1H17EPS declines by 77.0% yoy; 2Q17turnaround to profit making。
COOEC 1H17net profit declined by 77.0% yoy to RMB200m or EPS of RMB0.05.We saw the earnings momentum shift, with 2Q17returning to profit making witha net profit of RMB370m or EPS of RMB0.08(vs. net loss of RMB170m in 1Q17).1H17net profit tracks 17% of DBe FY17E and 15% of consensus estimates. 1H17core earnings would have been down 29% yoy after stripping out one-off items inboth years (including assets disposal gains, government subsidy and investmentloss on fair value). Despite that 2Q17has shown signs of earnings recovery, givenlow-for-longer crude oil price, we expect challenging headwinds ahead. Hence,with balanced risks and reward, we maintain our Hold rating with target priceof RMB7.1.。
3Q17 revenue and non-GAAP net profit (incl accretion) beat consensus by6% and 3%, respectively, driven by strong transaction business revenuegrowth and accelerating media business growth. Yixin raised Rmb5.5bnthrough a HK IPO at a US$6.3bn valuation. We lower our TP from US$50 toUS$47 and switch to SOTP valuation. This values 1) the advertising andsubscription business at US$6/share or a 10x FY18E PE, 2) the digitalmarketing solutions business at US$1/share or a 10x FY18E PE, and3) Yixin group at US$31/share or a 35x FY18E PE.
Mixed bag in operations; new order +41% yoy in 1H17。
Overall revenue dropped by 18% yoy driven by low oil price, causing lower volumewhich created work conducted over 475k working hours, EPC steel structurefabrication completed with 36.6k tons and oceanic installation completed in 2800vessel working days in 1H17. However, offshore and non-oceanic told differentstories. Offshore EPC segment revenue dropped by 39% yoy to RMB1.8bnwhile non-oceanic EPC revenue recorded 13% yoy growth to RMB2.3bn. Theoffshore vessels working days dropped by 33% yoy while onshore steel structurefabrication volume grew by 43% yoy. 1H17gross margin registered 18.9%(+2.7%pt and +3.6%pts vs. 2H16and 1H16). The company recorded neworders of RMB5.3bn, +41% yoy, of which RMB5.1bn contributed was fromdomestic orders. In terms of noticeable contribution, completion of Yamal LNGproject helped Qingdao subsidiary, with a registered net profit of RMB752m .Management expects global E&P capex to recover by 3-5% yoy to US$450bn in2017while still staying significantly below the 2014peak of US$7400bn. Withsluggish oil prices ahead, the company believes many E&P projects will likely bedelayed.。
3Q17 results beat and 4Q17 guidance in line. 3Q17 revenue grew 54% yoyto Rmb2.3bn, exceeding the high-end guidance of Rmb2.2 bn and 6%/2%higher than consensus/MQ estimate. GAAP operating margin was skeweddue to the share-based compensation in Yixin, while non-GAAP operatingmargin was stable at 11%. 4Q17 revenue guidance of Rmb2.40-2.45bn is inline with consensus estimates of Rmb2.42bn and implies 42-46% yoy growth.
Yixin to triple earnings in 2018. Transaction volume reached 380k(incl. 300k from Yixin) in 9M17 and is well on track to its half million target for2017. We estimate the total number of transactions will reach 521k in 2017and 811k in 2018. Yixin’s self-operated loan balance reached Rmb20bn in1H17. We estimate transaction services revenue will increase 61% yoy toRmb6bn in 2017, contributing 53% of total revenue. Margin expansion issupported by the increasing contribution from the high-margin transactionplatform business. We see 200% yoy growth in Yixin’s earnings in 2018.
Accelerating growth in advertising and subscription business.
The advertising & subscription business grew 19% yoy in 3Q17, acceleratingfrom 4%/13% yoy in 1Q/2Q, driven by the increase rev from value-addedservices and achieving an increase in both ARPU and the number of OEMand dealer customers. After adding 2k subscribers to a total 24k subscribersin 3Q and achieving a very high penetration rate, the company’s advertisingbusiness should be more driven by price hikes going forward. The companywill focus on leveraging AI and big data to enhance the efficiency andaccuracy of the connection between dealers and car buyers to eventuallydrive up ARPU. We expect its core media business to continue deliveringdouble digit growth in 4Q17 and 2018.
Switch to SOTP valuation as Yixin went public. We value BITA’s traditionalmedia and digital marketing solutions based on 10x FY18E PE and the Yixingroup on 35x 2018E PE for its faster revenue and profit growth and apply a20% holding company discount.
Earnings and target price revision
Lower 2017-19 non-GAAP EPS by 5-33% to reflect the non-controllinginterest in Yixin.
12-month price target: US$47.00 based on a PER methodology.
Catalyst: Transaction service profitability, core media growth acceleration.
Action and recommendation