and the market, the valuations of some projects fell, and the profit was-60% to HK $400 million. Grasp the opportunity of double cycle, strengthen the advantage of cross-border financing, and continuously improve the efficiency of operation and management. The company actively promotes dual-cycle development, including the establishment of venture capital funds in cooperation with the British listed company IP Group, the issuance of 4 billion yuan of winning votes in the interbank market (the largest panda debt for non-financial enterprises in the first half of the year), and the landing of sustainable bonds on the Macau Financial assets Exchange (MOX). The advantages of cross-border platforms continue to deepen. Superimposed low-interest environment, the company in the case of a slight increase in net interest-bearing debt ratio, financial expenses-20% to HK $460 million year-on-year. In addition, the company continued to optimize its operation and management, and the operating cost rate of 1H21 decreased by 2.9ppt to 17.3% compared with last year.

Profit forecast and valuation

Taking into account the decline in corporate financing costs, fund management fees and investment income contributions that exceed expectations, we raise our profit forecast for 2021 / 2022 by 12.2% to HK $29.1 / 3.31 billion. The company is currently trading on 0.3x 2021e Phand B. Taking into account the impact of IPO tightening and valuation correction in the potential innovation and technology sector, the target price is maintained at HK $13.0, corresponding to 0.5x 2021e Pmax B and 41 per cent upside space. Maintain an industry rating that outperforms. In the area of risk innovation economy, IPO tightened and valuation fluctuated, and the growth of asset management was less than expected.