2022 results are in line with previous earnings forecasts
Value Partners announced its 2022 results: total revenue was -54% year on year to HK$580 million, total net revenue was -54% year on year to HK$400 million, net profit loss of HK$540 million (vs. 2021 profit of HK$4600 million), which was basically consistent with the company's previously disclosed performance forecast (profit warning announcement loss of approximately HK$550 million). The performance recorded losses were mainly due to market fluctuations in the company's management fees and performance fees, as well as investment income (loss of HK$340 million) and foreign exchange (loss of HK$120 million).
Development trends
Management fees and performance fees came under pressure, and proprietary investments recorded losses. 1) Management fees: Revenue -41% year-on-year in 2022 to HK$550 million, corresponding to AUM -39% to $6.1 billion, mainly due to net capital outflows of $1.34 billion recorded during the reporting period ($1.03 billion in subscriptions+$2.36 billion in redemption) plus fund losses of $2.34 billion (vs. loss of $790 million in 2021), the annualized management fee of -5 bps to 93 bps (increase in the proportion of products with lower fee rates), net management fees after deducting distribution channel rebates -1 bps to 1 bps 59 bps; 2) Performance fee: Revenue from -100% to HK$940,000 compared to the same ratio, mainly due to market fluctuations, the performance of most funds failed to surpass their new high prices, corresponding to 23.1% of overall fund performance in 2022 (of which the two major flagship products, Value Partners High Interest Equity Fund -18.9% /Value Partners Value Fund -28.1%); 3) Investment income: Net investment income recorded a loss of HK$340 million (vs. HK$110 million in 2021 earnings), mainly due to the initial investment loss of its funds; 4) Cost aspects: strict cost Overall operating expenses under management were -8% year-on-year to HK$480 million.
Product richness continues to increase, and Hong Kong customers are relatively loyal. 1) Product: Product AUM share in '22 — absolute return on long holdings 73% /fixed income 13% /multi-asset 7% /alternative investment 3% /quantitative and ETF 4%; in terms of product expansion, according to the company announcement, the company will launch an emerging market network and e-commerce ETF, Value Partners China A share ETF, and is preparing to launch alternative investment products invested in the mainland and Hong Kong, and plans to launch new ESG funds in the first half of '23. 2) Region/Channel: Regional distribution of AUM customers in '22 — Hong Kong, China 65%/Europe 12%/Mainland China 8%/Japan 6%/Singapore 4%/Others 5%, Hong Kong customers remained sticky in a declining market environment (vs. 60% in '21).
Performance and valuations are expected to show high elasticity as the market improves. The company is currently trading at 6.6% 2023EP/AUM (vs. the historical average transaction is 10.5%), and the valuation is at a relatively low level in history. In the last two months of 2022, when the market rebounded, most of the company's funds recorded revenue, offsetting some of the losses in the first three quarters; looking ahead, we expect that with market marginal improvements (Hang Seng Index +31% since November 22 /Shanghai and Shenzhen 300 Index +12%), the company's performance and valuation may be expected to see a double rise in Davis (as of the end of January '23, the company AUM was +29%/+10% compared to the end of October 22/the beginning of the year to HK$6.7 billion respectively).
Profit forecasting and valuation
Based on the AUM downgrade, we lowered our 2023 profit by 36% to HK$290 million, introducing a profit of HK$7.1 billion in 2024. The company is currently trading at 6.6% P/AUM and 16x P/E in 2023e; considering the company's leading position in Hong Kong's local asset management institutions and boosted the company's valuation by market marginal improvements, the target price of HK$3.4 remains unchanged, corresponding to 8.7% P/AUM and 34% upward space in 2023e; maintaining outperforming industry ratings.
risks
Risk of market fluctuations; market competition exceeds expectations; business development falls short of expectations.