China CITIC Financial Asset Management (SEHK:2799) Could Be 37% Undervalued As Earnings Mixed With Chairman Change

China CITIC Financial Asset Management (SEHK:2799) has just combined a mixed half year earnings update with a leadership change, as shareholders backed Mr. He Jingsong as executive Director and Chairman.

Recent news for China CITIC Financial Asset Management comes against a backdrop of a 12.30% 30 day share price return and a 10.48% 90 day share price return. However, the share price return year to date is down 19.41% and the 1 year total shareholder return is down 35.98%, while the 3 year total shareholder return is up 85.14%. This suggests that short term momentum has picked up even as investors are still weighing the longer term story.

Compare how China CITIC Financial Asset Management stacks up against other distressed asset and financial stocks by scanning the hand picked list of solid balance sheet and fundamentals (439 results) for potential ideas.

After the recent rebound and leadership change at China CITIC Financial Asset Management, the gap between the HK$0.685 share price and various value estimates is hard to ignore. Where does a reasonable fair value range actually land now?

Price-to-Earnings of 4.3x: Is it justified for China CITIC Financial Asset Management?

On a simple snapshot, China CITIC Financial Asset Management trades on a P/E of 4.3x, which screens as inexpensive relative to both its peers and the wider Hong Kong Capital Markets industry.

The P/E multiple compares the current share price to earnings per share and is a common way investors gauge how much they are paying for each unit of profit. For a distressed asset and financial asset management business like China CITIC Financial Asset Management, this can reflect how the market weighs its earnings track record, revenue profile and balance sheet risk.

Here, the company is described as good value on several fronts. It is trading at good value compared to peers and industry, and its P/E of 4.3x is well below the peer average of 21x and below the Hong Kong Capital Markets industry average of 8.6x. It is also assessed as good value versus an estimated fair P/E of 9.5x. This suggests the current multiple is at a steep discount to a level the market could theoretically move towards if sentiment and fundamentals stayed aligned with that fair ratio framework.

Compared with those reference points, the gap is wide. A P/E of 4.3x versus an industry average of 8.6x and an estimated fair P/E of 9.5x indicates the stock trades at roughly half the sector level on this metric, and at an even larger discount to the implied fair ratio. Explore the SWS fair ratio for China CITIC Financial Asset Management

Result: Price-to-Earnings of 4.3x (UNDERVALUED)

However, investors still face real risks if sentiment fades again, particularly around distressed asset recoveries and any renewed pressure on the balance sheet of China CITIC Financial Asset Management.

Find out about the key risks to this China CITIC Financial Asset Management narrative.

Another view on China CITIC Financial Asset Management’s value

Alongside the low 4.3x P/E, the SWS DCF model values China CITIC Financial Asset Management at HK$1.08 per share, compared with the current HK$0.685. That implies the stock trades at a 36.7% discount to this cash flow based view. How much weight do you put on that gap?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out China CITIC Financial Asset Management for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 259 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mix of risks and rewards around China CITIC Financial Asset Management feels finely balanced, this is the moment to review the numbers yourself and decide how it fits your portfolio. To see the key points that investors on both sides of the debate are focused on, start with the 4 key rewards and 2 important warning signs.

Looking for more investment ideas beyond China CITIC Financial Asset Management?

If you want a broader view alongside China CITIC Financial Asset Management, the Simply Wall St Screener can surface stocks that better fit your risk and return preferences.

• Target potential mispricing by checking companies highlighted in the 259 high quality undervalued stocks for ideas where price and fundamentals look out of sync.
• Prioritise resilience by scanning the 306 resilient stocks with low risk scores and focus on businesses with more measured risk profiles.
• Spot underfollowed opportunities early by reviewing the 619 high quality undiscovered gems before they gain wider attention.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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