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Jupai - Robust 9M17 Earnings Growth

NEW YORK, NY / ACCESSWIRE / December 6, 2017 / Jupai Holdings Limited (JP)

Result Highlights

One-time commissions driving solid revenue growth

Jupai posted a rapid net revenue growth of 57.9% y/y to RMB 1.25 billion in 9M-2017, driven by higher revenue from one-time commissions as a result of increased fee rate compared to the same period in prior year. On net revenue basis, one-time commissions grew by 62.9% to RMB 730 million, recurring management fees increased by 34.5% to RMB 252 million, and other service fees climbed 223.9% to RMB 183 million, primarily on higher sub-advisory fees collected from other asset management companies. However, net revenue from recurring service fees declined 16.5% to RMB 81 million primarily due to servicing fewer suppliers compared to prior year. For 3Q-2017, Jupai recorded a solid net revenue growth of 37.5% y/y to RMB 441 million.

Jupai believes that the momentum in profit growth will be sustained

The estimated net revenues for 4Q 2017 will be in the range of RMB 460-480 million, an increase of 36% to 42% compared to 4Q 2016. With stable net margin, net income for 4Q 2017 will be around RMB 115-120 million; net income for 2017 will be in the range of RMB 434-439 million (109%-111% y/y).

Broadening economies of scale boosting profitability

Jupai posted stronger margins for 9M-2017, with operating margin increasing to 36.9% from 25.4% a year ago, driven by consistent revenue expansion and greater economies of scale despite higher direct costs. Moreover, net margin rose to 25.6% compared to 18.4% a year ago. The company reported robust net results, net income attributable to ordinary shareholders and fully diluted earnings per ADS (each represents six ordinary shares) doubled to RMB 319 million and RMB 9.43, respectively. For 3Q-2017, operating margin rose to 38.2% and net margin rose to 26.2% from 3Q-2016 of 35.9% and 24.6%, respectively. Furthermore, net income increased by 46.7% y/y to RMB 116 million and fully diluted earnings per ADS increased to RMB 3.39 from RMB 2.36 in 3Q-2016.

Fixed Income (FI) products procreating competitive advantage

Jupai continues to benefit from its FI product offerings, apprehending conservative market sentiments amid tightening regulations in China. The company has been rapidly expanding both real-estate and non-real-estate FI product lines. As of September 30, 2017, the value of the company's distributed FI products increased by 60.8% y/y to RMB 32 billion, accounting for 82% of its total distributed WM products. Moreover, FI assets under management (AUM) grew by 110.3% to RMB 28 billion, around 57% of its total reported AUM. Jupai ensures broader client reach with expanding coverage network of 72 client centers in 48 cities as of September 30, 2017, from 65 client centers covering 40 cities as of September 30, 2016.

Profitability Forecast

4Q-2017 Earnings Projections - Bull case

The Bull case should support net revenue growth of around 42% y/y to USD 69 million in 4Q-2017 based on the upper range of the management guidance, resulting in 2017 net revenue growth of 56% y/y to USD 254 million. Basing on the guidance, assume 25% net margin to derive the net income of USD 17 million in 4Q-2017, resulting in a total net income of USD 65 million for 2017 (116% y/y).

Exhibit 1 Bull case projections

Source: Jupai's 2016 20F, 6K, Projections based on calculations

4Q-2017 Earnings Projections - Base case

The Base case assumes net revenue would grow by 38% y/y to USD 67 million in 4Q-2017, generating a total net revenue of USD 252 million in 2017. Further, net income is assumed to increase to USD 15 million in 4Q-2017, resulting in 2017 total net income of USD 62 million (107% y/y).

Exhibit 2 Base case projections

Source: Jupai's 2016 20F, 6K, Projections based on calculations

SOURCE: Stone Street Group, LLC