China Huarong Asset Management Co Ltd. (SEHK:2799), a HK$136.36B large-cap, is a capital market firm operating in an industry, which has been simplifying their business and operating models over the last few years, both for economic reasons and to reduce organizational complexity. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 13.19% in the upcoming year . Today, I will analyse the industry outlook, and also determine whether China Huarong Asset Management is a laggard or leader relative to its financial sector peers. View our latest analysis for China Huarong Asset Management

What’s the catalyst for China Huarong Asset Management’s sector growth?

The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth of 7.83%, though still underperforming the wider Hong Kong stock market. China Huarong Asset Management leads the pack with its impressive earnings growth of 20.60% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 10.95% compared to the wider capital markets sector growth hovering in the teens next year.

Is China Huarong Asset Management and the sector relatively cheap?

Capital markets companies are typically trading at a PE of 14.91x, in-line with the Hong Kong stock market PE of 13.87x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 8.22% on equities compared to the market’s 9.65%. On the stock-level, China Huarong Asset Management is trading at a lower PE ratio of 4.99x, making it cheaper than the average capital markets stock. In terms of returns, China Huarong Asset Management generated 15.68% in the past year, which is 7.45% over the capital markets sector.

Next Steps:

China Huarong Asset Management is a capital markets industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If the stock has been on your watchlist for a while, now may be the time to dig deeper. Although the market is expecting lower growth for the company relative to its peers, China Huarong Asset Management is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at China Huarong Asset Management’s fundamentals in order to build a holistic investment thesis.