2H16 net profits expected to up by 55% YoY
Ahead of its results announcement at the end of themonth, we forecast 2016 full year operating income ofHK$2.2bn (+5% YoY) and other net income of HK$3.2bn(+296% YoY). 2016 shareholders’ profit is estimated atHK$4.4bn (-15% YoY), implying 55% growth in 2H16 YoY.
Trends to watch
2H16 earnings driven by capital gains. In 2H16, CEL sold9.34% equity holdings in China Unionpay Merchant Services and51% of EBA Real Estate and EBA Asset Management, gaining atotal of HK$2,160mn according to its announcement, whichaccounted for 44% of 2016e PBT. As the main driver of fundmanagement business, AUM growth will continue to be strong,which we estimate could reach ~20% HoH. In 2H16, the share ofprofits from CES could improve (CES NP: -69% in 1H16 vs. -32%in 2H16e YoY) due to the better performance of proprietarytrading, but this was partly offset by shareholding dilution.Dividends from CEB may also improve marginally. We believe2H16 profits can achieve strong growth of +55% YoY.
Potential listing of China Everbright Group mayaccelerate sale of CES and CEB shares. On January 16, theCEG Chairman told the company’s 2017 work conference to starttaking steps for the listing of CEG. As the holding company ofCEB, CES and CEL, CEG has to straighten out the holdingrelationship of its subsidiaries before listing in order to obtain asatisfactory valuation. This may accelerate CEL selling shares inCES and CEB this year, thus narrowing CEL’s NAV discount. CEL istrading at a 31% NAV discount, towards the bottom of post-2013historical range of a +5% premium to a -39% discount.
CEL will release its 2016 results in the afternoon ofMarch 30 and host a briefing at 6:30pm the same day (BJ time).
Valuation and recommendation
We reiterate our BUY rating and target price ofHK$19.66; the stock is currently trading at 0.6x 2017 P/B.
Risks
Worse-than-expected equity market movement.