-As at the end of 2013, stable income of China Everbright Limited (CEL or the Group) including management fee, interest income and so on rose around 23% y-y to HK$586 million with net profit of HK$1,347 million, up 18% y-y, due to the large decrease of income tax, down 76% y-y to HK$52 million. We believe CEL’s profits would maintain the fast growth in 1H2014;

-Total assets maintained stable growth, total assets increased approximately by 15% to HK$37.055 billion in 2013 compared with the end of 2012, and the BVPS was HK$16.69, up slightly 2% mainly because of the large increase of the loans, which caused total liabilities to increase significantly by 131% y-y to HK$5.326 billion;

-CEL continued to focus on macro asset management. As at the end of 2013, the number of managed funds grew to 16, and funds’ invested projects increased largely by 45% y-y to 71, with the amount of fundraising of HK$33.3 billion, representing a CAGR of 56.9% from 2009 to 2013. Profit attributable to the equity shareholders of the Company of asset management business (Hong Kong business) grew 50.3% y-y to HK$1.09 billion. Additionally, number of aircraft in operation under the Aircraft Leasing business increased from 16 in 2012 to 25 in 2013;

-Due to the stable market demand and the comprehensive business structure, CEL’s business developed steadily with the better-than-expected profit performance, and therefore we increase the 12-month target price to HK$17.50, around 21% higher than the latest closing price, and equivalent to 13.8xP/E and 1.0xP/B in 2015 respectively. Maintain Buy rating.

The parent company of CEL, China Everbright Group announced that its restructuring reform plan was approved by the State Council, and according to the plan, the group will become a joint-stock company from the state-owned company, and rename as China Everbright Group Co., Ltd, controlled by the Ministry of Finance and Central Huijin Investment.

Moreover, the subsidiary of CEL, Everbright Securities (ES) faced the civil suit of the fat-finger event last year in Shanghai, and according to the interim report of ES, the company received 89 civil litigations with the related compensation of RMB12.02 million approximately.

How we view this

Overall, CEL’s performance increased stably. Recently the permission of the restructuring reform plan of China Everbright Group represents the group’s complicated equity structure will be completely clear in future with closer collaboration between Beijing and Hong Kong, which would be helpful for the group’s development in the long term, and the whole business platform of CEL will also expand further.

However, the civil suit of ES recently would have the negative impact for the Group’s profit performance, and its profit contribution would go down continually in 2014.

Investment Action

Considering CEL’s stable performance growth, especially for the rapid development of macro asset management, and meanwhile, the restructuring reform plan of the parent company would have the positive impact for CEL’s business development in future, therefore we increase the 12-month target price to HK$17.50, around 21% higher than latest closing price, and equivalent to 13.8xP/E and 1.0xP/B in 2015 respectively. Maintain Buy rating.

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