CICC: Maintains VALUE PARTNERS (00806) "Outperform Industry" rating, target price lowered to HKD 2.6.

CICC released a research report maintaining the "Outperform Industry" rating for VALUE PARTNERS (00806). Considering the growth in AUM and the increase in performance fees, the revenue forecasts for 2026 and 2027 have been raised by 20% and 4%, respectively, to HKD 9.4 billion and HKD 8.4 billion. However, due to increased distribution costs and declining investment income, the net profit forecasts for 2026 and 2027 have been slightly reduced by 3% each to HKD 4.3 billion and HKD 4.5 billion. The current stock price trades at a 6.6% P/AUM and 8.5 times P/E based on the 2026 estimate. Considering market volatility, the target price has been reduced by 13% to HKD 2.6, corresponding to an 8.5% P/AUM and 11.0 times P/E based on the 2026 estimate, which offers a 29% upside compared to the current stock price. CICC's key points are as follows: 1H26 revenue exceeded the bank's expectations, while profit fell short of expectations. VALUE PARTNERS' 1H26 revenue grew 151% year-on-year to HKD 560 million, and net income increased 99% year-on-year to HKD 330 million, primarily driven by AUM growth and strong fund performance, which substantially boosted management fees and performance fees; the net profit attributable to the parent company decreased 25% year-on-year to HKD 190 million, mainly due to declines in investment and foreign exchange income. AUM continues to rise, with significant growth in management fees and performance fees. 1) Management fees: In 1H26, management fees increased 49% year-on-year to HKD 280 million. AUM increased by 33% year-on-year and 15% quarter-on-quarter to USD 7.06 billion, while average AUM grew by 33% year-on-year and 24% quarter-on-quarter to USD 6.8 billion. During the reporting period, there was a net inflow of USD 370 million (with subscriptions of USD 3.22 billion and redemptions of USD 2.85 billion), and the overall return on funds, weighted by AUM, was +10.0%. 2) Performance fees: In 1H26, performance fees rose 15.7 times year-on-year to HKD 97.52 million, mainly due to excellent returns from actively managed funds during the reporting period. Investment income has declined, but fixed costs are effectively controlled. 1) Investment income: In 1H26, net investment income decreased 65% year-on-year to HKD 63.26 million, primarily due to market fluctuations, with the Hang Seng Index falling 9.9% in 1H26. 2) In terms of costs: In 1H26, salary and benefits expenses increased 27% year-on-year to HKD 160 million, mainly due to an increase in employee bonus provisions, offset by a reduction in fixed salary for some employees. Fixed operating expenses decreased 14% year-on-year to HKD 130 million, reflecting strict cost control. Overall operational expenses rose 14% year-on-year to HKD 210 million. Diversified product layout with continuously expanding distribution capabilities. 1) Products: Several products performed well, with returns for the Value Partners Taiwan Fund / Value Partners Asian Innovative Opportunities Fund / Value Partners Asian Equity and Bond Income Fund reaching +87.8% / +55.9% / +27.1%, respectively, in 1H26; further improvements in product layout, with the Value Partners HK-US Dividend Low Volatility ETF successfully listed on the Hong Kong Stock Exchange. 2) Channels: In the Mainland region, the company signed new distribution agreements in China during the reporting period; in Southeast Asia, it launched a share class denominated in Malaysian Ringgit. Risks Market volatility risk; market competition exceeding expectations; business expansion falling short of expectations.