AUM displays resilience. VP’s AUM expanded fromUS$12.9bn to US$17.8bn in 1H15, thanks to net inflows ofUS$3.2bn. Despite sharp market declines in July, we believeVP’s AUM has been resilient. As at July 27, the AUM of VP’snon-ETF SFC authorised funds declined by less than US$0.3bnto US$10bn, implying strong net inflows (pg 3). Judging frompast fund flow trends, only dire bear markets like 2008 hadinduced net outflows, whereas moderate market correctionyears like 2011 still saw inflows (pg 3). We do not expect abear market scenario for HK, as H-shares are already tradingat just 7.6x PE.
Lower A-share exposure. VP’s key funds have lowered Ashare holdings since April 2015 (pg 5), which is positive. As atJune 30, 2015, we estimate that A-shares only made up14.6% of AUM for VP’s SFC authorised equity funds (pg 5).
Performance fees are still likely. As at July 27, most VP’skey authorised funds are 5-17% above their watermark levels(pg 7). For our base case scenario, we have assumed NAVscan gain 4-6% from current levels for non-A-share specificproducts (0% for A-share products). With these assumptions,performance fees are on track to exceed HK$1.4bn, comparedto HK$659m in 2014 (pg 8). This will help underpin buoyantearnings for VP, as we expect 1H15 earnings to triplecompared to 1H14 (pg 9).
Reiterate BUY as performance fee cycle is not over. Wehave cut our FY15-17F earnings forecasts by 6-31% toaccount for the market pullback. We have also provided anearnings sensitivity matrix with various fund flow and NAVassumptions (pg 10). VP is now trading at 12.2% P/AUM,which is below the 5-year mean of 13.5% (pg 11). We believeVP’s performance fee cycle has not been derailed by themarket correction, and foresee VP re-rating back to 16.8%P/AUM by mid-2016, which is what our new TP implies.