UOB Kay Hian
Date of Report: Friday, 18 July 2025

Sun Hung Kai & Co: Strong Asset Valuations and Diversified Growth Set the Stage for Significant Upside

Overview of Sun Hung Kai & Co

Sun Hung Kai & Co (SHK&Co), listed in Hong Kong under ticker 86 HK, stands as a leading alternative investment company with a proven track record of generating long-term, risk-adjusted returns. The company operates across public markets, alternatives, and real assets, and has recently expanded its strategy to incubate and support emerging asset managers throughout Asia.

• Share Price: HK\$3.47
• Target Price: HK\$5.86 (Upside: 68.8%)
• Market Cap: HK\$6,819m (US\$874m)
• Shares Issued: 1,965m
• Major Shareholder: Lee and Lee Trust (73.51%)
• 52-Week Range: HK\$3.59 / HK\$2.42
• FY25 NAV per Share: HK\$12.81
• FY25 Net Debt per Share: HK\$3.33

Key Highlights from 1H25 Performance

• Increased Liquidity Events: SHK&Co experienced more liquidity events in its private equity (PE) portfolio in 1H25, spurred by positive market sentiment in the US and Hong Kong.
• Asset Valuations: Improved capital market performance has led to higher asset valuations in the investment management segment, particularly in public markets and PE portfolios.
• Funds Management Platform: Continued institutionalization and strategic partnerships are driving assets under management (AUM) growth, further diversifying revenue streams.
• Consumer Finance Outlook: Mixed, with lower HIBOR reducing financing costs but suboptimal economic conditions in Hong Kong and Mainland China tempering loan growth.

Investment Management: Capitalizing on Market Dislocations

SHK&Co’s investment management division is actively capturing opportunities arising from market dislocations:

• Public Market Portfolios: Benefited from robust US and Hong Kong market performance in 1H25.
• Hedge Funds: Portfolios have been rebalanced towards market-neutral strategies to mitigate volatility.
• Special Situations & Real Estate: Increased exposure to these strategies aims to deliver favorable returns with downside protection.

Noteworthy Portfolio Developments

• Jefferson Capital (JCAP): Listed on Nasdaq in June 2025. JCAP, a leader in purchasing and managing distressed and insolvency consumer accounts, operates in the US, Canada, UK, and Latin America. SHK&Co co-invested with JC Flowers in 2018, capitalizing on a growing US debt purchasing market.
• Saint Bella (2508 HK): Listed in Hong Kong in June 2025. As Asia and China’s largest postpartum care group by revenue, SHK Strategic Capital (SHK&Co’s wholly-owned subsidiary) holds a 2.98% stake as a Series B Pre-IPO investor.

Funds Management: Transforming into a Leading Alternative Platform

SHK&Co is rapidly evolving its funds management business:

• Family Office Solutions: Launched in 4Q22, this segment is leveraging SHK&Co’s network and expertise to drive momentum among high-net-worth clients.
• Partnership with GAM: The strategic alliance with GAM is yielding synergies, including the distribution of SHK’s funds through GAM’s channels, supporting further AUM growth and revenue diversification.

Consumer Finance: Diversification and Efficiency Amid Economic Headwinds

• United Asia Finance (UAF): Remains cautious in loan underwriting due to challenging conditions in Hong Kong and Mainland China. However, lower HIBOR has reduced financing costs.
• Mainland China Loan Book: Maintained stability with a focus on secured loans and cost optimization.
• SIM Credit Card: A bright spot, diversifying revenue with new fee-based streams and attracting younger clients through new features.

Mortgage Loans: Strategic and Prudent Growth

• SHK Credit: Maintains a prudent approach to capital deployment, focusing on managing its existing loan book and expanding its mortgage servicing capabilities.
• Notable Transactions: Completed a second co-investment in a US\$70m residential mortgage portfolio in June 2025, following a prior US\$100m portfolio. SHK Credit serves as the servicer, overseeing end-to-end administration and institutional-grade monitoring.

Earnings Revision and Financial Forecasts

Given the uplift in asset valuations, especially for investment management, SHK&Co’s 2025-27 net profit forecasts have been raised by 31%, 25%, and 21% respectively, while revenue forecasts remain unchanged.

Earnings Forecast by Segment (HK\$m)

Key Financial Metrics and Outlook

Valuation and Recommendation

SHK&Co remains a compelling BUY with a target price set at HK\$5.86, based on 0.53x 2025F P/B. Notably, the stock is currently trading at just 0.32x 2025F P/B, suggesting significant upside potential as the company continues to optimize its diversified business model and capitalize on positive market trends.

Conclusion

Sun Hung Kai & Co is well-positioned for robust growth, benefiting from improved capital markets, rising asset valuations, diversified revenue streams through consumer finance and fund management, and prudent risk management. With a strong balance sheet, attractive dividend yield, and a deeply discounted valuation relative to NAV, SHK&Co offers an attractive proposition for investors seeking both value and growth in Hong Kong’s financial sector.