According to a research report, CICC issued a report stating that considering the market uptrend boosting investment income while rising tax rates drag on costs, the firm maintains its 25e earnings forecast for CHINA EB LTD (00165) largely unchanged and introduces 26e earnings of HK$2.49 billion. The company currently trades at 0.5x/0.4x 25e/26e P/B. Considering positive market sentiment and the company's steady operational recovery, CICC maintains its outperform rating and raises the target price from HK$4.7 to HK$10.0 (0.6x/0.5x 25e/26e P/B, representing 17% upside potential).

CICC's main points are as follows:

**1H25 Results Generally Meet Expectations** The company's 1H25 net operating revenue was HK$1.89 billion, with net profit attributable to shareholders of HK$400 million (vs. a loss of HK$1.28 billion in the same period last year), achieving a turnaround to profitability. Earnings per share reached HK$0.24, with results generally meeting expectations.

**Capital Market Recovery Brings Valuation Recovery and Significant Investment Business Income Growth** The company's 1H25 investment business income reached HK$1.69 billion (vs. a loss of HK$390 million in the same period last year), of which unrealized investment income recorded HK$980 million (vs. a loss of HK$1.21 billion in the same period last year): 1) Proprietary investment benefited from improved project fundamentals and capital market recovery, recording unrealized income of HK$1.10 billion, including HK$1.16 billion in unrealized income from financial investments, while losses from major investment enterprises narrowed to HK$60 million; 2) In fund management business, unrealized investment losses significantly narrowed to HK$120 million (compared to unrealized losses of HK$740 million in the same period last year), demonstrating significant results from active portfolio management.

Looking ahead, with expectations of domestic economic recovery and capital market sentiment and investor confidence recovering simultaneously under policy support, combined with the company's forward-looking investment layout anchored in technology innovation strategy, full-year investment returns are expected to improve further.

**Leveraging Group Synergy to Resume AUM Growth** The company's fund business AUM at the end of 1H25 increased by 2% compared to the end of 2024 to HK$119.4 billion, mainly due to the company seizing industry recovery opportunities and actively adjusting fundraising strategies. In the first half, the company established new funds including Huaian Hongze Guangqi and Xiamen Marine High-tech Industry Development Fund, achieving new fundraising of HK$2.74 billion, demonstrating solid fundraising capabilities.

In terms of revenue, client contract revenue in the first half decreased by 15% year-on-year to HK$180 million, of which management fees decreased by 35% year-on-year to HK$50 million, showing a moderate narrowing trend mainly due to some funds entering exit/extension periods. Performance fees and consulting fees decreased by 24% year-on-year to HK$10 million, mainly because the company adheres to value investment philosophy and prudently manages exit timing, with related income showing periodic adjustment.

As China's private equity industry enters a new development cycle, with the company relying on brand effects and strong state-owned LP fundraising capabilities, asset scale is expected to resume expansion.

**Diversified Exit Methods to Continuously Increase Capital Recovery** In 1H25, the company achieved capital recovery of HK$2.02 billion through project exits, completing full exits from Xpeng Motors, Dapu Communications, and Taboola, and partial exits from Softcom Power, Dekang Agriculture, and Fourth Paradigm among other projects, with an exit return multiple (MOIC) of approximately 2.8x.

Additionally, as of year-end, the company's cash balance was HK$8.1 billion, while the company holds approximately HK$4.9 billion in unused bank credit facilities, maintaining ample liquidity. The firm believes the company's abundant cash flow and solid financial position will provide support for future development.

**Risk Factors:** IPO tightening leading to exits falling short of expectations, significant market volatility, asset management scale growth falling short of expectations.