CICC: Maintains outperform rating on VALUE PARTNERS (00806) and raises target price to HKD 3.0

CICC released a research report stating that based on VALUE PARTNERS (00806) AUM rebounding and investment income substantially increasing, the profit forecast for 2025 has been raised from 120 million Hong Kong dollars to 390 million Hong Kong dollars, and introducing a profit forecast of 320 million Hong Kong dollars for 2026. The company is currently trading at 9.5% P/AUM in 2025e and 10.5x P/E; based on the company's AUM rebound and market sentiment improving, the target price has been raised by 43% to 3.0 Hong Kong dollars, corresponding to a 2025e 12.6% P/AUM, with a 32% upside potential from the current stock price, maintaining an outperform industry rating. Key points from CICC are as follows: 1H25 performance basically meets market expectations VALUE PARTNERS announced its 1H25 performance: total revenue decreased by 6% year-on-year and 4% quarter-on-quarter to 220 million Hong Kong dollars, net revenue increased by 3% year-on-year and 8% quarter-on-quarter to 170 million Hong Kong dollars; net profit attributable to shareholders was 250 million Hong Kong dollars (compared to 37.37 million Hong Kong dollars in 1H24), which is basically consistent with the performance forecast previously disclosed by the company. The main reasons for the performance improvement are a substantial rebound in investment income and positive contributions from investments in joint ventures. AUM rebounded, with a slight decrease in management fees affected by the fee rate 1) Management fees: decreased by 8% year-on-year and 6% quarter-on-quarter to 190 million Hong Kong dollars in 1H25, AUM increased by 2% year-on-year and 4% quarter-on-quarter to 5.29 billion US dollars, with a net outflow of funds of 280 million US dollars during the reporting period (subscriptions of 730 million US dollars and redemptions of 1.01 billion US dollars) and fund net returns of 530 million US dollars; the increase in low fee rate products resulted in a decrease in the management fee rate by 2 basis points to 96 basis points, and a decrease in net management fees after deducting distribution channel rebates by 3 basis points to 56 basis points; 2) Performance fees: decreased by 40% year-on-year and increased by 128% quarter-on-quarter to 5.83 million Hong Kong dollars in 1H25, with excellent performance in investment strategies in the Taiwan market contributing significantly to performance fees. Self-investment income increased significantly, investments in joint ventures turned positive 1) Investment income and income from joint ventures: Net investment income in 1H25 increased by 68% year-on-year and 155% quarter-on-quarter to 180 million Hong Kong dollars, with the main reason for the substantial growth in investment income being the company's realization of net investment income of 120 million Hong Kong dollars from holding the Value Gold ETF; attributable income from joint ventures was 65.51 million Hong Kong dollars (compared to a loss of 45.97 million Hong Kong dollars in 1H24); 2) Costs: employee compensation and benefits increased by 30% year-on-year to 130 million Hong Kong dollars, mainly due to employee bonuses increasing to 33.9 million Hong Kong dollars (compared to 1.2 million Hong Kong dollars in 1H24), operating lease funds/depreciation of right-of-use assets/other expenses decreased by 15%/-5%/-5% year-on-year, and overall operating expenses increased by 16% to 190 million Hong Kong dollars. Increasing product diversity, enhancing customer coverage 1) Products: in response to the demand from emerging investors, the company actively develops new products and prepares to launch products focusing on tokenization and virtual assets; existing products have performed well, with the Value High Dividend Stock Fund/Value Asian Innovation Opportunities Fund/Value Taiwan Fund/Value Pharmaceutical Industry Fund returning 14.5%/13.6%/13.6%/21.2% respectively since the beginning of the year, continuing to attract investors' attention; 2) Channels: the company actively participates in various cross-border plans to expand distribution channels, optimizing measures for the Mutual Recognition of Funds (MRF) scheme to attract mainland Chinese investors' funds into the flagship product Value High Dividend Stock Fund; the company is applying for MRF recognition for other products, which the bank believes will broaden the distribution channels in the Chinese mainland market; the company continues to expand its presence in the Southeast Asian market; the company strengthens cooperation with digital banks such as WeLab Bank, bringing in significant fund inflows. Risk warning: market volatility risk; market competition exceeding expectations; business expansion falling short of expectations.