J,P, 摩根 中国互联网垂直细分报告:保持垂直,着眼长远

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2018/09/05 发布于 商业 分类

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1. Asia Pacific Equity Research 29 August 2018 China Internet Vertical Staying vertical, eyeing long term We assume coverage of China Internet vertical names – Bitauto, Autohome, Fang Holdings, Leju – as well as Weibo, Sina, China Literature and Phoenix New Media. China Internet verticals have generally underperformed overall China Internet by 50ppts and HSI by 36ppts since 2015 due to the industry's structural change and internal causes of verticals. However, we think the core competitive strength of verticals, i.e. access to a more-targeted and intention-specific user base, remains unchanged. We take a constructive view on China's online vertical sector in light of its 1) unique media value for consumers, advertisers and value chain partners (e.g. dealers and agents), 2) LT growth potential from the massive transaction opportunities. Between auto and real estate verticals, we prefer online auto (BITA and ATHM) given a relatively steady legacy business outlook (JPMe 18-20E CAGR of 12%/19% for BITA/ATHM’s ad and dealer subscription revenue), less regulatory risk, and a promising auto related transaction opportunity (JPMe 1820E CAGR of 39%/42% for BITA/ATHM’s transaction services revenue). We are relatively cautious on online real estate names (SFUN and LEJU) in 6-12 months due to a lackluster legacy business (JPMe 18-20E CAGR of 6%/8% for SFUN/LEJU’s online ad revenue) and lack of new growth engines in the foreseeable future.  Online auto: steady outlook of legacy business while transaction services bring potential upside. We expect ATHM and BITA to maintain relatively stable wallet share in total online ad auto spending in the next few years (32-33% from 2017-20E). Importantly, we believe online auto industry is quickly moving from legacy ads and subscription business driven to focus more on transactions. Our base case scenario suggests auto related transactions (financing, insurance, aftermarket services and used car markets) will generate an RMB70-100bn revenue opportunity for online platforms by 2020E, implying a US$50bn market cap potential in total. We forecast BITA to achieve 10-15% (RMB10bn) of total transaction revenue opportunity by 2020E, while ATHM’s presence is likely to remain relatively low at 1-2% given limited visibility.  Online real estate: lackluster outlook for legacy business with transaction initiatives still in a trial-and-error stage. We believe online real estate will continue to rely on legacy business in the foreseeable future. While trials in real estate ecommerce may continue, we do not expect it to become a meaningful revenue driver in the next 1-2 years. We estimate SFUN and LEJU have continued to lose market share in online real estate ads in the past few years and such a trend should continue in the next few years due to increasing competition. Listing service is likely to see some near-term upside driven by growth in lower tier cities, which should bring support to SFUN.  View and stock picks: We like BITA (OW) and ATHM (N) given large potential in auto-related transactions opportunity, but prefer BITA over ATHM due to 1) BITA's leading position in auto financing and other auto related services, and 2) more attractive valuation (12x 19E P/E vs. 20x of ATHM). We believe online real estate players, i.e. SFUN (N) and LEJU (N), will remain fundamentally weak due to policy tightening, but we think the downside for both names is limited at current valuation.  In addition, we like 1) WB (OW) due to its leadership in China's social media realm, under-monetized traffic and time spent; 2) Liepin (6100 HK, OW) for its unique position in China's mid-to-high-end talent acquisition market; 3) FENG (OW) due to valuation upside from Yidian. We are relatively cautious on China Literature (772 HK, N) in 3-6 months due to the binary impact from New Classics Media acquisition.  Top picks are WB (OW), Liepin (6100 HK, OW) and BITA (OW).  Key risks to our thesis: 1) Competition from various aspects, including competition from emerging traffic platforms on usage and ad budget, competition from private players on auto financing services; 2) Regulations on new home transaction, pricing, and auto financing channels. 3) Sector derating. Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com AC Alex Yao (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Figure 1: Total return since 2015: China Internet Verticals vs. China Internet and Hang Seng Index 100% 80% 60% 40% 20% 0% -20% -40% -60% Hang Seng Index China Internet Index China Internet Vertical Index Source: J.P. Morgan estimates, Bloomberg. As of Aug 24th, 2018. Note: China Internet Index covers over 30 major China Internet stocks. China Internet Vertical Index covers 7 stocks including Bitauto, Autohome, Fang, Leju, Wise Talent, 51Job and 58.com. See page 74 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com
2. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Table of Contents Key charts and tables ..............................................................3 Investment summary................................................................5 Investment highlights ..............................................................................................5 Investment risks ......................................................................................................6 Summary forecasts: JPM views by sub-sector and companies ..................................7 Share price analysis.................................................................8 Underperforming share price of Internet verticals in past years.................................8 What will drive the changes?.................................................................................10 Valuation summary ................................................................11 Different valuation approaches for vertical names..................................................13 Valuation by company...........................................................................................13 Online auto..............................................................................15 Offering the unique media value for advertisers .....................................................15 A deep-dive into auto advertising market...............................................................17 Auto ads market share outlook: winners and losers?...............................................20 Well positioned to tap into auto-related transactions opportunity............................21 Auto and related transactions: quantifying the growth potential..............................23 Online real estate....................................................................28 Online real estate ads.............................................................................................28 Bumpy road into real estate transaction..................................................................30 Companies ..............................................................................33 Weibo Corporation................................................................................................34 Sina Corp..............................................................................................................39 China Literature Limited .......................................................................................44 Autohome Inc .......................................................................................................49 BitAuto Holdings Limited .....................................................................................54 Fang Holdings Ltd ................................................................................................58 Leju Holdings Limited ..........................................................................................62 Phoenix New Media Ltd........................................................................................66 Wise Talent Information Technology (Liepin) .......................................................70 2
3. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key charts and tables Figure 2: Positioning chart of China Internet verticals vs. other main information-focused platforms in China Content depth Bitauto Autohome Online verticals General news apps Leju SouFun iFeng News Sina News Tencent News Kuaibao Yidian UC Weibo Sogou Toutiao Baidu Other general information gateways: search engines, socia media, social networks WeChat QQ Algorithm-based information apps User coverage Source:'>Source: J.P. Morgan. Figure 3: Auto ad spend by media platforms 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 13.0% 32.6% 6.7% 21.8% 25.9% 2010 15.4% 32.5% 6.9% 20.6% 24.6% 2011 17.8% 33.0% 7.1% 19.0% 23.1% 2012 20.3% 34.0% 7.4% 16.4% 21.9% 2013 23.5% 35.0% 7.7% 13.6% 20.2% 2014 27.7% 34.5% 7.8% 10.5% 19.5% 2015 33.0% 32.8% 7.9% 7.6% 18.7% 2016 37.8% 29.2% 7.2% 5.1% 20.7% 2017 Outdoor Magazine/newspaper Radio TV Online Source:'>Source: iResearch, J.P. Morgan estimates. 41.8% 28.2% 6.9% 3.4% 19.7% 2018E 44.1% 27.8% 6.7% 2.5% 18.9% 2019E 46.1% 27.5% 6.5% 1.6% 18.3% 2020E 3
4. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Table 1: Online auto ads market in a glance Online auto ad net revenue YoY Market share by channel Verticals % of total online Autohome % of total online Bitauto % of total online Other auto verticals % of total online Portals % of total online Video sites % of total online Others % of total online - Emerging traffic gateways - Social platforms - Other online channels 2013 6,239 39.5% 1,832 29% 705 11% 633 10% 495 8% 2,770 44% 549 9% 1,089 17% 2014 8,358 34.0% 3,223 39% 1,287 15% 1,162 14% 774 9% 3,489 42% 851 10% 795 10% 2015 10,281 23.0% 4,508 44% 1,878 18% 1,638 16% 992 10% 3,689 36% 1,212 12% 873 8% 30 33 809 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: CAAM, CADA, CEIC, iResearch, Bloomberg, Company data, J.P. Morgan estimates. 2016 12,939 25.8% 5,127 40% 2,348 18% 1,857 14% 923 7% 3,488 27% 1,827 14% 2,497 19% 806 520 1,171 2017 15,786 22.0% 6,031 38% 3,075 19% 2,051 13% 905 6% 3,213 20% 2,409 15% 4,132 26% 1,404 896 1,832 2018E 18,855 19.4% 6,970 37% 3,815 20% 2,318 12% 836 4% 2,881 15% 2,940 16% 6,064 32% 3,188 1,258 1,618 2019E 21,578 14.4% 7,894 37% 4,483 21% 2,582 12% 829 4% 2,791 13% 3,552 16% 7,341 34% 3,438 2,315 1,588 2020E 24,244 12.4% 8,692 36% 5,047 21% 2,820 12% 826 3% 2,636 11% 4,047 17% 8,870 37% 4,251 3,104 1,514 18-20E CAGR 15.4% 13.0% 18.0% 11.2% -3.0% -6.4% 18.9% 29.0% 44.7% 51.3% -6.2% Figure 4: Online auto ads market share structure 100% 8% 12% 80% 19% 26% 32% 34% 14% 15% 60% 36% 16% 16% 27% 40% 20% 15% 13% 20% 44% 40% 38% 37% 37% 0% 2015 2016 2017 2018E 2019E Verticals Portals Video sites Others 36% 17% 11% 36% 2020E Figure 5: Market share trend of different auto verticals 50% 40% 10% 7% 6% 4% 4% 30% 16% 14% 13% 12% 12% 20% 10% 18% 18% 19% 20% 21% 0% 2015 2016 2017 2018E 2019E ATHM BITA Other verticals 3% 12% 21% 2020E Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: CAAM, iResearch, Company data, J.P. Morgan estimates. Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: CAAM, iResearch, Company data, J.P. Morgan estimates. Table 2: Auto and auto-related market opportunity RMBmn Auto financing & loans YoY Auto insurance YoY Other auto-related services YoY Used car transactions YoY Total auto aftermarket size YoY 2013 580,000 28.9% 472,099 18.0% 558,000 19.0% 291,649 10.6% 1,901,748 20.2% 2014 659,511 13.7% 551,600 16.8% 638,000 14.3% 367,565 26.0% 2,216,676 16.6% 2015 728,100 10.4% 619,900 12.4% 770,000 20.7% 553,540 50.6% 2,671,540 20.5% 2016 800,910 10.0% 683,400 10.2% 935,000 21.4% 610,769 10.3% 3,030,079 13.4% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: China Automotive Industry Yearbook, CAAM, CADA, Frost & Sullivan, Analysys, J.P. Morgan estimates. 2017E 911,012 13.7% 752,107 10.1% 1,060,000 13.4% 705,417 15.5% 3,428,536 13.2% 2018E 1,100,526 20.8% 823,012 9.4% 1,157,000 9.2% 846,500 20.0% 3,927,038 14.5% 2019E 1,315,346 19.5% 883,099 7.3% 1,235,000 6.7% 998,870 18.0% 4,432,315 12.9% 2020E 1,530,995 16.4% 962,883 9.0% 1,296,750 5.0% 1,158,689 16.0% 4,949,317 11.7% 18-20E CAGR 18.9% 8.6% 7.0% 18.0% 13.0% 4
5. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Investment summary Investment highlights #1: Unique value proposition to online users and value chain partners Despite the fast-changing internet dynamics in China, we believe online verticals have maintained their unique value proposition for consumers, advertisers and other participants on the value chain (e.g. dealers and agents). For consumers, online verticals offer more dedicated information than general information platforms; for business partners across the value chain, online verticals generate better conversion rate as their users are more specific and intention driven. Overall speaking, despite a relatively low user base vs. large internet platforms, online vertical users are more targeted and imply higher commercial value, in our view. #2: Tapping into more sizable transaction opportunities While online ads and leads generation (dealer subscription for online auto, and secondary home listing for online real estate) services remain the major revenue drivers, many vertical players have been actively exploring the underlying transaction markets (JPMe RMB3.4tr for auto and auto-related transaction and RMB18tr for real estate transactions in 2017), which could imply a multiple times revenue opportunity than ads. Taking auto vertical as an example, we estimate auto and related transactions could imply RMB70-100bn revenue opportunity for online platforms vs. RMB24bn online auto ad market size by 2020E. #3: Favoring online auto over online real estate Interestingly, the transaction initiatives of the two major verticals have witnessed divergent outcomes: online auto and related transactions have seen a nice growth trajectory; while the attempts of online real estate platforms in transactions have faced many obstacles over the past few years (e.g. boycott from traditional agencies, regulation cycle, etc). Between the two verticals, we favor online auto over online real estate, because of better growth outlook of online auto verticals in terms of both traditional ads/leads-generations business and potential transaction opportunities In our view, key factors leading to a different growth outlook include  More benign regulatory environment in auto transactions as compared to real estate transactions.  Auto and related transactions can be more easily digitized, because 1) auto and related products/services are relatively standardized, 2) real estate transactions are much more offline-heavy.  Average ticket size for auto transactions are usually much smaller than real estate transactions, thus involve a shorter decision cycle and higher transaction frequency. 5
6. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Investment risks #1: Competition from multiple aspects In terms of traditional online ads business, we believe all major vertical players face increasing competition from emerging traffic gateways, including popular mobile news and information apps (e.g. Toutiao, Tik Tok, Baidu Newsfeeds and Yidian) as well as social feed-based platforms (e.g. Weibo and WeChat Moments). We expect these new platforms will continue to capture the wallet share of online ad spend from various sectors given their high usage frequency and time spent. In terms of transaction services (esp. in auto), BITA and ATHM face competition from VC-supported private names such as Guazi, Dasouche, etc. There would be potential downside risks to incumbent players if these private names escalate competition through more aggressive marketing strategies. #2: Regulations For online real estate verticals, regulation risk primarily comes from the tightening of real estate policies from various perspectives (e.g. price ceiling, prohibitions of ecoupons, delays in issuance of sales permit, etc). These policies may impact the overall market transaction volumes, as well as developers’ budget allocation on marketing activities. For online auto verticals, regulation risk is relatively low but may still exist. For example, the government may put restrictions on the financing channels of auto financing lease business. #3: Further sector derating triggered by industry headwinds Overall China Internet sector has experienced ~30% de-rating since Jan 2018, with some names approaching a 50% correction in multiple (e.g. China Literature). If these industry headwinds (e.g. media and content censorship, regulations financing activities, RMB depreciation, etc) persist, there’s a possibility that the sector may see further de-rating, which consequently will drag financial and stock performance of China Internet Verticals. 6
7. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Summary forecasts: JPM views by sub-sector and companies Online auto:'>auto: ads and dealer subscription  We expect total online auto ad spend to grow at a 15% CAGR from 2017 to 2020, as compared to an 18-20E CAGR of 8% for total auto ads. As such, online auto ads penetration will improve from 38% in 2017 to 46% in 2020E.  We forecast ATHM and BITA’s legacy business (ad+ dealer subscription) to grow at 18-20E CAGR of 19%/12%, respectively. In particular, online ad revenue of ATHM and BITA will grow at 18-20E CAGR of 18%/11%, respectively.  We expect online auto verticals to capture the largest wallet share in China's online auto ad spend (JPMe a 38% market share in 2017).Within auto verticals, we forecast: 1) ATHM will slightly gain market share (JPMe 21% by 2020E vs. 19% in 2017), 2) BITA will slightly lose share by 1ppt (from 13% in 2017 to 12% in 2020E). 3) Other auto verticals (PCauto, Xcar, etc) will continue to lose market share (JPMe 3% by 2020E vs. 6% in 2017). Online auto:'>auto: transaction business  We estimate the auto related transactions imply a RMB70-100bn revenue opportunity for online platforms by 2020E, of which we believe BITA is able to capture a leading market share.  We expect BITA's transaction services to reach RMB9.5bn by 2020E, representing 18-20E CAGR of 38%.  We expect ATHM’s marketplace revenue to grow at 18-20E CAGR of 42% and reach RMB1,289m in 2020E, representing 13% of total revenue. Online real estate: ads and listing  We believe SFUN and LEJU will predominantly rely on legacy businesses (online ads and listing for SFUN, online ads and e-coupon for LEJU) in the next few years, while transaction-related business will represent an insignificant percentage of revenue in the foreseeable future.  We estimate real estate transactions imply an RMB~450bn revenue opportunity, which is predominantly captured by offline agencies so far.  We expect SFUN to grow marketing services (online ad) and listing services revenue at 18-20E CAGR of 6%/13%, respectively.  We expect LEJU’s marketing services to grow at 8% 18-20E CAGR, while ecommerce services to grow at 18-20E CAGR of 18%. 7
8. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Share price analysis Underperforming share price of Internet verticals in past years China Internal verticals in general have underperformed Hang Seng Index and the overall China Internet sector over the past 3.5 years. Our China Internet Vertical Index generated -3.3% return since 2015 as compared to 33% return of Hang Seng Index and 48% return of China Internet Index. We think reasons behind the weakness include  The ultimate reason, in our view, is the fragmentation of users’ informationacquiring channels. New channels (e.g. social media, algorithm-based information apps, etc) continue to capture internet users’ eyeballs and time spent; while the traditional channels (e.g. portals, verticals and search) are losing presence.  From the perspective of internal causes, lack of innovations (i.e. products, content, etc) and stale monetization models have also contributed to the usage loss to other platforms. Most internet vertical players have extended the product nature and business models which can be dated back to PC internet, while the mobile-specific approaches (e.g. social-oriented, feeds-focused UI and professional generated content) haven’t been adopted by online verticals in a long period of time. Table 3: Share price performance at a glance Company Hang Seng Index MSCI China IT Index Autohome Bitauto Fang Holdings Leju Holdings Weibo Sina Phoenix New Media China Literature Liepin Ticker HSI INDEX MXCN0IT Index ATHM US EQUITY BITA US EQUITY SFUN US EQUITY LEJU US EQUITY WB US EQUITY SINA US EQUITY FENG US EQUITY 772 HK EQUITY 6100 HK EQUITY Source: Bloomberg. Latest prices as of Aug 27th, 2018. YTD -5.5% -7.3% 30.3% -29.0% -43.9% 17.4% -21.9% -28.6% -29.4% -35.2% -25.8% Since 2017 28.5% 79.1% 233.2% 19.2% -4.6% -64.8% 98.9% 27.6% 45.9% N/A N/A Since 2016 29.0% 96.3% 141.2% -20.2% -57.6% -70.5% 314.2% 67.0% -23.9% N/A N/A Since 2015 19.8% 134.3% 131.7% -67.9% -57.6% -84.3% 467.2% 120.6% -44.9% N/A N/A In 2017 36.0% 93.2% 155.8% 67.9% 70.1% -70.0% 154.8% 78.8% 106.7% N/A N/A In 2016 0.4% 9.6% -27.6% -33.0% -55.6% -16.1% 108.2% 30.9% -47.8% N/A N/A In 2015 -7.2% 19.3% -4.0% -59.8% 0.0% -46.8% 36.9% 32.1% -27.6% N/A N/A 8
9. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Figure 6: Total return since 2015: China Internet Verticals vs. China Internet and Hang Seng Index 100% 80% 60% 40% 20% 0% -20% -40% -60% 48.1% 32.7% -3.3% Hang Seng Index China Internet Index China Internet Vertical Index Source:'>Source:'>Source:'>Source: J.P. Morgan estimates, Bloomberg. As of Aug 24th, 2018. Note: China Internet Index covers over 30 major China Internet stocks. China Internet Vertical Index covers 7 stocks including Bitauto, Autohome, Fang, Leju, Wise Talent, 51Job and 58.com. Figure 7: Bitauto share price vs. Hang Seng Index performance 60% 40% 18% 20% 0% -20% -40% -68% -60% -80% -100% Figure 8: Bitauto share price vs. Hang Seng Index performance 250% 200% 150% 100% 50% 113% 0% -50% -100% Source:'>Source:'>Source:'>Source: Bloomberg. HSI Index BITA US Equity Source:'>Source:'>Source:'>Source: Bloomberg. HSI Index ATHM US Equity 9
10. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Figure 9: Fang share price vs. Hang Seng Index performance 60% 40% 20% 0% -20% -40% -60% -80% -60% Figure 10: Leju share price vs. Hang Seng Index performance 60% 40% 20% 0% -20% -40% -60% -83% -80% -100% Source:'>Source: Bloomberg. HSI Index SFUN US Equity Source:'>Source: Bloomberg. HSI Index LEJU US Equity What will drive the changes? In our view, to change the weak performance, Internet verticals need to 1) solidify, or restore, the growth of legacy ad and subscription business; and 2) actively explore new growth initiatives (e.g. transactions). In terms of legacy ads and subscription business, we note that most internet verticals have started to proactively innovate content generation, product formats, as well as monetization models in past 6-12 months, in order to comply with the changing user demand on mobile internet. These efforts include  Content: Enrich content generation by introducing professional-generated content (PGC) through self-media strategy  Product: revamping mobile apps to make them more mobile-friendly e.g. displaying content in feeds, adding social features, etc.  Monetization: gradually adding more performance-based monetization products. Transaction service represents a massive growth opportunity. Among our coverage universe, Bitauto and Fang Holdings have been more actively exploring transaction opportunity, while Bitauto is the only company that has successfully generated meaningful financial returns from transactions. Overall we think it’s relatively easier for online auto names (than online real estate platforms) to monetize the transaction opportunity given 1) higher transaction frequency, 2) more standardized product nature, 3) less regulatory risk. 10
11. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Valuation summary Table 4: China Internet comp table Ticker Rating Price PT China internet portals Baidu BIDU US Sogou SOGO US Sina SINA US Tencent 700 HK China Literature 772 HK Phoenix New Media FENG US Renren RENN US 58.com WUBA US 500.com WBAI US Mean Social & streaming YY YY US Tian Ge 1980 HK Weibo WB US Momo MOMO US iQiyi IQ US Huya HUYA US Mean Online verticals Fang Holdings SFUN US Leju LEJU US Autohome ATHM US Bitauto BITA US Liepin 6100 HK 51job JOBS US Mean China online games Netdragon 777 HK Kingsoft 3888 HK Changyou CYOU US NetEase NTES US Forgame 484 HK IGG 799 HK Boyaa 434 HK Mean China travel Ctrip CTRP US Tuniu TOUR US Mean China e-commerce Alibaba BABA US Vipshop VIPS US JD.com JD US Jumei JMEI US Mean N USD 228.6 N USD 9.0 OW USD 71.6 OW HKD 361.0 N HKD 54.1 USD 273 USD 10 USD 150 HKD 460 HKD 58 OW USD 4.6 USD 10.0 NC USD 1.8 N/A NC USD 76.0 N/A NC USD 12.7 N/A OW USD 78.7 USD 110 NC HKD 5.1 N/A OW USD 80.8 USD 118 OW USD 46.9 USD 62 NC USD 31.1 N/A NC USD 29.0 N/A N USD 3.1 N USD 1.7 N USD 84.2 OW USD 22.6 OW HKD 24.50 NC USD 73.7 USD 3.6 USD 3.6 USD 80 USD 38 HKD 40 N/A NC HKD 14.6 NC HKD 15.2 NC USD 14.4 OW USD 211.8 NC HKD 6.8 NC HKD 10.2 NC HKD 2.4 N/A N/A N/A USD 265 N/A N/A N/A N USD 40.2 NC USD 8.3 USD 45 N/A OW USD 180.7 OW USD 7.2 N USD 32.7 NC USD 1.9 USD 215 USD 11 USD 32 N/A Source: J.P. Morgan estimates, Bloomberg. Prices are as of Aug 27, 2018 Mkt Cap EV CY19E CY20E CY19E CY20E CY19E (USDm) (USDm) P/E P/E P/S P/S PEG 80,038 70,773 18.7 x 16.8 x 4.5 x 3.9 x 1.8 x 3,555 2,511 21.0 x 15.8 x 2.3 x 1.9 x 0.7 x 5,117 4,280 14.0 x 9.7 x 1.8 x 1.4 x 0.3 x 437,907 452,213 26.6 x 19.8 x 6.7 x 5.2 x 0.9 x 6,241 5,135 31.7 x 24.6 x 6.6 x 5.4 x 1.3 x 331 177 31.3 x 29.0 x 1.7 x 1.7 x 4.7 x 123 130 N/A N/A N/A N/A N/A 11,202 10,501 22.7 x 18.2 x 5.0 x 4.2 x 0.9 x 535 448 N/A N/A N/A N/A N/A 23.7 x 19.1 x 3.6 x 3.4 x 1.5 x 4,979 3,306 9.1 x 7.4 x 1.8 x 1.5 x 0.5 x 820 619 10.2 x N/A N/A N/A N/A 18,024 17,337 19.7 x 14.3 x 7.4 x 5.6 x 0.6 x 9,556 8,777 13.3 x 10.3 x 3.5 x 2.8 x 0.5 x 22,324 20,496 N/A N/A 4.5 x 3.4 x N/A 5,902 5,736 52.2 x 31.6 x 5.7 x 4.3 x N/A 20.9 x 15.9 x 4.4 x 3.3 x 0.5 x 1,390 229 9,891 1,642 1,547 4,548 1,754 12.2 x 9.5 x 3.0 x 2.7 x 0.5 x 49 6.2 x 5.3 x 0.5 x 0.4 x 0.5 x 8,727 20.9 x 16.7 x 7.6 x 6.6 x 1.0 x 4,860 11.3 x 8.3 x 0.9 x 0.8 x 0.4 x 1,447 28.3 x 15.5 x 5.3 x 3.8 x 0.5 x 3,780 20.9 x 16.7 x 6.8 x 5.6 x N/A 16.6 x 12.0 x 4.0 x 3.3 x 0.6 x 989 807 31.8 x 22.6 x 1.2 x 1.0 x N/A 2,663 1,699 13.7 x 12.1 x 2.2 x 1.9 x N/A 762 192 7.7 x 7.5 x 1.6 x 1.8 x N/A 27,813 22,663 15.5 x 12.0 x 2.2 x 1.9 x 0.5 x 120 55 N/A N/A N/A N/A N/A 1,688 1,407 7.4 x 7.2 x 1.9 x 1.8 x N/A 224 -52 N/A N/A N/A N/A N/A 15.2 x 12.3 x 1.8 x 1.7 x 0.5 x 21,891 21,736 24.3 x 18.0 x 4.3 x 3.5 x 0.9 x 1,071 589 82.6 x 35.1 x 2.0 x 1.6 x N/A 53.5 x 26.6 x 3.1 x 2.5 x 0.9 x 468,278 455,291 26.3 x 20.1 x 6.1 x 4.5 x 0.9 x 4,792 4,287 10.1 x 8.2 x 0.3 x 0.3 x 0.5 x 46,859 44,448 32.5 x 22.3 x 0.6 x 0.5 x 0.7 x 288 -66 N/A N/A N/A N/A N/A 23.0 x 16.9 x 2.3 x 1.8 x 0.7 x 20-21E EPS CAGR 10.4% 29.5% 42.4% 28.2% 23.9% 6.7% N/A 25.6% N/A 23.8% 18.8% N/A 32.0% 24.9% N/A N/A 25.3% 23.1% 13.8% 22.0% 26.8% 62.6% N/A 29.7% N/A N/A N/A 29.0% N/A N/A N/A N/A 27.0% N/A 27.0% 30.4% 19.3% 48.6% N/A 32.8% 11
12. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Table 5: China Internet Verticals comp table Ticker Rating China online verticals Autohome ATHM US N Bitauto BITA US OW Fang Holdings SFUN US N Leju LEJU US N Liepin 6100 HK OW 51job JOBS US NC Mean China marketplace Alibaba BABA US OW Ctrip CTRP US N 58.com WUBA US NC Mean Overseas online auto TrueCar TRUE US UW Cars.com CARS US NC AutoWeb AUTO US NC CarMax KMX US NC Carsales.com CAR AU N Mean Overseas online real estate Zillow ZG US NC Redfin RDFN US NC Mean Overseas recruitment Heidrick & Struggles HSII US NC Robert Half RHI US OW Kelly Services KELYA US NC Hays HAS LN NC PageGroup PAGE LN NC Recruit Holdings 6098 JT N Persol Holdings 2181 JT NC Mean Price USD 84.2 USD 22.6 USD 3.1 USD 1.7 HKD 24.5 USD 73.7 USD 180.7 USD 40.2 USD 76.0 USD 12.5 USD 27.1 USD 3.5 USD 76.7 AUD 14.9 USD 47.6 USD 19.7 USD 44.5 USD 78.2 USD 25.6 GBP 2.0 GBP 6.2 JPY 3,457 JPY 2,449 PT USD 80 USD 38 USD 3.6 USD 3.6 HKD 40 N/A USD 215 USD 45 N/A USD 10 N/A N/A N/A AUD 16 N/A N/A N/A USD 82 N/A N/A N/A JPY 2,500 N/A Mkt Cap EV CY18E (USDm) (USDm) P/E 9,891 1,642 1,390 229 1,547 4,548 8,727 4,860 1,754 49 1,447 3,780 23.3 x 15.6 x 35.9 x N/A 78.8 x 26.7 x 36.0 x 468,278 21,891 11,202 455,291 21,736 10,501 34.7 x 33.1 x 30.7 x 32.8 x 1,277 1,888 46 13,537 2,659 1,108 2,592 28 26,284 3,028 81.8 x 13.0 x -7.5 x 20.0 x 27.4 x 26.9 x 9,644 1,748 9,139 1,537 85.3 x N/A 85.3 x 844 9,580 996 3,730 2,604 52,795 5,220 758 9,272 964 3,691 2,494 51,898 5,544 22.9 x 22.7 x 12.0 x 17.9 x 19.7 x 38.6 x 29.9 x 23.4 x Source: J.P. Morgan estimates, Bloomberg. Prices are as of Aug 24 for U.K. market; prices are as of Aug 27 for all other markets. CY19E P/E 20.9 x 11.3 x 12.2 x 6.2 x 28.3 x 20.9 x 16.6 x 26.3 x 24.3 x 22.7 x 24.5 x 47.4 x 11.5 x 354.0 x 16.7 x 24.3 x 90.8 x 64.0 x -73.8 x -4.9 x 21.6 x 20.6 x 10.3 x 16.0 x 17.6 x 35.3 x 24.2 x 20.8 x CY20E P/E 16.7 x 8.3 x 9.5 x 5.3 x 15.5 x 16.7 x 12.0 x 20.1 x 18.0 x 18.2 x 18.8 x 32.1 x 10.2 x -13.1 x 15.4 x 22.0 x 13.3 x 45.4 x -151.6 x -53.1 x N/A 19.1 x 8.8 x 14.6 x 15.8 x 30.2 x 20.2 x 18.1 x CY18E P/S 9.1 x 1.1 x 3.5 x 0.5 x 7.7 x 8.3 x 5.0 x 8.7 x 5.1 x 6.0 x 6.6 x 3.5 x 2.8 x 0.4 x 0.8 x 8.3 x 3.2 x 7.1 x 3.6 x 5.4 x 1.2 x 1.7 x 0.2 x 0.5 x 1.4 x 2.6 x 0.8 x 1.2 x CY19E P/S 7.6 x 0.9 x 3.0 x 0.5 x 5.3 x 6.8 x 4.0 x 6.1 x 4.3 x 5.0 x 5.1 x 3.1 x 2.6 x 0.4 x 0.7 x 7.0 x 2.8 x 5.0 x 2.9 x 3.9 x 1.2 x 1.6 x 0.2 x 0.5 x 1.3 x 2.5 x 0.6 x 1.1 x CY20E P/S 6.6 x 0.8 x 2.7 x 0.4 x 3.8 x 5.6 x 3.3 x 4.5 x 3.5 x 4.2 x 4.1 x 2.7 x 2.4 x 0.4 x 0.7 x 6.4 x 2.5 x 3.3 x 2.3 x 2.8 x N/A 1.5 x 0.2 x 0.4 x 1.2 x 2.3 x 0.6 x 1.0 x CY18E CY19E CY20E EV/Rev EV/Rev EV/Rev 7.8 x 6.4 x 5.2 x 3.1 x 2.4 x 2.1 x 4.1 x 3.6 x 3.3 x - - - 8.1 x 5.6 x 4.0 x 6.7 x 5.5 x 4.5 x 6.0 x 4.7 x 3.8 x 12.0 x 7.5 x 5.4 x 4.6 x 3.7 x 3.0 x 5.3 x 4.4 x 3.7 x 7.3 x 5.2 x 4.0 x 3.0 x 2.6 x 2.4 x 3.8 x 3.6 x 3.3 x 0.2 x 0.2 x 0.2 x 1.5 x 1.4 x 1.3 x 9.1 x 7.7 x 7.1 x 3.5 x 3.1 x 2.9 x 6.6 x 4.6 x 3.0 x 3.2 x 2.5 x 2.0 x 4.9 x 3.6 x 2.5 x 1.1 x 1.0 x - 1.6 x 1.5 x 1.4 x 0.2 x 0.2 x 0.2 x 0.5 x 0.5 x 0.4 x 1.3 x 1.2 x 1.1 x 2.6 x 2.5 x 2.3 x 0.8 x 0.7 x 0.6 x 1.2 x 1.1 x 1.0 x CY19E PEG 1.0 x 0.4 x 0.5 x 0.5 x 0.5 x N/A 0.6 x 0.9 x 0.9 x 0.9 x 0.9 x 0.8 x 0.8 x N/A 1.7 x 2.3 x 1.4 x 2.5 x N/A 2.5 x N/A N/A N/A 2.0 x N/A 1.7 x 1.4 x 1.7 x 20-21E EPS CAGR 22.0% 26.8% 23.1% 13.8% 62.6% N/A 29.7% 30.4% 27.0% 25.6% 27.7% 56.9% 15.1% N/A 9.9% 10.6% 23.1% 25.6% N/A 25.6% N/A N/A N/A 8% N/A 21% 18% 15.6% 12
13. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Different valuation approaches for vertical names We use PEG as the main methodology to value online vertical players with relatively clear profitability outlook, including Autohome and Bitauto. We apply a target PEG range of 0.7-0.9x for BITA and ATHM.  A target PEG of 0.7x for Bitauto and 0.9x for Autohome is at a discount to 1) large internet companies e.g. Tencent (1.2x) and Alibaba (1.0x); and 2) the average of overseas online auto players (1.7x), given a less mature auto-related transactions market in China.  We assign a higher target PEG for Autohome (0.9x) than Bitauto (0.7x) due to the former’s stronger legacy business growth (online ads and subscription). We value Fang Holdings using P/E due to limited visibility of 1-2 years earnings outlook as a result of business transition.  A target P/E of 14x for SFUN is at a discount to China Internet Verticals’ average trading P/E at 16x.  A 14x P/E implies a PEG of 0.6x based on 20-21E earnings CAGR of 23%. We value LEJU using P/S as we believe the company will remain loss making in 2018E and generate insignificant profit 2019E. We apply a conservative 1.0x target P/S for LEJU given its weak growth outlook in 6-12 months.  A target P/S of 1.0x is below the average of China Internet portals (3.6x), China online verticals (4.0x) and U.S. online real estate (3.9x).  A target P/S of 1.0x for LEJU is at the low end of China Internet companies which usually trade at 1-10x 19E P/S Valuation by company Bitauto  PEG-based valuation delivers a Jun-19 PT of US$38, based on a 2019E non- GAAP EPS of US$2.00 and a 20-21E EPS CAGR of 27%, and a PEG of 0.7x. PT implies a 2019E P/E of 19x and a 2020E P/E of 14x.  BITA currently trades at 11x 19E P/E and our target 19E P/E of 19x is generally in-line with 3-year average 1-year forward P/E of 18x. Autohome  PEG-based valuation delivers a Jun-19 PT of US$80, based on a 2019E nonGAAP EPS of US$4.02, a 20-21E EPS CAGR of 22%, and a PEG of 0.9x. PT implies a 2019E P/E of 20x and a 2020E P/E of 16x.  ATHM currently trades at 20x 19E P/E and our target 19E P/E of 20x is generally in-line with 3-year average 1-year forward P/E of 19x. Fang Holdings  PE-based valuation delivers a Jun-19 PT of US$3.6, based on a 2019E nonGAAP EPS of US$0.26, and a P/E of 14x. PT implies 19E PEG ratio of 0.6x based on 20-21E EPS CAGR of 23%. Leju  Our Jun19 PT of Leju is US$3.6, based on 2019E revenue per share of US$3.6 and a P/S ratio of 1.0x. 13
14. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Figure 11: BITA: 1-year forward P/E trend 30 25 20 15 10 5 BITA X X-σ X+σ Source:'>Source: J.P. Morgan estimates, Company data. X-2σ X+2σ Figure 12: ATHM: 1-year forward P/E trend 30 25 20 15 10 5 ATHM X X-σ X+σ Source:'>Source: J.P. Morgan estimates, Company data. X-2σ X+2σ Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 14
15. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Online auto Offering the unique media value for advertisers We believe auto vertical sites have maintained their unique value proposition in auto media market, despite the increasing competition from emerging traffic platforms e.g. Toutiao, WeChat Moments, Weibo, etc.  Auto verticals enjoy the highest user reach among all the channels to access new car related information. According to a survey conducted by iResearch in Oct 2017, 59% of the respondents got access to new car-related information through auto vertical sites as compared to 46% two years ago. During the same period, user reach of portals dropped to 22% from 47%.  Even in used car market, auto vertical media is also one of the major channels to find used car related information (a 47% user reach), second only to specialized used car e-commerce sites (75%). Figure 13: User reach of different channels in new car information Figure 14: User reach of different channels in used car information Auto vertical sites Auto e-commerce sites OEM's offical sites/channels Portals Search engines Auto pricing apps 46.4% 58.9% 48.1% 30.6% 21.6% 47.3% 2015 16.4% 2017 14.1% Used car e-commerce sites Auto vertical media Portals (used car channels) Lifestyle services websites Search engines 47.4% 25.8% 17.7% 15.1% 74.5% 0.0% 20.0% 40.0% 60.0% 80.0% 0.0% 20.0% 40.0% 60.0% 80.0% Source:'>Source: iResearch Source:'>Source: iResearch We believe the unique value of vertical sites lies in its more targeted user base.  A larger auto-related user base than peers. According to SimilarWeb, auto vertical sites have a much larger traffic than the auto channels of major portals in China. Similarly, Autohome and Bitauto's mobile app traffic is also substantially higher than peer apps. 15
16. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Figure 15: Monthly unique visitors of major auto sites (3-month average, Apr-Jun 2018) 40 million 37.1 20 10.9 7.2 7.4 0.9 1.3 1.7 1.4 1.8 0 Figure 16: Autohome and Bitauto mobile apps have a much larger traffic than peers (MAU in Sep 2017) 25.0 million 19.2 20.0 16.2 15.0 10.0 5.0 1.9 1.3 1.0 0.4 0.2 0.2 0.0 Source:'>Source:'>Source:'>Source: SimilarWeb. Note:'>Note:'>Note:'>Note: Combined traffic of PC and mobile web sites Source:'>Source:'>Source:'>Source: QusetMobile. Note:'>Note:'>Note:'>Note: The mobile apps MAU of Autohome and Bitauto included the MAU of respective independent auto quotation apps.  Better user engagement of vertical sites. Users of vertical sites usually have either strong interest in the auto industry, or intention to purchase vehicles. As such, user engagement on such vertical sites is usually better than other general websites/apps. According to SimilarWeb, the average time spent per visit to vertical sites (3-6 minutes per visit) are generally higher than the auto channels of major portals (1-2 minutes per visit). Such a difference is also witnessed by the user engagement metrics (e.g. daily pageviews per visitor and daily time on site) of Alexa.com. Figure 17: Average time spent per visit to difficult channels (PC and mobile web sites traffic included) 6.0 5.6 4.8 Average time spent per visit (mins) 5.0 4.0 3.1 3.2 3.0 2.0 1.0 2.3 1.8 1.7 1.2 1.4 0.0 Source:'>Source:'>Source:'>Source: SimilarWeb. Note:'>Note:'>Note:'>Note: 3-month average, Apr-Jun 2018. 16
17. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Table 6: Auto ads market in a glance A deep-dive into auto advertising market Auto sales (RMBm) YoY Sales volume (m) YoY Unit price (RMB) YoY % ad spend Total auto ad spending (RMBm) % outdoor % magazine/newspaper % radio % TV % ad spend online 2013 2,259,916 -0.2% 17.9 16% 126,057 -14% 1.7% 38,419 21.9% 16.4% 7.4% 34.0% 20.3% 2014 2,429,409 7.5% 19.7 10% 123,272 -2% 1.8% 44,458 20.2% 13.6% 7.7% 35.0% 23.5% 2015 2,811,874 15.7% 21.1 7% 132,972 8% 1.7% 46,396 19.5% 10.5% 7.8% 34.5% 27.7% 2016 3,267,398 16.2% 24.4 15% 134,036 1% 1.5% 49,011 18.7% 7.6% 7.9% 32.8% 33.0% 2017 3,346,235 2.4% 24.7 1% 135,376 1% 1.6% 52,201 20.7% 5.1% 7.2% 29.2% 37.8% 2018E 3,502,071 4.7% 25.6 4% 136,730 1% 1.6% 56,383 19.7% 3.4% 6.9% 28.2% 41.8% 2019E 3,684,442 5.2% 26.7 4% 138,098 1% 1.7% 61,162 18.9% 2.5% 6.7% 27.8% 44.1% 2020E 3,844,306 4.3% 27.6 3% 139,478 1% 1.7% 65,738 18.3% 1.6% 6.5% 27.5% 46.1% Online auto ad spend Average agency rebate Online auto ad revenue (net of rebate) YoY Market share by channel Verticals % of total online Autohome % of total online Bitauto % of total online Other auto verticals % of total online Portals % of total online Video sites % of total online Others % of total online - Emerging traffic gateways - Social platforms - Other online channels 7,799 20% 6,239 39.5% 1,832 29% 705 11% 633 10% 495 8% 2,770 44% 549 9% 1,089 17% 10,448 20% 8,358 34.0% 3,223 39% 1,287 15% 1,162 14% 774 9% 3,489 42% 851 10% 795 10% 12,852 20% 10,281 23.0% 4,508 44% 1,878 18% 1,638 16% 992 10% 3,689 36% 1,212 12% 873 8% 30 33 809 Source: CAAM, CADA, CEIC, iResearch, Bloomberg, Company data, J.P. Morgan estimates. 16,174 20% 12,939 25.8% 5,127 40% 2,348 18% 1,857 14% 923 7% 3,488 27% 1,827 14% 2,497 19% 806 520 1,171 19,732 20% 15,786 22.0% 6,031 38% 3,075 19% 2,051 13% 905 6% 3,213 20% 2,409 15% 4,132 26% 1,404 896 1,832 23,568 20% 18,855 19.4% 6,970 37% 3,815 20% 2,318 12% 836 4% 2,881 15% 2,940 16% 6,064 32% 3,188 1,258 1,618 26,972 20% 21,578 14.4% 7,894 37% 4,483 21% 2,582 12% 829 4% 2,791 13% 3,552 16% 7,341 34% 3,438 2,315 1,588 30,305 20% 24,244 12.4% 8,692 36% 5,047 21% 2,820 12% 826 3% 2,636 11% 4,047 17% 8,870 37% 4,251 3,104 1,514 18-20E CAGR 4.7% 3.7% 8.0% 15.4% 13.0% 18.0% 11.2% -3.0% -6.4% 18.9% 29.0% 44.7% 51.3% -6.2% Online penetration for auto ad spend to approach 50% by 2020E A general trend within China’s advertising market is that online ads have been taking budgets from offline media for the past few years across many different sectors; so is in auto ad space. According to iResearch, 38% of China’s auto ad budgets were spent on online channels in 2017 (vs. 20% in 2013 and 13% in 2010), overtaking TV and becoming the largest channel for auto ad spending in China. Among the major channels for auto ad spending, we expect  Online channels will continue to capture the budget of auto advertisers in the next few years. We expect the percent allocation on online platforms will further increase to 46% by 2020E.  TV will lose market share slightly, but will remain one of the largest channels for auto ad spend in the next few years because of the decent effectiveness of TVC ads as one of the few visualized and intuitive ad formats. 17
18. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018  Traditional outdoor ads and print media ads will continue to lose market share. We expect market share of outdoor ads and print media ads will drop to 18%/2% in 2020 vs. 21%/5% in 2017. Figure 18: Auto ad spending by media platforms 100.0% 80.0% 20.3% 23.5% 27.7% 33.0% 60.0% 40.0% 20.0% 0.0% 34.0% 7.4% 16.4% 21.9% 2013 35.0% 7.7% 13.6% 20.2% 34.5% 7.8% 10.5% 19.5% 32.8% 7.9% 7.6% 18.7% 2014 2015 2016 Outdoor Magzine/newspaoer 37.8% 41.8% 44.1% 29.2% 7.2% 5.1% 20.7% 28.2% 6.9% 3.4% 19.7% 27.8% 26..57%% 18.9% 2017 2018E 2019E Radio TV Online 46.1% 27.5% 16..65%% 18.3% 2020E Source: iResearch 2015-17: Moderate share loss of online verticals; portals losing ground significantly Auto advertising market has witnessed increasing competition over the past two years. There are new platforms with fast-growing traffic appeal to advertisers who are seeking more user exposure in a more cost effective way. We think vertical sites and portals are the major channels that have lost market share over the past two years. We estimate that  The market share of auto verticals decreased from 44% in 2015 to 38% in 2017.  Portals’ market share has dropped substantially from 36% in 2015 to 20% in 2017, down 16ppts during two years. Among the share loss of vertical sites, we would highlight a few divergences across different players from 2015 to 2017.  ATHM has achieved robust growth in auto ads in past two years (16-17 CAGR of 28%) and slightly increased its market share from 18% in 2015 to 19% in 2017, thanks to its relatively large user traffic, high-quality content, new product launch, and solid business relationships with auto OEMs.  BITA has also achieved decent growth in auto ad revenue (2-year CAGR of 12%) but underperformed overall auto ad market growth (16-17 CAGR of 22%). It lost market share by 3ppts (13% in 2017 vs. 16% in 2015).  Other vertical sites (e.g. PCauto) witnessed a decline in both auto ad revenue (JPMe 16-17 CAGR of -4.5%) and market share ( down 4ppts from 2015 to 2017). 18
19. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Figure 19: Online auto ads market share structure 100% 8% 12% 80% 19% 26% 32% 34% 14% 15% 60% 36% 16% 16% 27% 40% 20% 15% 13% 20% 44% 40% 38% 37% 37% 0% 2015 2016 2017 2018E 2019E Verticals Portals Video sites Others 36% 17% 11% 36% 2020E Source:'>Source: CAAM, iResearch, Company data, J.P. Morgan estimates. Figure 20: Market share trend of different auto verticals 50% 40% 10% 7% 6% 4% 4% 30% 16% 14% 13% 12% 12% 20% 10% 18% 0% 2015 18% 19% 20% 21% 2016 2017 2018E 2019E ATHM BITA Other verticals 3% 12% 21% 2020E Source:'>Source: CAAM, iResearch, Company data, J.P. Morgan estimates. …while social platforms and information apps have significantly gained traction Market share gainers during the past two years primarily were those traffic platforms with either solid user growth (e.g. popular news and information apps/services), or accelerated ad monetization (e.g. certain social platforms). This can be evidenced by the substantial market share increase of “others” from 8% in 2015 to 26% in 2017. In our view, these new players primarily include:  Toutiao or Today's Headline. We believe Toutiao has become the most important challenger to all the legacy advertising platforms in China. It realized RMB1.5bn/8bn/18bn ad revenue in 2015/16/17, representing 0.7%/2.8%/4.7% of China's total online ad market, respectively. That compares to 11%/19%/28% market share of Tencent, Baidu and Alibaba in China’s online ad market in 2017. In addition, Toutiao launched an in-house auto vertical app Dong Che Di, which accumulated over 1m MAU two months after launch. We view this also as a key challenge to vertical platforms.  WeChat Moments. WeChat has gradually ramped up the monetization of Moments in past years, although still in a controlled fashion. For example, WeChat has lowered the threshold for buying Moments Ads since Jan 2016, allowing more SME customers to launch ads in Moments. More recently WeChat Moments has also started to add new inventory. Moments ad offers great appeal to brand advertisers because of its 1) largest traffic in China (over 900m DAU), 2) relatively high-end user profiles. We noticed an increasing number of auto ads were placed in Moments in the past year. We estimate Moments Ads revenue will exceed RMB15bn in 2018.  Baidu Newsfeed services. Rolled out at the end of 2016, we estimate Baidu’s newsfeed service generated about RMB5.1bn revenue in 2017 and the number will more than double in 2018E. Although at a relatively smaller scale compared to Toutiao and Moments Ads, we believe Baidu Newsfeed will also capture certain ad budgets and market share.  Weibo. Weibo’s KA ad revenue nearly quadrupled from 2015 to 2017 (JPMe RMB2.5bn in 2017), and we expect its KA ad revenue to reach RMB8.9bn by 2020E (18-20E CAGR of 51%). As the largest social media in China, Weibo is well positioned to capture advertisers' budget allocation esp. in the social categories. 19
20. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Auto ads market share outlook: winners and losers? Auto verticals We expect auto verticals as a whole will maintain a relatively stable market share in the next few years (JPMe market share of 36% by 2020 vs. 38% in 2017). It will continue to capture the largest wallet share in auto OEMs’ ad budget. Among vertical players, we believe  ATHM is likely to see the fastest ad rev growth among all auto verticals (JPMe 18-20E CAGR of 18%) due to its competitive advantages (mentioned above)  BITA will maintain decent ad revenue growth (18-20E CAGR of 11%) with a slight drop in market share (JPMe 12% in 2020 vs. 13% in 2017) primarily due to competition.  Other auto verticals will lose 3ppts market share from 2017 (JPMe 6%) to 2020 (JPMe 3%) Video platforms We think video streaming platforms remain one of the most important platforms for brand ad advertisers because of the visualized, intuitive and engaged ad/content format. We expect online video platforms will continue to gain wallet share in auto advertisers’ spending (JPMe a 17% market share in 2020E vs. 15% in 2017). News portals We believe portal ads face significant pressure dragged by the declining PC traffic monetization. We expect market share of major portals (PC+mobile) will further decline to 11% by 2020E as compared to 20% in 2017. Other platforms We expect "others" to further increase market share by 11ppts and reach 37% in 2020E. Market share gain will primarily come from  Aforementioned algorithm-based news and information apps or services  Social platforms e.g. Moments and Weibo;  Other new entrants, such as short-video apps. 20
21. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Well positioned to tap into auto-related transactions opportunity A more targeted user base with better monetization potential Autohome and Bitauto have a more targeted user base for auto advertisers and dealers. According to Baidu Index, users of both companies are more tilted to middle-young aged and male users.  55% of ATHM/BITA’s users are between 30-39 vs. an average 44% of five major portals  Over 80% of ATHM/BITA's users are male vs. an average 70% of five major portals We believe such a male-skewed middle-young aged user base implies better monetization potential given that  These users usually have a stronger intention to purchase vehicles,  These users usually have good understanding of auto market and vehicle models.  Such a user group usually has decent consumption power and embraces new products/services e.g. auto financing, internet-enabled consumption models, etc. Figure 21: User distribution by age 60% Figure 22: User distribution by gender 100% 50% 80% 40% 60% 30% 40% 20% 10% 20% 0% 19 and below 20-29 30-39 40-49 50 and above Tencent Netease Sina Phoenix New Media Sohu Autohome Bitauto 0% Male Female Tencent Netease Sina Phoenix New Media Sohu Autohome Bitauto Source:'>Source: Baidu Index, J.P. Morgan. Source:'>Source: Baidu Index, J.P. Morgan. Over 50% of lifetime spend is on after-sales services We estimate the total spend on auto aftermarket services (e.g. auto loans, insurance, maintenances, etc) during a vehicle’s lifetime has exceeded the purchase price of the vehicle. In other words, over 50% of the total lifetime spend was realized during the use of cars, i.e. after-sales stage. Assuming a life cycle of 10 years, we estimate the lifetime spend is split into  49.1% on car purchase  6.7% on auto loan interests  18.7% on auto insurance  25.6% on other aftermarket services e.g. maintenances. 21
22. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Such a split is generally in-line with the industry transaction market size breakdown, which suggests that the entire auto-related transaction market (auto financing, insurance and aftermarket services) has already exceeded new car sales in 2017. Figure 23: An auto vehicle’s lifetime spend breakdown Aftermarket services, 25.6% Auto insurance, 18.7% Auto loans interests, 6.7% Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Car purchase, 49.1% Figure 24: Auto and related transaction market breakdowns (2017E) 10.4% 0.28.%6% 12.3% 11.1% 13.4% 49.4% New car sales Auto financing Auto insurance Auto maintenance & repairs Car rental Others Used car sales Source:'>Source:'>Source:'>Source: CAAM, CADA, iResearch, CEIC, J.P. Morgan estimates. Table 7: Estimates of after-sales spend on a vehicle RMB Sales price Life expectancy (years) Auto loans Down payment % Loan amount Loan duration (years) Annual nominal interest rate Total interests payment Auto insurance Expected insurance premium during lifetime Average spend per year % of auto price Other aftermarket services/products Expected spend on other auto aftermarket services Average spend per year % of auto price Total spend on aftermarket services during lifetime % of purchase price % of lifetime spend Source:'>Source:'>Source:'>Source: CAAM, CADA, CEIC, NBS, J.P. Morgan estimates. Average Comments 134,036 10 JPM assumption 40,211 30% 93,825 3 6.5% 18,363 51,032 3,523 Assuming annual growth at 8% 2.6% 69,819 4,820 3.6% 139,214 103.9% 50.9% Assuming annual growth at 8% 22
23. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 How to gauge the transactions opportunity? In terms of auto financing services, companies usually adopt two major approaches to generate revenue:  Self-operated model, i.e. platforms charge interest fees by providing consumer loans using their own balance sheet; at the same time, the funding costs will be recognized in cost of revenue.  Platform model. This is more of an internet-oriented asset-light business model. Platforms charge services fees by facilitating the loan transactions between financial institutions and consumers, offering data analytics, risk control and other value-added services. For other auto aftermarket services, revenue opportunities primarily come from services fees by connecting consumers with downstream service providers (e.g. insurance companies, other car service providers, etc), offering additional VAS to car buyers and service providers, etc. Auto and related transactions: quantifying the growth potential An RMB5tr market with RMB300-400bn revenue opportunity by 2020E We estimate the overall size of auto aftermarket, including auto financing/credit loans, auto insurance, used car transaction and other aftermarket services, has reached RMB3.4tr in 2017 and is likely to approach RMB5trn by 2020. The implied revenue opportunity from such transactions could reach RMB300-400bn by 2020E. 23
24. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Table 8: Gauging the opportunity in auto and related transactions RMBmn Auto financing & loans Total automobile finance loan YoY New car sales volume (passenger vehicle) Loan attach rate Average loan size (RMB) Average down payment ratio Auto insurance Total no. of cars in use (m) YoY Average premium per vehicle (RMB) YoY Total auto insurance premium YoY - Compulsory insurance YoY No. of cars insured YoY Premium per vehicle (RMB) - Commercial insurance YoY No. of cars insured Commercial insurance buying ratio Average premium per vehicle (RMB) YoY Auto aftermarket Auto aftermarket size (ex-auto financing) YoY Used car sales Total sales (RMBm) YoY Units sold (m) YoY Average price per unit Summary Auto financing & loans YoY Auto insurance YoY Average premium per vehicle (RMB) Other auto-related services YoY Average spend per vehicle (RMB) Used car transactions YoY Total auto and auto-related transaction market size YoY 2013 580,000 29% 17.9 20.0% 161,761 2014 659,511 14% 19.7 21.6% 154,929 2015 728,100 10% 21.1 28.0% 122,970 137 25.3% 3,446 -5.8% 472,099 18.0% 125,900 13.0% 147 14.0% 346,199 20.0% 100 73.0% 3,462 154 12.8% 3,571 3.6% 551,600 16.8% 141,800 16.8% 165 16.8% 859 409,800 16.8% 113 73.0% 3,634 172 11.4% 3,602 0.9% 619,900 12.4% 157,100 10.8% 184 11.5% 854 462,800 12.9% 133 77.0% 3,492 -3.9% 558,000 19.0% 638,000 14.3% 770,000 20.7% 291,649 10.6% 5.20 8.6% 56,051 367,565 26.0% 6.05 16.3% 60,725 553,540 50.6% 9.42 55.6% 58,780 580,000 28.9% 472,099 18.0% 3,446 558,000 19.0% 4,073 291,649 10.6% 659,511 13.7% 551,600 16.8% 3,571 638,000 14.3% 4,130 367,565 26.0% 728,100 10.4% 619,900 12.4% 3,602 770,000 20.7% 4,474 553,540 50.6% 1,901,748 2,216,676 2,671,540 20.2% 16.6% 20.5% 2016 800,910 10% 24.4 30.5% 107,722 194 12.7% 3,523 -2.2% 683,400 10.2% 172,810 10.0% 202 10% 854 510,590 10.3% 157 81.0% 3,318 -5.0% 935,000 21.4% 610,769 10.3% 10.39 10.3% 58,780 800,910 10.0% 683,400 10.2% 3,523 935,000 21.4% 4,820 610,769 10.3% 3,030,079 13.4% 2017 911,012 14% 24.7 36.3% 101,532 25.0% 217 11.9% 3,466 -1.6% 752,107 10.1% 185,276 7.2% 217 7% 854 566,831 11.0% 182 84.0% 3,110 -4.3% 1,060,000 13.4% 705,417 15.5% 12.00 15.5% 58,780 911,012 13.7% 752,107 10.1% 3,466 1,060,000 13.4% 4,885 705,417 15.5% 3,428,536 13.2% 2018E 1,100,526 21% 25.6 41.9% 102,548 24.0% 239 10% 3,448 -0.5% 823,012 9.4% 203,803 10.0% 239 10% 854 619,209 9.2% 205 86.0% 3,016 -3.0% 1,157,000 9.2% 846,500 20.0% 14.40 20.0% 58,780 1,100,526 20.8% 823,012 9.4% 3,448 1,157,000 9.2% 4,847 846,500 20.0% 3,927,038 14.5% 2019E 1,315,346 20% 26.7 47.6% 103,573 23.0% 258 8% 3,426 -0.6% 883,099 7.3% 220,107 8.0% 258 8% 854 662,992 7.1% 224 87.0% 2,956 -2.0% 1,235,000 6.7% 998,870 18.0% 16.99 18.0% 58,780 1,315,346 19.5% 883,099 7.3% 3,426 1,235,000 6.7% 4,791 998,870 18.0% 4,432,315 12.9% 2020E 1,530,995 16% 27.6 53.1% 104,609 22.0% 278 8% 3,458 1.0% 962,883 9.0% 237,716 8.0% 278 8% 854 725,167 9.4% 248 89.0% 2,926 -1.0% 1,296,750 5.0% 1,158,689 16.0% 19.71 16.0% 58,780 1,530,995 16.4% 962,883 9.0% 3,458 1,296,750 5.0% 4,658 1,158,689 16.0% 4,949,317 11.7% 18-20E CAGR 18.9% 8.6% 7.0% 18.0% 13.0% Source: China Automotive Industry Yearbook, CAAM, CADA, Frost & Sullivan, Analysys, J.P. Morgan estimates. 24
25. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Table 9: Implied revenue opportunities by 2020E Implied revenue opportunity (RMBm) Auto financing Self-operated model Interest rate Platform model Take rate Auto insurance Auto insurance Take rate Auto aftermarket services Auto aftermarket Take rate Used car market Used car sales Commission rate Total revenue opportunity (assuming 100% self-operated model for auto financing) Total revenue opportunity (assuming 100% platform model for auto financial) Source:'>Source: J.P. Morgan estimates. 2020E 1,530,995 183,719 12.0% 91,860 6.0% 962,883 144,432 15.0% 1,296,750 64,838 5.0% 1,158,689 23,174 2.0% 416,163 324,303 Low online penetration suggests ample growth room Figure 25: Internet penetration is generally low across major sub-markets of auto aftermarket 35% 30% 30% 25% 20% 15% 12.5% 10% 4.0% 3.9% 5% 0% Auto finance/loans Auto insurance Auto maintemance & repairs Used car sales Source:'>Source: IAC, iResearch, J.P. Morgan estimates. Auto consumer finance According to 2017 China Auto Finance Almanac, the penetration rate of auto financing services (loan attach rate) for new cars in China was roughly 38.6% in 2017, as compared to over 70% in developed economies e.g. the U.S., the U.K., and Germany. Within auto finance market, we estimate ~30% of auto /financing services loans were facilitated through internet platforms in 2017. Auto insurance According to Insurance Association of China, internet-based auto insurance premium income was RMB31bn in 2017, representing a penetration rate of 4%. Over 50% of the internet-based insurance revenue was generated from insurance companies’ own online channels (including PC+mobile) in 2017. Auto aftermarket We believe internet-based auto aftermarket is at an early stage, with online penetration in most sub-markets being extremely low. Taking auto maintenance market for example- according to iResearch, internet penetration for auto maintenance and repairs market was only 3.9% in 2017. 25
26. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Used car sales According to iResearch, e-commerce penetration in used car sales market reached 12.5% in 2017. A US$50bn market cap opportunity for online platforms by 2020 Our base case scenario suggests online platforms are able to capture RMB70-100bn revenue opportunity (depending on auto financing business model) by 2020E, which implies a US$~50bn market cap potential. Key assumptions to our base case include  A 30%/20%/10%/25% online penetration for auto financing, auto insurance, auto aftermarket services, and used car transactions by 2020E, respectively.  A 12% interest rate (self-operated model) and 6% commission rate (platform model) for auto financing services by 2020E  A 15%/5%/2% take rate for auto insurance, auto aftermarket services and used car transactions by 2020E.  An 18% net profit margin for auto financing self-operated model  A 25% net profit margin for auto financing platform model Table 10: Scenario analysis: revenue and market cap opportunities for online auto and related transactions 2020E RMBm Auto financing Online penetration Online auto financing Interest rate/service fee rate Annual revenue Auto insurance Online penetration Online auto insurance Take rate Revenue Auto aftermarket services Online penetration Online auto aftermarket services Take rate Revenue Used car sales Online penetration Used car transactions through online channels Commission rate Revenue Total GMV Total revenue generated through online platforms Net margin Total net profit (RMBm) Total net profit (USDm) Profit to GMV ratio P/E Implied market cap (USDm) Source: CAAM, CADA, Tencent, J.P. Morgan estimates. Self-operated model Bear case Base case Bull case 1,530,995 1,530,995 1,530,995 20% 30% 50% 306,199 459,298 765,497 12% 12% 12% 36,744 55,116 91,860 962,883 962,883 962,883 15% 20% 30% 144,432 192,577 288,865 15% 15% 15% 21,665 28,886 43,330 1,296,750 1,296,750 1,296,750 8% 10% 15% 103,740 129,675 194,513 5% 5% 5% 5,187 6,484 9,726 1,158,689 1,158,689 1,158,689 18% 25% 40% 208,564 289,672 463,476 2.0% 2.0% 2.0% 4,171 5,793 9,270 4,949,317 4,949,317 4,949,317 67,767 96,279 154,185 18% 18% 18% 12,198 17,330 27,753 1,794 2,549 4,081 0.25% 0.35% 0.56% 20 x 20 x 20 x 35,877 50,971 81,627 Bear case 1,530,995 20% 306,199 6% 18,372 962,883 15% 144,432 15% 21,665 1,296,750 8% 103,740 5% 5,187 1,158,689 18% 208,564 2.0% 4,171 4,949,317 49,395 25% 12,349 1,816 0.25% 20 x 36,320 Platform model Base case 1,530,995 30% 459,298 6% 27,558 962,883 20% 192,577 15% 28,886 1,296,750 10% 129,675 5% 6,484 1,158,689 25% 289,672 2.0% 5,793 4,949,317 68,722 25% 17,180 2,527 0.35% 20 x 50,531 Bull case 1,530,995 50% 765,497 6% 45,930 962,883 30% 288,865 15% 43,330 1,296,750 15% 194,513 5% 9,726 1,158,689 40% 463,476 2.0% 9,270 4,949,317 108,255 25% 27,064 3,980 0.55% 20 x 79,599 26
27. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Increasing competition may lead to earnings downside risk Over the past two years, we have seen an increasing number of players entering auto and related transaction market, especially the auto financing space. Now the internetbased auto financing space is crowded with different types of players, including 1) online auto vertical media which have gradually expanded into transaction services (e.g. Bitauto/Yixin and Autohome), 2) emerging auto transaction focused platforms (e.g. Souche, Renren Che, etc); 3) general consumer finance platforms (e.g. Meili Finance, Qudian); 4) general e-commerce platforms which have expanded into auto transaction and financing products (e.g. Alibaba and JD). We believe the intensified competition will bring increasing margin pressure to the sector due to various reasons, including 1) more branding promotion spend, 2) more aggressive traffic acquisition, 3) higher rebate in order to gain volume growth and market share. 27
28. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Online real estate Online real estate ads Relatively under-penetrated by internet The market structure of real estate advertising is showing different characteristics compared to other sectors - a higher percentage of real estate ad spend is still put on traditional media channels instead of online. According to Nielsen, TV represented the largest wallet share (~35% in 2017 vs. 44%/42% in 2015/16) of real estate advertisers, followed by radio and newspaper. According to iResearch, online ads penetration in real estate industry was 13% in 2016, as compared to 30% in the auto sector and 45% in the overall advertising industry in China. We estimate the wallet share of online platforms had increased to ~20% in 2017, which was still way below major offline channels. Figure 26: Ad revenue breakdown by format (as % of total ad spend) 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 21.0% 22.3% 22.0% 2013 20.7% 20.5% 27.6% 2014 21.3% 18.2% 36.6% 2015 Online TV Radio Newspaper Magzine Outdoor 21.5% 16.2% 44.7% 2016 Source:'>Source:'>Source:'>Source: iResearch, Posterscope, SAIC Figure 27: Real estate ads breakdown by media formats (2016) 13.4% 25.0% 25.4% 15.4% Outdoor Newspaper/magzine Radio TV Internet Figure 28: Auto ads breakdown by media formats (2016) 30.3% 17.7% 9.6% 7.9% Outdoor Newspaper/magzine Radio TV Internet 20.8% Source:'>Source:'>Source:'>Source: iResearch, J.P. Morgan estimates. 34.5% Source:'>Source:'>Source:'>Source: iResearch, J.P. Morgan estimates. 28
29. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 In our view, key reasons leading to a relatively low online ad penetration in real estate market include:  Real estate market is location bounded and offline-heavy business. A significant portion of brands/products’ exposure to users was conducted through offline and more localized channels (such as outdoor ads).  Due to extremely large transaction amount per deal, real estate transactions usually involve a much longer decision process. Consumers tend to leverage multiple channels beyond online ads to get more information of real estate properties. Online real estate verticals remain a major marketing channel for developers… According to iResearch, China’s online real estate display ad spend was RMB5.2bn in 2016. A vast majority of these budgets was allocated on portals (51.8%) and real estate vertical sites (42.5%). In particular, SFUN and LEJU jointly represented 37% of total online real estate display ads spend in 2016. Figure 29: Online real estate display ad market size Figure 30: Real estate online display ads by channel (2016) 7,000 RMBm 6,170 60% 6,000 5,000 4,000 3,000 2,000 2,800 2,970 3,670 4,840 5,170 50% 40% 30% 20% 10% 0% 1,000 -10% 0 -20% 2011 2012 2013 2014 2015 2016 1.3% 2.6% 1.8% 42.5% 51.8% Portals Real estate vertical sites Video sites Regional sites Others Online real estate ad spend YoY Source:'>Source: iResearch Source:'>Source: iResearch …while facing increasing competition and inherent issues However, online real estate verticals have been losing market share over the past few years due to 1) competition from new traffic gateways with large user base and good user engagement (e.g. social platforms, news apps, etc), 2) outdated marketing products which are unable to capture advertisers' evolving marketing demand in a changing real estate market environment (e.g. supply-demand structure, regulations, etc). For example,  Brand ads are still the predominant ad format in real estate marketing, which is unable to meet the increasing demand of advertisers on performance-measured marketing.  E-coupon model proved to be a successful innovation in 2012-13, but the model hasn’t worked well in the past 2 years as a result of the cooldown of real estate transactions, as well as the tightened policy. 29
30. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Bumpy road into real estate transaction Real estate vs. normal movable goods transactions: more service oriented, more offline-heavy A complete process of transaction usually involves the fulfillment of information flow, product/service flow and fund flow. Whether a transaction can be moved online usually depends on whether these three flows can be digitized.  Information flow, i.e. the acquisition of enough information (product details, pricing, etc), usually can be easily digitized. However, for large-ticket items (such as real estate properties), which involve longer decision cycle, buyers usually conduct multiple offline checks to make sure the information is sufficient and correct.  Product flow. Fulfillment of an online transaction usually involves the delivery of goods/services, which can be relatively easy to achieve through couriers or O2O service providers.  Fund flow, which is relatively easy to move online. The digitization of real estate transactions faces more difficulties than normal movable goods and automobiles due to a number of reasons  A real estate property is a non-standardized and location-oriented product, and not all the information (e.g. surroundings, public and commercial facilities, etc) is fully available online.  Real estate transaction usually involves a much larger transaction value than movable goods, thus usually involves a much longer decision cycle. During the decision process, buyers usually have to undertake offline checks to get full knowledge of the property conditions.  The delivery of real estate transactions involves the legal transfer of ownership, which normally requires offline registration with local authority.  Payment of real estate transactions usually involves a large amount of money. Usually people still tend to pay through traditional bank channels. Overall, we think real estate transactions bear more service-oriented characteristics, and this manifests in the importance of offline services during the transaction process. As such, we don't think online real estate verticals are well positioned to get directly involved in the transactions services. 30
31. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Figure 31: Transaction value chain in a glance Information flow Information gathering Media platforms Marketing Decision making Purchase Consumers Businesses Product/service flow Offline experience Fulfillment Transaction facilitation Delivery of physical goods Fulfillment of services Fund flow Financing services Payment Financial institutions Source:'>Source: J.P. Morgan. Table 11: Key determinants of whether a transaction can be fulfilled online Movable goods Automobiles Real estate Information flow 1. Usually standardized products 2. Product information can be obtained through online channels) 1. Standardized (new vehicles) 2. Product information can be obtained through online channels 1. Non-standardized (both new homes and secondary homes) 2. Not all the information (e.g. surroundings, public facilities, commercial facilities, etc) are available online 3. Decision process is usually long thus offline checks are required Product/service flow 1. Can be fulfilled through delivery 2. Return is easy 1. Transfer of ownership involves offline process 2. Return/refund is more difficult than small ticket items 1. Legal transfer of ownership requires registration with local authorities offline 2. Return/refund is extremely difficult Online Offline Fund flow Can be fulfilled online Can be fulfilled online Can be fulfilled online but sometimes people still tend to pay through traditional banks given the large transaction value per deal Source:'>Source: J.P. Morgan. Despite a sizable market… We estimate China's residential property transactions market was about RMB18trn in 2017, including RMB11tr from new home transactions and RMB7tr from secondary home transactions. Within the RMB18trn market, we believe the revenue opportunity for online real estate verticals comes from  The marketing expenses (including promotional spend, advertising spend, sales commissions, etc) of new home developers  The sales commissions of secondary home market 31
32. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com 32 Asia Pacific Equity Research 29 August 2018 We estimate the above implies RMB372bn revenue opportunity in 2017 and could potentially rise to RMB450bn by 2020E. Table 12: A large real estate transaction market in China RMBbn New home market New home transaction value (RMBbn) Unit price (RMBk) Marketing and channel costs % of sales value Advertising expenses % of sales value Secondary home market Total no. of residential properties (m) No. of new home sold (m) Total asset value of residential properties (RMBbn) Circulation rate 2015E 7,277 688 196 2.7% 93 1.3% 270 10.6 2016E 9,904 943 230 2.3% 117 1.2% 281 10.5 325,000 2.0% 2017E 11,024 1,050 254 2.3% 132 1.2% 291 10.5 354,010 2.1% 2020E 12,241 1,224 282 2.3% 147 1.2% 321 10.0 452,013 2.5% 17-20E CAGR 3.6% 3.6% 3.6% 3.3% Secondary home transaction volume (m) Secondary home transaction value (RMBbn) Unit price (RMBk) Commission revenue % commission rate Total addressable market Source:'>Source: NBS, Bloomberg, CEIC, J.P. Morgan estimates. 5,000 96 1.9% 292 5.6 6,500 1,157 104 1.6% 334 6.1 7,434 1,215 119 1.6% 372 8.0 11,300 1,407 170 1.5% 451 5% 13.0% 7.8% … internet-based transaction model still in a trial stage Given the service-oriented nature of real estate transactions, we believe offline agencies (e.g. Homelink) still offer better user experience during the process of sales facilitation. So far Internet companies’ trials in real estate e-commerce primarily focus on the digitization of information and traffic flow, i.e. offering real estate related information online, generating sales leads for developers/sellers from online channels, etc. Key strengths of online real estate verticals in transactions may come from  Improving information transparency through internet  Enhancing the transaction efficiency.  Generating sales leads to property developers/agencies/sellers based on its broad and more targeted user base. Table 13: Trials of internet-based platforms in real estate transactions Fang Leju Fang Duo Duo Haowu Ai Wu Ji Wu Jiwu Business model E-coupon (new home); franchise model (secondary home) E-coupon Online marketplace Crowd sales Internet agency Online marketplace Source:'>Source: J.P. Morgan. New home Yes Yes Yes Yes Yes Secondary home Yes Home rental Yes Yes Yes Yes Yes Yes
33. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Companies 33
34. Asia Pacific Equity Research 29 August 2018 Weibo Corporation Unshaken positioning in China's social media realm Overweight WB, WB US Price:'>Price:'>Price:'>Price: $80.77 ▼ Price Target: $118.00 Previous: $142.00 We assume coverage of Weibo with an Overweight rating and PT of US$118. We believe Weibo’s positioning in China’s social media space is unshaken despite the competition from other social and entertainment products. We view the impact from short video apps on SME ad revenue as a short-term hiccup and won’t challenge Weibo’s core competitive strength, i.e. its social assets. We believe Weibo’s current share price offers significant upside potential given 1) Sina's ex-cash market value implies a total valuation of US$110bn for Weibo, which represents 12x 19E P/E on our forecasts; 2) monetization of Weibo on per user basis is significantly below other social & traffic platforms. We echo Weibo’s core strategy around user growth, content generation, and customer empowerment, which we believe will drive Weibo’s monetization capability in the foreseeable future. This should support Weibo’s market share gain in China's online ad market.  Unshaken positioning in China’s social media realm. There have been longterm debates regarding the competitive pressure faced by Weibo, including the challenge from WeChat Moments in 14/15, and most recently, the competition from Tik Tok since end of 2017. In our view, Weibo’s core strength lies in its social asset, i.e. the connections and engagement between KOLs and other users, which forms the foundation for KOLs and advertisers to gain exposure. Despite the similar feature adopted by other platforms (e.g. Toutiao and Tik Tok), Weibo still generates much more significant social influences than other platforms (in terms of fan base and comments/retweets on a single post).  Continued market share gain in online ad space. We attribute the slowdown of SME ads in 1H18 (+48% YoY) to 1) budget shift to short video apps, and 2) high base in 2017. With expanding ad revenue size, we expect Weibo to move gradually from hyper-growth stage in 16-17 (2-year CAGR of 88% for SME and KA ads) to a fast-growth stage (JPMe a 42% CAGR of SME and KA ads from 18-20E). Such a rate still indicates that Weibo will continue to gain market share in online ad space (JPMe a 2.5% market share by 2020E vs. 1.7% in 2017).  Risk hinges more on internal execution rather than competition. We believe the key challenge will more likely come from internal executions, which we think have made great improvements over past years.  Jun-19 PT of US$118 is based on 19E non-GAAP EPS of US$4.1, an FY2021E EPS CAGR of 32% and a PEG of 0.9x. PT implies 19/20E P/E of 29x/21x. China Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Alex Yao AC (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 130 110 $ 90 70 Aug-17 Nov-17 Feb-18 May-18 Aug-18 WB share price ($) CCMP (rebased) YTD 1m 3m 12m Abs -21.9% -7.2% -21.3% -15.1% Rel -38.0% -10.8% -29.2% -42.7% Share Price:'>Price:'>Price:'>Price: $80.77, Date of Price:'>Price:'>Price:'>Price: (27 Aug 18), Bloomberg WB US, Reuters WB (Year-end Dec, $ mn) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E Net Sales 1,150 1,798 2,534 3,383 ROE(%) 41.7% 42.5% 41.4% 38.4% Operating Profit (EBIT) 408 656 1,019 1,446 ROIC(%) - - - - EBITDA 456 705 1,072 1,504 Cash 1,001.0 2,181.3 3,373.0 4,971.8 Pre Tax Profit 417 700 1,072 1,506 Equity 1,194.8 1,834.2 2,789.3 4,112.8 Reported Net profit 353 591 902 1,266 Qtr GAAP EPS ($) 1Q 2Q 3Q 4Q Reported EPS ($) 1.56 2.56 3.87 5.42 EPS (17) 0.21 0.33 0.45 0.57 P/E (x) 51.6 31.6 20.9 14.9 EPS (18) E 0.44 0.61 0.69 0.81 Adj. EPS * 1.80 2.78 4.10 5.67 EPS (19) E 0.67 0.91 1.06 1.23 Adj. P/E (X) 44.9 29.1 19.7 14.3 1M 3M 12M EV/EBITDA (x) 61.9 38.3 24.1 16.1 Abs. Perf.(%) (7.2%) (21.3%) (15.9%) P/B (x) 15.2 10.2 6.8 4.6 Rel. Perf.(%) (10.8%) (29.1%) (43.5%) 52-Week range Shares Outstg Market Cap(US) Free float Avg daily vol. Avg daily val ($) Dividend Yield Index (NASD) Price Target Price Target End Date Price Date 142.12-70.13 233MN US$18,837MN - 2.3MM shares 204.57MN 8017.90 118.00 30-Jun-19 27 Aug 18 Y/E BPS ($) 5.30 7.94 11.96 17.60 Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense. www.jpmorganmarkets.com
35. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key catalysts for the stock price: • Monetization of KoL economy • Growth of KA and SME ads • Margin expansion Upside risks to our view:'>view: • Stronger-than-expected SME ads growth • Outperformance of non-ads business Downside risks to our view:'>view: • Competition from other social platforms and general information apps • Regulation risks • Sector derating Key financial metrics Revenues (USDm) Revenue growth (%) EBITDA (USDm) EBITDA margin (%) Tax rate (%) Net profit (USDm) EPS (USD) EPS growth (%) DPS (USD) BVPS (USD) Operating cash flow (USDm) Free cash flow (USDm) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions MAU (m) No. of SME customers (k) FY17 1,150 75.4% 456 39.6% 16.0% 406 1.80 118.7% 0.00 5.30 539 506 -31.9 35.3% 0.6 73.7% -10.1% 41.7% FY17 392 906 FY18E 1,798 56.4% 705 39.2% 15.7% 642 2.78 54.3% 0.00 7.94 1,211 1,141 -15.1 35.7% 0.6 48.0% -70.9% 42.5% FY18E 457 1,020 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Sensitivity analysis Sensitivity to 5% chg in portal ads revenue 5% chg in Weibo revenue Operating profit FY18E FY19E 4% 4% 9% 9% FY19E 2,534 40.9% 1,072 42.3% 16.0% 956 4.10 47.5% 0.00 11.96 1,232 1,146 -20.0 37.7% 0.6 31.5% -89.4% 41.4% FY19E 513 1,151 FY20E 3,383 33.5% 1,504 44.5% 16.0% 1,324 5.67 38.3% 0.00 17.60 1,649 1,548 -25.2 39.1% 0.6 21.4% -99.5% 38.4% FY20E 565 1,281 EPS FY18E 2% 5% FY19E 2% 5% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Peer group valuation comparison Ticker Rating Weibo WB US OW Sina SINA US OW Baidu BIDU US N Tencent 700 HK OW Facebook FB US OW Twitter TWTR US OW Price USD 80.8 USD 71.6 USD 228.6 HKD 361.0 USD 177.5 USD 35.9 PT USD 118 USD 150 USD 273 HKD 460 USD 205 USD 45 Mkt Cap USDm 18,024 5,117 80,038 437,907 512,366 27,199 Valuation and price target basis PT of US$118 is based on 2019E non-GAAP EPS of US$4.1, a 20-21E EPS CAGR of 32% and a PEG of 0.9x. PT implies 2019/20E P/E of 29x/21x. Weibo revenue growth trend 4,000 US$m 3,500 3,000 2,500 2,000 77% 43% 1,500 1,000 500 37% 656 334 478 75% 1,150 2,534 1,798 41% 56% 3,383 34% 0 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Weibo revenue YoY 100% 80% 60% 40% 20% 0% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, Company and J.P. Morgan estimates. JPMe vs. consensus, change in estimates Non-GAAP EPS (US$ ) FY18E FY19E JPMe 2.79 4.10 Consensus 2.75 3.89 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. EV USDm 17,337 4,280 70,773 452,213 470,057 24,234 P/E FY19E FY20E 19.7 x 14.3 x 14.0 x 9.7 x 18.7 x 16.8 x 26.6 x 19.8 x 18.7 x N/A 47.1 x N/A P/S FY19E FY20E 7.4 x 5.6 x 1.8 x 1.4 x 4.5 x 3.9 x 6.7 x 5.2 x 7.4 x N/A 8.2 x N/A PEG FY19E 0.6 x 0.3 x 1.8 x 0.9 x N/A N/A CAGR 20-21E 32.0% 42.4% 10.4% 28.2% N/A N/A Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Prices as of Aug 27, 2018 35
36. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key charts Figure 32: Total mobile time spent market share of China Internet companies 60% 54.3% 47.7% 50% 40% 30% 20% 10% 10.1% 7.9% 7.4% 3.9% 0% Tencent apps Toutiao apps Baidu apps Jun-17 6.7% 6.4% Alibaba apps Jun-18 2.9% 3.6% Sina apps 2.6% 3.1% Weibo Source:'>Source: QuestMobile Table 14: China online ads market share: Weibo/Sina vs. BAT RMBbn Baidu % market share Alibaba % market share Tencent % market share Weibo % market share Sina (incl Weibo) % market share Source:'>Source: iResearch, Company data, J.P. Morgan estimates. 2013 31.8 28.8% 24 5.0 4.6% 0.9 0.8% 3.2 2.9% 2014 48.5 31.4% 35.7 23.1% 8.3 5.4% 1.6 1.1% 3.9 2.5% 2015 64.0 29.3% 48.5 22.2% 17.5 8.0% 2.6 1.2% 4.7 2.2% 2016 64.5 22.2% 72.3 24.9% 27.0 9.3% 3.9 1.3% 5.9 2.0% 2017 73.1 19.1% 108.4 28.3% 40.4 10.6% 6.5 1.7% 8.5 2.2% 2018E 85.5 17.2% 143.7 28.9% 58.9 11.8% 10.2 2.1% 12.3 2.5% 2019E 99.1 15.9% 191.1 30.7% 88.1 14.2% 14.6 2.3% 17.0 2.7% 2020E 113.7 14.9% 237.1 31.0% 124.8 16.3% 19.1 2.5% 21.9 2.9% 36
37. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Investment Thesis, Valuation and Risks Weibo Corporation (Overweight; Price Target: $118.00) Investment Thesis We believe Weibo’s positioning in China’s social media space is unshaken despite the competition from other social and entertainment products. We view the impact from short video apps on SME ad revenue as a short-term hiccup and won’t challenge Weibo’s core competitive strength, i.e. its social assets. We believe current share price of Weibo offers significant upside given 1) Sina's ex-cash market value implies a total valuation of US$110bn for Weibo, which represents 12x 19E P/E on our forecasts; 2) monetization of Weibo on per user basis is significantly below other social & traffic platform. We echo Weibo’s core strategy around user growth, content generation, and customer empowerment, which we believe will drive Weibo’s monetization capability in the foreseeable future. This should support Weibo’s market share gain in China's online ad market. Valuation Our Jun-19 PT of US$118 is based on 2019E non-GAAP EPS of US$4.1, an FY2021E EPS CAGR of 32% and a PEG of 0.9x. We leverage PEG as our primary valuation methodology, as it is able to measure both the earnings ability and growth prospects. Our PT implies a 2019E P/E of 29x and a 2020E P/E of 21x. Risks to Rating and Price Target Key risks to our OW rating and price target include: (1) underperformance of SME ads; (2) higher-than-expected marketing spend; (3) challenges from other social and entertainment-oriented platforms; and (4) regulatory risk. 37
38. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Weibo Corporation: Summary of Financials Income Statement - Annual Revenue COGS FY16A FY17A FY18E FY19E FY20E Income Statement - Quarterly 656 1,150 1,798 2,534 3,383 Revenue (171) (231) (291) (400) (518) COGS Gross profit SG&A 485 919 1,507 2,134 2,866 Gross profit (190) (318) (588) (796) (1,026) SG&A Adj. EBITDA D&A Adj. EBIT Net Interest Adj. PBT Tax Minority Interest Adj. Net Income Reported EPS Adj. EPS DPS Payout ratio Shares outstanding . Balance Sheet & Cash Flow Statement Cash and cash equivalents Accounts receivable Inventories Other current assets Current assets PP&E LT investments Other non current assets Total assets 178 456 705 1,072 1,504 Adj. EBITDA 0 0 0 0 0 D&A 178 456 705 1,072 1,504 Adj. EBIT 9 14 47 54 60 Net Interest 147 465 749 1,126 1,563 Adj. PBT (4) (67) (110) (172) (241) Tax 2 2 1 1 1 Minority Interest 183 406 642 956 1,324 Adj. Net Income 0.48 1.56 2.56 3.87 5.42 Reported EPS 0.82 1.80 2.78 4.10 5.67 Adj. EPS - - - - - DPS - - - - - Payout ratio 223 225 231 233 234 Shares outstanding FY16A FY17A FY18E FY19E FY20E 365 1,001 2,181 3,373 4,972 135 186 240 332 437 - - - - - 98 861 861 861 861 597 2,048 3,282 4,566 6,270 23 34 40 46 51 400 452 452 452 452 17 27 27 27 27 1,037 2,562 3,802 5,091 6,801 Ratio Analysis Gross margin EBITDA margin EBIT margin Net profit margin ROE ROA ROCE SG&A/Sales Short term borrowings Payables Other short term liabilities Current liabilities Long-term debt Other long term liabilities Total liabilities Shareholders' equity Minority interests Net debt/equity - - - - - 49 135 715 1,008 1,346 P/E (x) 229 350 370 412 460 P/BV (x) 278 485 1,086 1,420 1,806 EV/EBITDA (x) - 880 880 880 880 Dividend Yield 1 2 2 2 2 280 1,367 1,968 2,302 2,688 Sales/Assets (x) 753 1,193 1,832 2,787 4,111 Interest cover (x) 4 2 2 2 2 Operating leverage Total liabilities & equity 1,037 2,562 3,802 5,091 6,801 BVPS y/y Growth Net debt/(cash) Cash flow from operating activities o/w Depreciation & amortization o/w Changes in working capital Cash flow from investing activities o/w Capital expenditure as % of sales Cash flow from financing activities o/w Dividends paid o/w Net debt issued/(repaid) Net change in cash Adj. Free cash flow to firm y/y Growth 3.40 5.30 7.94 11.96 17.60 17.9% 56.0% 49.7% 50.7% 47.2% - (121) (1,301) (2,493) (4,092) 236 539 1,211 14 15 24 36 117 547 (97) (815) (30) (13) (20) (30) 2.0% 1.8% 1.7% 3 884 0 - - - - - - 127 636 1,180 215 506 1,141 30.0% 136.0% 125.2% 1,232 1,649 34 45 243 280 (40) (50) (40) (50) 1.6% 1.5% 0 0 - - - - 1,192 1,599 1,146 1,548 0.5% 35.1% Revenue y/y Growth EBITDA y/y Growth Tax rate Adj. Net Income y/y Growth EPS y/y Growth DPS y/y Growth Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Dec. o/w - out of which 1Q18A 2Q18A 3Q18E 4Q18E 350 427 472 550 (63) (62) (78) (88) 287 365 394 461 (117) (149) (149) (172) 120 167 192 226 0 0 0 0 120 167 192 226 9 12 12 12 128 178 204 238 (18) (25) (31) (36) 0 0 0 0 113 156 174 202 0.44 0.61 0.69 0.81 0.50 0.67 0.75 0.87 - - - - - - - - 226 233 233 233 FY16A FY17A FY18E FY19E FY20E 73.9% 79.9% 83.8% 84.2% 84.7% 27.1% 39.6% 39.2% 42.3% 44.5% 27.1% 39.6% 39.2% 42.3% 44.5% 28.0% 35.3% 35.7% 37.7% 39.1% 26.7% 19.6% 25.1% 28.9% 41.7% 22.5% 27.6% 27.6% 42.5% 20.2% 25.1% 32.7% 41.4% 21.5% 28.5% 31.4% 38.4% 22.3% 29.4% 30.3% - (10.1%) (70.9%) (89.4%) (99.5%) 98.1 44.9 29.1 19.7 14.3 23.8 15.2 10.2 6.8 4.6 157.1 61.9 38.3 24.1 16.1 - - - - - 0.7 0.6 0.6 0.6 0.6 NM NM NM NM NM 479.1% 207.1% 97.1% 127.4% 120.1% 37.2% 75.4% (14.1%) 156.1% 2.9% 14.3% 166.7% 121.1% 160.8% 118.7% - - 56.4% 54.7% 14.7% 58.3% 54.3% - 40.9% 52.1% 15.2% 48.8% 47.5% - 33.5% 40.2% 15.4% 38.5% 38.3% - 38
39. Asia Pacific Equity Research 29 August 2018 Sina Corp Weibo remains the sweet spot; portal ads gradually recover Overweight SINA, SINA US Price:'>Price:'>Price:'>Price: $71.59 ▼ Price Target: $150.00 Previous: $180.00 We assume coverage of Sina with an Overweight rating and Jun-19 PT of US$150. Sina is a leading online media platform in China with footprints in both portals and social media (i.e. Weibo). Through its controlling stake in Weibo, Sina continues to gain market share in mobile time spent of China Internet population (3.6% in June 2018 vs. 2.9% in June 2017). Besides, we estimate Sina/Weibo’s monetization is substantially below leading internet companies in China on both per user and per unit time spent basis, indicating ample growth room for Sina/Weibo to ramp up monetization.  Unshaken leadership of Weibo in China’s social media realm. We believe Weibo’s leading position in China’s social media realm remains unchallenged on top of its social assets, i.e. the social connections between KOLs and individual users. Despite that an increasing number of players are seeking to expand into the social space, we think these efforts so far haven’t challenged Weibo’s key positioning as the most important platform for KoLs to generate social influences. According to QuestMobile, the time spent share of Weibo increased to 3.1% in June 2018 vs. 2.6% a year ago - this suggests Weibo’s positioning in China’s online media space continues to strengthen regardless of competition from different aspects.  …with traffic and time spent substantially under-monetized compared to leading platforms. Sina/Weibo’s traffic and time spent are substantially undermonetized as compared to leading platforms in China. We estimate Sina/Weibo’s monetization per unit time is 40%/70%/90% below Tencent/ Baidu/Alibaba, while monetization per MAU is at an 80+% discount to BAT.  Portal: mobile monetization drives growth. Sina News App continued to grow active users steadily. Mobile DAU of Sina News App reached 24m in 2Q18, +25% YoY. In particular, mobile has accounted for 82% of total portal ads revenue in 2Q18 vs. 57% in 2Q17. We expect portal ad revenue to stabilize in 2018 and gradually recover in 19/20.  OW with PT of US$150. PT is based on: 1) US$10bn valuation/US$137 per share from Weibo; and 2) US$1.2bn/US$16 per share from equity investments & net cash. Our PT implies a FY19E/20E P/E of 30x/21x. China Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Alex Yao AC (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 120 100 $ 80 60 Aug-17 Nov-17 Feb-18 May-18 Aug-18 SINA share price ($) CCMP (rebased) YTD 1m 3m 12m Abs -28.6% -14.3% -21.3% -27.0% Rel -44.7% -17.9% -29.2% -54.6% Share Price:'>Price:'>Price:'>Price: $71.59, Date of Price:'>Price:'>Price:'>Price: (27 Aug 18), Bloomberg SINA US, Reuters SINA (Year-end Dec, $ mn) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E Net Sales 1,584 2,222 3,012 3,921 ROE(%) 7.5% 7.5% 10.3% 12.0% 52-Week range 124.60-67.48 Operating Profit (EBIT) 389 487 825 1,229 ROIC(%) 18.5% 22.5% 32.5% - Shares Outstg 74MN EBITDA 503 657 1,024 1,458 Cash 2,206.7 2,047.5 2,832.5 3,970.4 Market Cap(US) US$5,266MN Pre Tax Profit 424 557 929 1,362 Equity 3,599.7 4,149.2 5,019.0 6,260.4 Free float Reported Net profit 157 143 281 447 Qtr GAAP EPS ($) 1Q 2Q 3Q 4Q Avg daily vol. 0.9MM shares Reported EPS ($) 2.12 1.94 3.79 6.00 EPS (17) 0.52 0.32 0.66 0.61 Avg daily val ($) 70.69MN P/E (x) 33.8 36.9 18.9 11.9 EPS (18) E 0.39 0.48 0.41 0.66 Dividend Yield - Adj. EPS * 2.81 3.12 5.13 7.46 EPS (19) E 0.55 1.15 0.87 1.22 Index (NASD) 8017.90 Adj. P/E (X) 25.5 23.0 13.9 9.6 1M 3M 12M Price Target 150.00 EV/EBITDA (x) 7.7 6.3 3.4 1.7 Abs. Perf.(%) (14.3%) (21.3%) (28.9%) Price Target End Date 30-Jun-19 P/B (x) 1.5 1.3 1.1 0.9 Rel. Perf.(%) (17.9%) (29.1%) (56.5%) Price Date 27 Aug 18 Y/E BPS ($) 48.69 56.26 67.82 84.14 Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense. www.jpmorganmarkets.com
40. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key catalyst for the stock price: • Weibo monetization Upside risks to our view:'>view: • Incremental revenue contribution from financial services • Successful monetization of long-tail SME advertising demand Downside risks to our view:'>view: • Worse-than-expected brand ad outlook • Competition from other social platforms and general information apps • Regulation risk Key financial metrics Revenues (USDm) Revenue growth (%) Operating profit (USDm) Operating margin (%) Tax rate (%) Net profit (USDm) EPS (USD) EPS growth (%) DPS (USD) BVPS (USD) Operating cash flow (USDm) Free cash flow (USDm) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions No. of advertisers FY16 1,031 17.1% 139 13.4% 8.9% 109 1.46 57.8% 0.00 41.48 444 382 -6.5 10.6% 0.2 1.1% -52.3% 4.2% FY16 575 FY17 1,584 53.6% 470 29.6% 17.6% 208 2.81 92.1% 0.00 48.69 596 515 -11.8 13.1% 0.3 2.5% -58.8% 7.5% FY17 600 FY18E 2,222 40.3% 571 25.7% 18.2% 230 3.12 10.9% 0.00 56.26 -81 -233 -7.4 10.4% 0.4 2.2% -47.2% 7.5% FY18E 610 FY19E 3,012 35.6% 917 30.4% 17.4% 380 5.13 64.7% 0.00 67.82 875 688 -8.9 12.6% 0.5 1.8% -54.7% 10.3% FY19E 617 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Sensitivity analysis Sensitivity to 5% chg in portal ads revenue 5% chg in Weibo revenue Operating profit FY18E FY19E 4% 4% 9% 9% EPS FY18E 2% 5% FY19E 2% 5% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Peer group valuation comparison Ticker Rating Sina SINA US OW Weibo WB US OW Tencent 700 HK OW Baidu BIDU US N Alibaba BABA US OW Phoenix New Media FENG US OW Price USD 71.6 USD 80.8 HKD 361 USD 228.6 USD 180.7 USD 4.6 PT USD 150 USD 118 HKD 460 USD 273 USD 215 USD 10 Mkt Cap USDm 5,117 18,024 437,907 80,038 468,278 331 Valuation and price target basis Our SOTP valuation yields a US$150 price target, including 1) US$10bn valuation/US$137 per share from Weibo; and 2) US$1.2bn/US$16 per share from equity investments & net cash. Our PT implies a FY19E/20E P/E of 30x/21x. Weibo revenue growth US$m 4,000 75% 3,383 80% 3,000 2,000 43% 37% 56% 60% 24,15%34 1,798 34% 40% 1,150 1,000 478 656 20% 0 0% FY15 FY16 FY17 FY18E FY19E FY20E Weibo revenue YoY Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, Company and J.P. Morgan estimates. JPMe vs. consensus, change in estimates Non-GAAP EPS (US$) FY18E FY19E JPMe 3.12 5.13 Consensus 3.09 4.50 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. EV USDm 4,280 6,609 505,465 6,609 6,609 6,609 P/E FY19E FY20E 14.0 x 9.7 x 19.7 x 14.3 x 26.6 x 19.8 x 18.7 x 16.8 x 26.3 x 20.1 x P/S FY19E FY20E 1.8 x 1.4 x 7.4 x 5.6 x 6.7 x 5.2 x 4.5 x 3.9 x 6.1 x 4.5 x PEG FY19E 0.3 x 0.6 x 0.9 x 1.8 x 0.9 x CAGR 20-21E 42.4% 32.0% 28.2% 10.4% 30.4% 31.3 x 29.0 x 1.7 x 1.7 x 4.7 x 6.7% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Prices as of Aug 27, 2018 40
41. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Valuation Our SoTP valuation yields a Jun-19 PT of US$150. Key valuation metrics in SoTP valuation are:  US$27.5bn valuation of Sina Weibo on US$956m 2019E non-GAAP net profit, a 2020-21E net profit CAGR of 32% and a 0.9x PEG;  US$278m from equity investments; and  US$922m from net cash. Our PT implies a 2019E P/E of 30x and a 2020E P/E of 21x. Table 15: SoTP valuation of Sina Segments 1 Weibo 2 Other equity investments - Leju - Tian Ge interactive 3 Net Cash Total value (US$m) # of shares (m) Value/share (US$) Source: J.P. Morgan estimates. Valuation method PEG P/E multiple (x) 28.8 x 2019E NP (US$m) 956 Share of JPMe valuation Share of mkt cap 20-21E NP CAGR 32% Valuation Owner PEG (US$m) ship 0.9x 27,548 46% 501 818 1,024 29,892 31.0% 23.6% Discount factor 20% 20% 20% 10% Value after discount (US$m) 10,138 278 124 154 922 11,338 74 153 As % of total valuation 89% 2% 1% 1% 8% Value per share (US$) $137.0 $3.8 $12.5 $153 41
42. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Investment Thesis, Valuation and Risks Sina Corp (Overweight; Price Target: $150.00) Investment Thesis Sina is a leading online media platform in China with footprints in both portals and social media (i.e. Weibo). Through its controlling stake in Weibo, Sina continues to gain market share in mobile time spent of China Internet population (3.6% in June 2018 vs. 2.9% in June 2017). Besides, we estimate Sina/Weibo’s monetization is substantially below leading internet companies in China on both per user and per unit time spent basis, indicating ample growth room for Sina/Weibo to ramp up monetization. Valuation Our SoTP valuation yields a Jun-19 PT of US$150. Key valuation metrics in SoTP valuation are:  US$27.5bn valuation of Sina Weibo on US$956m 2019E non-GAAP net profit, a 2020-21E net profit CAGR of 32% and a 0.9x PEG;  US$278m from equity investments; and  US$922m from net cash. Our PT implies a 2019E P/E of 30x and a 2020E P/E of 21x. Risks to Rating and Price Target Downside risks to our view include a worse-than-expected brand ad outlook, relatively weak execution ability and product innovation compared to other larger Internet peers, and a potential slowdown of Weibo usage. 42
43. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Sina Corp: Summary of Financials Income Statement - Annual FY16A FY17A FY18E FY19E FY20E Income Statement - Quarterly Revenue COGS 1,031 1,584 2,222 3,012 3,921 Revenue (347) (405) (470) (612) (760) COGS Gross profit SG&A 676 1,170 1,741 2,390 3,152 Gross profit (269) (427) (668) (875) (1,028) SG&A Adj. EBITDA 171 503 657 1,024 1,458 Adj. EBITDA D&A (33) (34) (86) (108) (128) D&A Adj. EBIT 139 470 571 917 1,330 Adj. EBIT Net Interest 26 43 88 115 144 Net Interest Adj. PBT Tax Minority Interest Adj. Net Income 370 505 641 1,021 1,463 Adj. PBT (27) (75) (102) (162) (232) Tax (52) (193) (312) (487) (683) Minority Interest 109 208 230 380 555 Adj. Net Income Reported EPS 3.02 2.12 1.94 3.79 6.00 Reported EPS Adj. EPS 1.46 2.81 3.12 5.13 7.46 Adj. EPS DPS - DPS Payout ratio Shares outstanding . - - - - - Payout ratio 75 74 74 74 74 Shares outstanding Balance Sheet & Cash Flow Statement FY16A FY17A FY18E FY19E FY20E Ratio Analysis Cash and cash equivalents Accounts receivable Inventories Other current assets 1,649 210 0 797 2,207 286 0 1,610 2,048 655 0 1,623 2,833 888 0 1,708 3,970 1,157 0 1,807 Gross margin EBITDA margin EBIT margin Net profit margin Current assets 2,656 4,103 4,325 5,429 6,934 PP&E 242 263 245 228 198 ROE LT investments 1,318 1,289 1,289 1,289 1,289 ROA Other non current assets Total assets 69 161 161 161 161 ROCE 4,285 5,815 6,021 7,107 8,581 SG&A/Sales Short term borrowings Payables Other short term liabilities Net debt/equity 33 89 89 89 89 108 130 42 57 74 P/E (x) 983 1,053 797 999 1,215 P/BV (x) Current liabilities 1,124 1,273 928 1,145 1,378 EV/EBITDA (x) Long-term debt 0 0 0 0 0 Dividend Yield Other long term liabilities 70 943 943 943 943 Total liabilities Shareholders' equity Minority interests 1,194 2,216 2,680 2,847 411 753 1,871 3,302 847 2,088 2,321 Sales/Assets (x) 4,070 5,200 Interest cover (x) 949 1,060 Operating leverage Total liabilities & equity 4,285 5,815 6,021 7,107 8,581 BVPS y/y Growth Net debt/(cash) 41.48 48.69 56.26 67.82 84.14 Revenue y/y Growth (12.6%) 17.4% 15.6% 20.5% 24.1% EBITDA y/y Growth (1,616) (2,117) (1,958) (2,743) (3,881) Tax rate Adj. Net Income y/y Growth Cash flow from operating activities 444 596 (81) 875 1,236 EPS y/y Growth o/w Depreciation & amortization 33 34 86 108 128 DPS y/y Growth o/w Changes in working capital Cash flow from investing activities o/w Capital expenditure as % of sales 215 102 (726) (102) (134) 845 (988) (78) (90) (98) (38) (45) (78) (90) (98) 3.7% 2.8% 3.5% 3.0% 2.5% Cash flow from financing activities (603) 887 0 0 0 o/w Dividends paid 0 0 0 0 0 o/w Net debt issued/(repaid) (624) 6 0 0 0 Net change in cash Adj. Free cash flow to firm y/y Growth 644 558 (159) 785 1,138 406 551 (159) 688 1,017 43.6% 35.8% (128.9%) (532.5%) 47.7% Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Dec. o/w - out of which 1Q18A 2Q18A 3Q18E 4Q18E 441 537 581 663 (106) (104) (123) (137) 332 431 455 523 (161) (197) (192) (203) 95 158 141 180 (21) (21) (22) (22) 73 136 119 159 17 20 26 26 96 137 142 182 (19) (28) (24) (31) (48) (74) (87) (102) 35 73 52 71 0.39 0.48 0.41 0.66 0.48 0.99 0.70 0.96 - - - - - - - - 74 74 74 74 FY16A FY17A FY18E FY19E FY20E 65.6% 73.9% 78.4% 79.3% 80.4% 16.6% 31.8% 29.6% 34.0% 37.2% 13.4% 29.6% 25.7% 30.4% 33.9% 10.6% 13.1% 10.4% 12.6% 14.2% 4.2% 7.5% 7.5% 10.3% 12.0% 2.5% 4.1% 3.9% 5.8% 7.1% 4.2% 14.2% 15.2% 20.4% 23.7% 26.0% 27.0% 30.1% 29.0% 26.2% (52.3%) (58.8%) (47.2%) (54.7%) (62.0%) 48.9 25.5 23.0 13.9 9.6 1.7 1.5 1.3 1.1 0.9 23.7 7.7 6.3 3.4 1.7 - - - - - 0.2 0.3 0.4 0.5 0.5 - - - NM NM 734.4% 445.4% 53.8% 169.9% 149.4% 17.1% 53.6% 66.8% 193.9% 7.4% 14.8% 94.0% 90.6% 57.8% 92.1% - - 40.3% 30.5% 15.9% 10.6% 10.9% - 35.6% 55.8% 15.8% 65.2% 64.7% - 30.2% 42.4% 15.8% 46.1% 45.3% - 43
44. Asia Pacific Equity Research 29 August 2018 China Literature Limited Binary outlook from acquisition of New Classics Media Neutral 0772.HK, 772 HK Price:'>Price:'>Price:'>Price: HK$54.85 ▼ Price Target: HK$58.00 Previous: HK$85.00 We assume coverage of China Literature with a Neutral rating and Jun-19 PT of HK$58. We think the core strength of China Literature lies in its position as the go-to platform for IP sourcing in China. We view the acquisition of New Classics Media (“NCM”) as fundamentally positive to the company’s IP operations outlook esp. in the mid to long run. However, in the next 3-6 months, both financials and share price may face short-term pressure as 1) online reading as the main revenue driver (over 80% of total revenue) is likely to remain soft in 2H18. 2) Content production is a low-multiple business in nature due to hit-or-miss risk, thus will lead to potential valuation downside. Our scenario analysis suggests China Literature should trade at either1) a relatively higher multiple with a lower earnings base on standalone basis, or 2) a diluted multiple post acquisition with a higher earnings base. We believe the key catalyst to China Literature's share price hinges on whether it can successfully transform its growth engine from online reading to IP operations, which requires more clarity in next earnings release.  Online reading: dampened N-T look. 1H18 witnessed a weak online reading performance dragged by the decline of revenue generated from Tencent channels (RMB500m, down 8.5% YoY). Revenue from own channels (RMB1,068m, 58% of total reading revenue) still delivered decent 23% YoY growth. We expect MAU will continue to grow rapidly in 2H18 driven by cooperation with Tencent Video as well as pre-installs, but we remain cautious on initial revenue generation capability of new users. We are cautiously optimistic regarding online reading outlook in 19/20E. We forecast online reading revenue to grow by 27%/22% YoY in 2019/20E vs. +19% YoY in 2018E.  Improving IP operations outlook w/ valuation risk to the downside. We believe acquisition of New Classics Media poses both sides of risks for China Literature. Fundamentally it will significantly benefit IP operations business through 1) leveraging NCM’s expertise in IP screening & adaptation, 2) focusing more on investing top dramas/content which generates better ROI. Conversely investors may tend to give a discount to the valuation multiple of the consolidated entity given higher hit-or-miss risk of content production. We expect China Literature’s IP operations rev (ex-consolidation of NCM) to grow at a 19-20E CAGR of 39%, with rev contribution up to 12%/14%/15% in 18/19/20E vs. 9% in 2017.  PT of HK$58 is based on probability-weighted scenario analysis, of which we assign a 20%/80% probability on the failure/success of acquisition. China Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Alex Yao AC (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 100 80 HK$ 60 40 Aug-17 Nov-17 Feb-18 May-18 Aug-18 0772.HK share price (HK$) HSI (rebased) YTD 1m 3m 12m Abs -33.3% -22.0% -24.9% -0.3% Rel -28.1% -20.4% -17.0% -2.1% Share Price:'>Price:'>Price:'>Price: HK$54.85, Date of Price:'>Price:'>Price:'>Price: (28 Aug 18), Bloomberg 772 HK, Reuters 0772.HK (Year-end Dec, Rmb mn) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E Net Sales 4,095 4,977 6,336 7,801 ROE(%) 8.1% 5.8% 5.8% 6.8% 52-Week range 110.00-48.50 Operating Profit (EBIT) 615 917 1,423 1,933 ROIC(%) - - - - Shares Outstg 883MN EBITDA 759 976 1,610 2,149 Cash 7,502.4 4,327.3 3,843.3 2,949.7 Market Cap(US) US$6,171MN Pre Tax Profit 646 963 1,472 1,986 Equity 12,662.7 21,821.8 24,061.6 26,705.3 Free float - Reported Net profit 563 801 1,209 1,611 Qtr GAAP EPS (Rmb) 1Q 2Q 3Q 4Q Avg daily vol. 2.3MM shares Reported EPS (Rmb) 0.73 0.90 1.35 1.79 EPS (17) - - - - Avg daily val (HK$) 160.42MN P/E (x) 65.0 53.0 35.3 26.6 EPS (18) E - - - - Dividend Yield 0.0% Adj. EPS * 0.94 1.13 1.48 1.91 EPS (19) E - - - - Index (NASD) 2,8271.27 Adj. P/E (X) 50.6 42.2 32.1 24.9 1M 3M 12M Price Target 58.00 EV/EBITDA (x) 51.9 32.3 18.7 13.5 Abs. Perf.(%) (22.0%) (24.9%) - Price Target End Date 30-Jun-19 P/B (x) 2.9 1.9 1.8 1.6 Rel. Perf.(%) (20.2%) (16.7%) - Price Date 28 Aug 18 Y/E BPS (Rmb) 16.45 24.44 26.81 29.60 Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense. www.jpmorganmarkets.com
45. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key catalysts for the stock price: • Consolidation of New Classics Media • Potential upside from IP adaptation opportunity Upside risks to our view:'>view: • Great success of IP adaptations, i.e. one or more literature works become blockbuster IPs and generate substantial financial benefits from adapted works (e.g. games, dramas, movies, etc) Downside risks to our view:'>view: • Tightened government regulations on content business • Spread of pirated content • Competition from other digital entertainment activities • Low success rate of IPs Key financial metrics Revenues (RMBm) Revenue growth (%) Operating profit (RMBm) Operating margin (%) Tax rate (%) Net profit (RMBm) EPS (RMB) EPS growth (%) DPS (RMB) BVPS (RMB) Operating cash flow (RMBm) Free cash flow (RMBm) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions Platform MAU (m) Online reading paying ratio FY17 4,095 60.2% 596 14.5% 12.9% 723 0.94 N/A 0.00 16.45 886 456 -11.1 17.7% 0.4 3.8% -55.5% 8.1% FY17 192 5.8% FY18E 4,977 21.5% 1,064 21.4% 16.9% 1,004 1.13 19.8% 0.00 24.44 477 (10,778) NM 20.2% 0.3 2.2% -17.7% 5.8% FY18E 222 5.2% FY19E 6,336 27.3% 1,556 24.6% 17.9% 1,329 1.48 31.7% 0.00 26.81 1675 (523) NM 21.0% 0.2 2.0% -14.0% 5.8% FY19E 244 5.6% FY20E 7,801 23.1% 2,093 26.8% 18.9% 1,720 1.91 28.8% 0.00 29.60 1419 (934) NM 22.0% 0.3 1.8% -9.3% 6.8% FY20E 264 6.0% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Sensitivity analysis Sensitivity to 5% chg in platform MAU 1ppt chg in paying ratio 5% chg in IP operations revenue Operating profit FY18E FY19E 3% 3% 9% 8% 0.6% 0.6% EPS FY18E FY19E 3% 3% 8% 8% 0.5% 0.6% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Peer group valuation comparison Ticker Rating Price PT China Literature Tencent Alibaba Momo YY 772 HK 700 HK BABA US MOMO US YY US N HKD 54.1 HKD 58 OW HKD 361.0 HKD 460 OW USD 180.7 USD 215 OW USD 46.9 USD 62 OW USD 78.7 USD 110 Netease Netflix NTES US NFLX US OW USD 211.8 USD 265 OW USD 364.6 USD 415 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Prices as of Aug 27, 2018 Mkt Cap USDm 6,241 437,907 468,278 9,556 4,979 27,813 158,759 Valuation and price target basis We have a Neutral rating on China Literature with Jun-19 PT of HK$58. PT is based on probability-weighted scenario analysis assuming a 20%/80% probability for failure/success of the acquisition. Total revenue growth trend 10,000 300% 8,000 6,000 4,000 2,000 0 245% 7,801 6,336 4,977 4,095 250% 200% 150% 2,557 100% 1,607 466 27% 50% 59% 60% 22% 0% 23% FY14 FY15 FY16 FY17 FY18E FY19E FY20E Total revenue (RMBm) YoY growth Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, Company and J.P. Morgan estimates. JPMe vs. consensus, change in estimates EPS (RMB) FY18E FY19E JPMe 1.13 1.48 Consensus 1.11 1.64 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. EV USDm 5,135 452,213 455,291 8,777 3,306 22,663 163,195 P/E CY19E CY20E 31.7 x 24.6 x 26.6 x 19.8 x 26.3 x 20.1 x 13.3 x 10.3 x 9.1 x 7.4 x 15.5 x 12.0 x 73.4 x N/A P/S CY19E CY20E 6.6 x 5.4 x 6.7 x 5.2 x 6.1 x 4.5 x 3.5 x 2.8 x 1.8 x 1.5 x 2.2 x 1.9 x 8.0 x N/A PEG CY19E 1.3 x 0.9 x 0.9 x 0.5 x 0.5 x 0.5 x N/A CAGR 20-21E 23.9% 28.2% 30.4% N/A 18.8% 29.0% N/A 45
46. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Valuation We believe the valuation of China Literature hinges on the outcome of the acquisition of New Classics Media (“NCM”). We identify two scenarios to gauge the impact on China Literature's valuation. We derive a PT of HK$58 based on probability-weighted approach. We believe the acquisition is most likely to be approved, thus assume a 20%/80% probability to scenario one/two. Scenario one: HK$51 value per share assuming the acquisition is not approved and China Literature will continue to operate on a standalone basis  Online reading will remain the key financial driver in next 1-2 years. However, we think there would be a discount in its target P/E multiple due to a dampened outlook of online reading business. We apply a target 19E P/E of 30x to value China Literature, which is lower than Tencent's target 19E P/E of 34x. Table 16: Valuation analysis of China Literature: scenario one China Literature core Total No. of shares (m) CNY/HKD 2019E net profit (RMBm) 1,329 895 1.15 Source: J.P. Morgan estimates, Company data. P/E multiple 30 x Valuation (RMBm) 39,869 39,869 Value per share (HK$) 51.2 51.2 Scenario two: HK$60 per share assuming the acquisition will be successfully completed by end of this year, and New Classics Media becomes a fullyconsolidated entity of China Literature from 2019 and onwards  There will be 139m new shares issued by end of 2019, and this will dilute the EPS of China Literature’s incumbent business.  For China Literature’s incumbent business, valuation multiple is likely to see a further discount due to 1) dampened online reading outlook, and 2) the revenue generation of IP operations will be more concentrated on NCM, thus exposes China Literature to higher hit-or-miss risks. However, we think such a discount is likely to be offset by the synergies generated between China Literature's IP sourcing and NCM's content production capabilities. We apply a same 30x 19E P/E for core business post acquisition.  For New Classics Media, we apply a discount in target valuation multiple (20x) as compared to leading content producers in China (e.g. Huace which we assign a target 19E P/E of 22x).  We feel relatively comfortable in achieving NCM’s financial earn-out (RMB700m net profit in 2019), given that 1) NCM had RMB~350m net profit in 2017. Assuming a 30% earnings CAGR, NCM will generate RMB590m net profit by 2019, and 2) NCM currently has certain interest-bearing debt which we estimate will incur interest expenses. We think the acquisition will remove the debt obligation from balance sheet and generate savings in profit. 46
47. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Table 17: SoTP valuation of China Literature: scenario two China Literature core New Classics Media Total No. of shares (m) CNY/HKD 2019E net profit (RMBm) 1,329 700 1,034 1.15 Source: J.P. Morgan estimates, Company data. P/E multiple 30 x 20 x Valuation (RMBm) 39,869 14,000 53,869 Value per share (HK$) 44.3 15.6 59.9 Investment Thesis, Valuation and Risks China Literature Limited (Neutral; Price Target: HK$58.00) Investment Thesis We think the core strength of China Literature lies in its position as the go-to platform for IP sourcing in China. We view the acquisition of New Classics Media as fundamentally positive to the company’s IP operations outlook esp. in the mid to long run. However, in the next 3-6 months, both financials and share price may face short-term pressure as 1) online reading as the main revenue driver (over 80% of total revenue) is likely to remain soft in 2H18. 2) Content production is a lowmultiple business in nature due to hit-or-miss risk, thus will lead to potential valuation downside. Our scenario analysis suggests China Literature should trade at either1) a relatively higher multiple with a lower earnings base on standalone basis, or 2) a diluted multiple post acquisition with a higher earnings base. We believe the key catalyst to China Literature's share price hinges on whether it can successfully transform growth engine from online reading to IP operations, which requires more clarity in next earnings release. Valuation Our Jun-19 PT of HK$58 is based on probability-weighted scenario analysis which assumes 20%/80% probability for scenario one/two.  Under the scenario of failed acquisition, PT of HK$51 is based on 2019E net profit of RMB1,329m and a target P/E of 30x.  Under the scenario of successful acquisition, PT of HK$60 includes 1) HK$44 from China Literature's core business (based on 30x 19E P/E) and 2) HK$16 from New Classics Media (based on 20x 19E P/E). Risks to Rating and Price Target Downside risks to our Neutral rating and price target include government regulations on content business, pirated content continuing to affect traffic and monetization, the loss of usage to alternative digital entertainment activities, a low success rate of IP, and revenue concentration risk. Upside risks include outperformance of IP operations 47
48. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 China Literature Limited: Summary of Financials Income Statement - Annual Revenue COGS FY16A FY17A 2,557 4,095 (1,502) (2,020) FY18E FY19E FY20E Income Statement - Quarterly 4,977 6,336 7,801 Revenue (2,386) (2,973) (3,601) COGS Gross profit SG&A 1,055 2,075 2,591 3,363 4,199 Gross profit (1,155) (1,675) (1,941) (2,123) (2,434) SG&A Adj. EBITDA D&A Adj. EBIT Net Interest Adj. PBT Tax Minority Interest Adj. Net Income Reported EPS Adj. EPS DPS Payout ratio Shares outstanding . Balance Sheet & Cash Flow Statement Cash and cash equivalents Accounts receivable Inventories Other current assets Current assets PP&E LT investments Other non current assets Total assets 188 759 (207) (176) 122 859 (23) 69 123 890 (8) (83) - - 85 722 0.04 0.73 0.12 0.94 0.00 0.00 0.0% 0.0% 707 767 FY16A 405 550 138 1,022 2,115 45 127 4,844 7,132 FY17A 7,502 760 222 949 9,434 36 342 5,325 15,137 976 (176) 1,128 78 1,175 (162) 1,004 0.90 1.13 0.00 0.0% 891 1,610 (224) 1,552 35 1,601 (263) 1,329 1.35 1.48 0.00 0.0% 895 2,149 (276) 2,054 14 2,106 (374) 1,720 1.79 1.91 0.00 0.0% 900 Adj. EBITDA D&A Adj. EBIT Net Interest Adj. PBT Tax Minority Interest Adj. Net Income Reported EPS Adj. EPS DPS Payout ratio Shares outstanding FY18E FY19E FY20E 4,327 3,843 2,950 796 1,013 1,248 548 698 859 2,031 2,924 4,199 7,703 8,479 9,256 24 21 26 430 526 632 16,292 18,399 20,407 24,448 27,425 30,320 Ratio Analysis Gross margin EBITDA margin EBIT margin Net profit margin ROE ROA ROCE SG&A/Sales Short term borrowings Payables Other short term liabilities Current liabilities Long-term debt Other long term liabilities Total liabilities Shareholders' equity Minority interests 542 797 320 1,658 0 265 1,923 5,166 42 0 1,377 388 1,764 475 235 2,475 12,621 42 0 1,452 464 1,916 475 235 2,626 21,772 50 00 2,072 2,198 581 707 2,653 2,905 475 475 235 235 3,363 3,615 24,002 26,635 59 71 Net debt/equity P/E (x) P/BV (x) EV/EBITDA (x) Dividend Yield Sales/Assets (x) Interest cover (x) Operating leverage Total liabilities & equity 7,132 15,137 24,448 27,425 30,320 BVPS y/y Growth Net debt/(cash) Cash flow from operating activities o/w Depreciation & amortization o/w Changes in working capital Cash flow from investing activities o/w Capital expenditure as % of sales Cash flow from financing activities o/w Dividends paid o/w Net debt issued/(repaid) Net change in cash Adj. Free cash flow to firm y/y Growth 7.31 16.45 11.3% 125.1% 137 (7,027) 24.44 26.81 29.60 48.6% 9.7% 10.4% (3,852) (3,368) (2,475) 186 886 477 1,675 1,419 207 176 176 224 276 (62) 62 (461) 391 (413) (464) (433) (12,002) (3,180) (3,333) (20) (18) (15) (32) (47) 0.8% 0.4% 0.3% 0.5% 0.6% 360 6,725 8,350 1,021 1,021 0 0 0 00 241 (65) 0 00 83 7,098 (3,175) (484) (894) (128) 456 (10,778) (523) (934) (32.1%) (457.8%) (2462.7%) (95.1%) 78.6% Revenue y/y Growth EBITDA y/y Growth Tax rate Adj. Net Income y/y Growth EPS y/y Growth DPS y/y Growth Source: Company reports and J.P. Morgan estimates. Note: Rmb in millions (except per-share data).Fiscal year ends Dec. o/w - out of which 1Q18A 2Q18A 3Q18E 4Q18E - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FY16A 41.3% 7.4% 4.8% 3.3% FY17A FY18E FY19E FY20E 50.7% 52.1% 53.1% 53.8% 18.5% 19.6% 25.4% 27.5% 21.0% 22.7% 24.5% 26.3% 17.6% 20.2% 21.0% 22.0% 1.8% 8.1% 5.8% 5.8% 6.8% 1.3% 6.5% 5.1% 5.1% 6.0% 2.2% 8.3% 5.5% 5.6% 6.5% 45.2% 40.9% 39.0% 33.5% 31.2% 2.6% (55.5%) (17.7%) (14.0%) (9.3%) 395.0 6.5 248.0 0.0% 50.6 42.2 32.1 24.9 2.9 1.9 1.8 1.6 51.9 32.3 18.7 13.5 0.0% 0.0% 0.0% 0.0% 0.4 0.4 0.3 0.2 0.3 8.1 NM NM NM NM (927.7%) 1003.1% 145.5% 137.8% 139.9% 59.1% 258.4% 6.5% (190.5%) (185.3%) - 60.2% 303.1% 9.3% 746.7% 680.2% - 21.5% 28.5% 13.8% 39.1% 19.8% - 27.3% 65.0% 16.4% 32.3% 31.7% - 23.1% 33.4% 17.8% 29.4% 28.8% - 48
49. Asia Pacific Equity Research 29 August 2018 Autohome Inc Strength of media and lead-gen services in the price; awaiting more progress on new initiatives Neutral ATHM, ATHM US Price:'>Price:'>Price:'>Price: $84.24 ▲ Price Target: $80.00 Previous: $32.00 We assume coverage of ATHM with a Neutral rating and Jun-19 PT of US$80. ATHM remains China’s leading online auto media platform with the largest market share of online auto ad spend, and also seeks to expand into data and auto financing services. ATHM’s share price has more than tripled since 2017, driven by both EPS revisions (doubled) and P/E multiple rerating (1-year forward P/E up ~70%). The stock has recently de-rated from 30x in early June to 22x currently, which we attribute to 1) increasing concerns regarding the sustainability of growth of media and lead-gen services, and 2) weak market sentiment that has led to sector-wise derating. We believe the current share price has already factored in its strength in media and lead-gen services (~90% of total revenue). Unless ATHM can materialize the financial potential of data and financing services in the future, we believe the current market value is justified and sees both sides of risks.  Leadership in auto media remains intact. ATHM remains China's leading online auto media thanks to its 1) large and still growing traffic (over 30m MAU), 2) solidified relationship with major OEMs, 3) product innovations. Despite increasing competition from emerging traffic platforms (e.g. news and social apps), we expect ATHM to maintain a relatively stable market share in online auto ad spend in the next few years (JPMe a 21% market share by 2020E). We expect media services and lead-generation revenue to grow at a CAGR of 18%/21% from 2018 to 20E.  Limited visibility on data and auto financing services. ATHM has started to expand business scope to broader data and financing services. While we are constructive on its mid-to-long-term outlook, we think the initiatives are still at an early stage with limited visibility in 6-12 months. We forecast marketplace revenue will contribute 13% of total revenue by 2020E vs. 8% in 2017. We await more visibility on these initiatives to unfold in the coming quarters.  PT of US$80 is based on 2019E non-GAAP EPADS of US$4.02, an FY20-21E EPADS CAGR of 22% and a PEG of 0.9x. PT implies 2019/20E P/E of 20x/16x. Upside risks primarily come from ramp-up of new initiatives e.g. data and financing services revenue; downside risks include 1) weak market sentiment will remain and trigger further derating; 2) further slowdown of legacy business; 3) margin pressure from new initiatives. China Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Alex Yao AC (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 110 90 $ 70 50 Aug-17 Nov-17 Feb-18 May-18 Aug-18 ATHM share price ($) CCMP (rebased) YTD Abs 30.3% Rel 14.2% 1m -17.6% -21.2% 3m -16.2% -24.1% 12m 33.3% 5.7% Share Price:'>Price:'>Price:'>Price: $84.24, Date of Price:'>Price:'>Price:'>Price: (27 Aug 18), Bloomberg ATHM US, Reuters ATHM (Year-end Dec, Rmb mn) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E Net Sales 6,210 7,195 8,738 10,082 ROE(%) 30.5% 30.2% 25.9% 25.3% 52-Week range 119.50-52.37 Operating Profit (EBIT) 2,052 2,687 3,159 3,974 ROIC(%) - - - - Shares Outstg 118MN EBITDA 2,316 2,967 3,459 4,292 Cash 911.6 3,089.5 7,759.8 12,058.4 Market Cap(US) US$9,900MN Pre Tax Profit 2,262 3,008 3,403 4,308 Equity 7,935.3 10,765.0 13,794.3 17,635.8 Free float - Reported Net profit 2,002 2,637 2,993 3,790 Qtr GAAP EPS (Rmb) 1Q 2Q 3Q 4Q Avg daily vol. 0.9MM shares Reported EPS (Rmb) 16.96 22.09 25.07 31.74 EPS (17) 2.80 4.40 3.59 6.15 Avg daily val ($) 86.41MN P/E (x) 33.9 26.0 22.9 18.1 EPS (18) E 4.05 5.79 4.56 7.69 Dividend Yield - Adj. EPS * 18.50 23.64 26.62 33.29 EPS (19) E 4.37 6.06 5.36 9.29 Index (NASD) 8017.90 Adj. P/E (X) 31.0 24.3 21.6 17.2 1M 3M 12M Price Target 80.00 EV/EBITDA (x) 29.0 21.9 17.4 13.1 Abs. Perf.(%) (17.6%) (16.2%) 32.2% Price Target End Date 30-Jun-19 P/B (x) 8.4 6.3 4.9 3.8 Rel. Perf.(%) (21.2%) (24.0%) 4.6% Price Date 27 Aug 18 Y/E BPS (Rmb) 68.33 91.64 117.37 150.06 Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense. www.jpmorganmarkets.com
50. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key catalysts for the stock price: • Solid growth in media and leadgeneration business Upside risks to our view:'>view: • Stronger-than-expected auto market performance • Fast ramp-up of marketplace business Downside risks to our view:'>view: • Weakness in auto sales • Competition from emerging traffic platforms on media ads. Key financial metrics Revenues (RMBm) Revenue growth (%) Operating profit (RMBm) Operating margin (%) Tax rate (%) Net profit (RMBm) EPS (RMB) EPS growth (%) DPS (RMB) BVPS (RMB) Operating cash flow (RMBm) Free cash flow (RMBm) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions OEM ARPU (RMBm) Marketplace revenue (RMBm) FY17A 6,210 4.2% 2230 35.9% 11.8% 2,184 18.50 50.3% 0.00 68.33 2473 2,191 NM 35.2% 0.6 0.0% -11.5% 30.5% FY17A 30.4 454.5 FY18E 7,195 15.9% 2868 39.9% 12.5% 2,822 23.64 27.8% 0.00 91.64 2867 2,477 NM 39.2% 0.5 0.0% -28.7% 30.2% FY18E 36.3 736.5 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Sensitivity analysis Sensitivity to 1% chg in OEM ARPU 1% chg in Ecommerce revenue Operating profit FY18E FY19E 1% 1% 1% 1% FY19E 8,738 21.4% 3339 38.2% 12.0% 3,178 26.62 12.6% 0.00 117.37 4764 4,418 NM 36.4% 0.5 0.0% -56.3% 25.9% FY19E 41.4 1060.0 FY20E 10,082 15.4% 4154 41.2% 12.0% 3,975 33.29 25.1% 0.00 150.06 4411 3,968 NM 39.4% 0.5 0.0% -68.4% 25.3% FY20E 45.7 1289.3 EPS FY18E 1% 2% FY19E 1% 2% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Peer group valuation comparison Ticker Rating Price Autohome Bitauto Leju Fang Holdings Sina ATHM US BITA US LEJU US SFUN US SINA US N USD 84.2 OW USD 22.6 N USD 1.7 N USD 3.1 OW USD 71.6 PT USD 80.0 USD 38.0 USD 3.6 USD 3.6 USD 150 Mkt Cap USDm 9,891 1,642 229 1,390 5,117 Valuation and price target basis We have a Neutral rating on Autohome with Jun-19 PT of US$80. Our Jun-19 PT is based on 2019E non-GAAP EPADS of US$4.02, a FY20E21E EPADS CAGR of 22% and a PEG of 0.9x. PT implies 2019/20E P/E of 20x/16x. Revenue growth trajectory RMB(m) 12,000 10,500 9,000 7,500 6,000 4,500 3,000 2,133 3,464 5,962 6,210 7,195 10,082 8,738 1,500 0 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Revenues Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Note: Net revenue from 2018E JPMe vs. consensus, change in estimates EPS (RMB) FY18E FY19E JPMe 23.64 26.62 Consensus Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. 23.31 28.59 EV USDm 8,727 4,860 49 1,754 4,280 P/E FY19E FY20E 20.9 x 16.7 x 11.3 x 8.3 x 6.2 x 5.3 x 12 x 9.5 x 14.0 x 9.7 x P/S FY19E FY20E 7.6 x 6.6 x 0.9 x 0.8 x 0.5 x 0.4 x 3.0 x 2.7 x 1.8 x 1.4 x PEG FY19E 1.0 x 0.4 x 0.5 x 0.5 x 0.3 x CAGR 20-21E 22.0% 26.8% 13.8% 23.1% 42.4% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. Prices as of Aug 27, 2018 50
51. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Share price analysis ATHM’s share price has more than tripled since 2017. During the same period, Bloomberg 1-year forward EPS estimate was revised up by ~100%, while P/E multiple trended up from 13x to 22x (the highest level at 30x). More recently, the stock has de-rated from 30x in early June to 22x currently, which we attribute to:  Increasing concerns regarding the sustainability of growth of media and lead-gen services. Combined revenue of media and lead-generation services grew by 30%/33% YoY in 16/17. We expect such revenue to increase by 25% YoY in 2018E and decelerate to a 15% CAGR from 2019E to 21E.  Weak market sentiment that has led to general sector-wise derating. Currently, ATHM still trades above its 3-year average 1-year forward P/E (19x). We believe the current share price has already factored in its strength in media and leadgen services, which accounts for ~90% of the company's total revenue. Unless ATHM can materialize the financial performance of data and auto financing services in the next 1-2 years, we believe the stock still faces derating risk due to 1) expected slowdown of media and lead-gen revenue growth, 2) persisting industry headwinds of China Internet in 2H18. Figure 33: Share price analysis of ATHM 50 45 40 35 30 25 20 15 10 5 0 US$ 140 120 100 80 60 40 20 0 8/13/2013 10/13/2013 12/13/2013 2/13/2014 4/13/2014 6/13/2014 8/13/2014 10/13/2014 12/13/2014 2/13/2015 4/13/2015 6/13/2015 8/13/2015 10/13/2015 12/13/2015 2/13/2016 4/13/2016 6/13/2016 8/13/2016 10/13/2016 12/13/2016 2/13/2017 4/13/2017 6/13/2017 8/13/2017 10/13/2017 12/13/2017 2/13/2018 4/13/2018 6/13/2018 BEst P/E Ratio (Blended 12 Months) 3-year average P/E Source: J.P. Morgan, Bloomberg. BEst EPS (Blended 12 Months) Last Price_ATHM (RHS) 51
52. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Investment Thesis, Valuation and Risks Autohome Inc (Neutral; Price Target: $80.00) Investment Thesis ATHM remains China’s leading online auto media platform with the largest market share of online auto ad spend, and also seeks to expand into data and auto financing services. ATHM’s share price has more than tripled since 2017, driven by both EPS revisions (doubled) and P/E multiple rerating (1-year forward P/E up ~70%). The stock has recently de-rated from 30x in early June to 22x currently, which we attribute to: 1) increasing concerns regarding the sustainability of growth of media and lead-gen services, and 2) weak market sentiment that has led to sector-wise derating. We believe the current share price has already factored in its strength in media and lead-gen services (~90% of total revenue). Unless ATHM can materialize the financial potential of data and financing services in the future, we believe the current market value is justified and sees both sides of risks. Valuation Our Jun-19 PT of US$80 is based on 2019E non-GAAP EPADS of US$4.02, a FY20-21E EPADS CAGR of 22%, and a PEG of 0.9x. Our PT implies a 2019E P/E of 20x and 2020E P/E of 16x. Risks to Rating and Price Target Downside risks to our Neutral rating and price target include 1) weaker-thanexpected auto sales; 2) further slowdown of media and lead-gen services revenue due to competition; 3) margin pressure arising from new initiatives. Upside risks include 1) stronger-than-expected auto sales; 2) faster-than-expected growth of data and auto financing business. 52
53. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Autohome Inc: Summary of Financials Income Statement - Annual FY16A FY17A FY18E FY19E FY20E Income Statement - Quarterly Revenue COGS 5,962 6,210 7,195 8,738 10,082 Revenue (2,393) (1,359) (885) (1,279) (1,438) COGS Gross profit 3,568 4,851 6,310 7,459 8,644 Gross profit SG&A (1,844) (1,929) (2,527) (2,877) (3,109) SG&A Adj. EBITDA 1,419 2,316 2,967 3,459 4,292 Adj. EBITDA D&A Adj. EBIT Net Interest Adj. PBT Tax (70) 1,349 88 1,444 (33) (86) 2,230 220 2,439 (267) (99) 2,868 329 3,188 (375) (120) 3,339 253 3,583 (409) (138) 4,154 343 4,488 (518) D&A Adj. EBIT Net Interest Adj. PBT Tax Minority Interest 12 7 4 0 0 Minority Interest Adj. Net Income 1,428 2,184 2,822 3,178 3,975 Adj. Net Income Reported EPS Adj. EPS DPS Payout ratio Shares outstanding . 10.58 12.31 114 16.96 18.50 116 22.09 23.64 117 25.07 26.62 118 31.74 33.29 118 Reported EPS Adj. EPS DPS Payout ratio Shares outstanding Balance Sheet & Cash Flow Statement Cash and cash equivalents Accounts receivable FY16A FY17A FY18E FY19E FY20E Ratio Analysis 3,294 912 3,090 7,760 12,058 Gross margin 1,206 1,894 1,380 1,676 1,934 EBITDA margin Inventories 96 0 0 0 0 EBIT margin Other current assets 2,837 7,453 7,746 7,505 7,545 Net profit margin Current assets 7,433 10,259 12,216 16,940 21,537 PP&E LT investments Other non current assets Total assets 135 130 135 141 134 148 120 93 1,690 1,758 1,779 1,779 9,392 12,295 14,250 18,954 148 65 1,779 23,530 ROE ROA ROCE SG&A/Sales Short term borrowings 0 0 0 0 Net debt/equity 0 Payables 1,152 1,659 1,212 1,753 1,970 P/E (x) Other short term liabilities 1,392 2,230 1,737 2,064 2,380 P/BV (x) Current liabilities 2,544 3,889 2,949 3,816 4,350 EV/EBITDA (x) Long-term debt Other long term liabilities Total liabilities Shareholders' equity 497 3,041 6,360 - - - 470 536 1,343 4,360 3,485 5,159 7,952 10,765 13,794 1,544 5,894 17,636 Dividend Yield Sales/Assets (x) Interest cover (x) Minority interests (9) (16) - - - Operating leverage Total liabilities & equity 9,392 12,295 14,250 18,954 23,530 BVPS 55.68 68.33 91.64 117.37 150.06 Revenue y/y Growth y/y Growth 28.8% 22.7% 34.1% 28.1% 27.8% EBITDA y/y Growth Net debt/(cash) (3,294) (912) (3,090) (7,760) (12,058) Tax rate Cash flow from operating activities o/w Depreciation & amortization o/w Changes in working capital Cash flow from investing activities 1,626 2,473 70 89 195 213 (515) (4,914) 2,867 95 (123) (93) 4,764 115 638 (94) 4,411 133 208 (113) Adj. Net Income y/y Growth EPS y/y Growth DPS y/y Growth o/w Capital expenditure (89) (86) (100) (122) (140) as % of sales 1.5% 1.4% 1.4% 1.4% 1.4% Cash flow from financing activities o/w Dividends paid o/w Net debt issued/(repaid) Net change in cash Adj. Free cash flow to firm 28 61 0 0 0 0 1,141 (2,382) 1,451 2,191 (596) (596) 0 2,178 2,477 0 0 0 4,670 4,418 0 0 0 4,299 3,968 y/y Growth 9.7% 51.0% 13.0% 78.4% (10.2%) Source: Company reports and J.P. Morgan estimates. Note: Rmb in millions (except per-share data).Fiscal year ends Dec. o/w - out of which 1Q18A 2Q18A 3Q18E 4Q18E 1,288 1,869 1,875 2,164 (146) (209) (243) (287) 1,142 1,660 1,631 1,877 (461) (674) (653) (738) 584 825 744 814 (25) (25) (25) (25) 559 800 719 789 64 88 88 88 621 886 805 875 (104) (145) (213) 87 1 2 0 0 520 744 594 963 4.05 5.79 4.56 7.69 4.36 6.23 4.98 8.07 - - - - - - - - 117 118 118 118 FY16A 59.9% 23.8% 22.6% 24.0% FY17A FY18E FY19E FY20E 78.1% 87.7% 85.4% 85.7% 37.3% 41.2% 39.6% 42.6% 35.9% 39.9% 38.2% 41.2% 35.2% 39.2% 36.4% 39.4% 25.5% 30.5% 30.2% 25.9% 25.3% 16.9% 20.1% 21.3% 19.1% 18.7% 23.5% 27.7% 27.0% 24.1% 23.4% 30.9% 31.1% 35.1% 32.9% 30.8% (51.9%) (11.5%) (28.7%) (56.3%) (68.4%) 46.7 31.0 24.3 21.6 17.2 10.3 8.4 6.3 4.9 3.8 45.7 29.0 21.9 17.4 13.1 - - - - - 0.7 0.6 0.5 0.5 0.5 NM NM NM NM NM 4.4% 1566.4% 180.4% 76.6% 158.7% 72.1% 4.0% 2.3% 29.4% 29.0% - 4.2% 63.3% 10.9% 53.0% 50.3% - 15.9% 28.1% 11.8% 29.2% 27.8% - 21.4% 16.6% 11.4% 12.6% 12.6% - 15.4% 24.1% 11.5% 25.1% 25.1% - 53
54. Asia Pacific Equity Research 29 August 2018 BitAuto Holdings Limited Ad and subscription business under-valued; eyeing long-term opportunity in online auto financing Overweight BITA, BITA US Price:'>Price:'>Price:'>Price: $22.58 Price Target: $38.00 We assume coverage of BITA with an OW rating and Jun-19 PT of US$38. We are positive on BITA in light of 1) under-valued ad and subscription business, 2) long-term growth potential in auto-related transactions. Among the entire online auto-related transactions market (JPMe RMB70-100bn revenue by 2020E under base case scenario), we believe BITA is able to maintain its leadership in market share in the foreseeable future. Meanwhile, we expect platform business financial contribution to continue to ramp up in the next few years, and this should drive gradual margin improvement in the next few years (JPMe non-GAAP OPM of 17% in 2020E vs. 10% in 2017). The stock has been trading at below 14x 1year forward P/E YTD 2018 (as compared to 28x of MSCI China Info Tech Index, 28x of BABA and 34x of Tencent), which we believe offers attractive risk/reward.  Deeply under-valued ad and subscription business. We see an improving ads and subscription outlook driven by updated content strategies (increasing focus on self-media content) and product revamp. Total ads and subscription revenue grew 16% YoY in 1H18 as compared to +14% YoY in 2017, and we forecast this segment to grow at 14%/11% YoY in 18/19E. Stripping out cash and Yixin's value attributable to BITA, we estimate the market cap of BITA implies a close-to-zero value of BITA’s ad and subscription business.  An online marketplace for auto and related services. We think BITA is well positioned to capture the auto-related transaction opportunities through an ecosystem around auto consumers, automakers, dealers and related service providers. Through the multi-layered touchpoints (media content, transactions, financing services, etc) with both auto vehicles and their owners, BITA is able to monetize the transaction opportunities throughout the lifecycle of vehicles. We estimate such auto-related transactions represent a total market size of RMB5tr and nearly RMB300-400bn revenue opportunities by 2020E, of which RMB70-100bn revenue will be captured by online platforms. We believe BITA as an early mover is able to maintain its leadership among online platforms.  PT of US$38 is based on 2019E non-GAAP EPADS of US$2.0, FY20-21E EPADS CAGR of 27% and PEG of 0.7x. PT implies a 2019/20E P/E of 19x/14x. Major downside risks to our thesis and valuation include: 1) intensified competition in auto financing space; 2) tightening regulations on financing activities which may further increase industry-wise financing costs. China Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com AC Alex Yao (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 55 45 $ 35 25 15 Aug-17 Nov-17 Feb-18 May-18 Aug-18 BITA share price ($) CCMP (rebased) YTD 1m 3m Abs -29.0% -8.6% 2.2% Rel -45.1% -12.2% -5.7% 12m -35.4% -63.0% Share Price:'>Price:'>Price:'>Price: $22.58, Date of Price:'>Price:'>Price:'>Price: (27 Aug 18), Bloomberg BITA US, Reuters BITA (Year-end Dec, Rmb mn) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E Net Sales 8,751 10,458 12,973 15,658 ROE(%) 3.8% 6.8% 9.7% 12.8% 52-Week range 54.42-18.47 Operating Profit (EBIT) -1,077 -245 531 1,151 ROIC(%) - - - - Shares Outstg 79MN EBITDA 1,751 1,327 2,239 3,071 Cash 9,555.0 13,214.2 22,618.6 27,220.8 Market Cap(US) US$1,773MN Pre Tax Profit -1,223 -221 611 1,293 Equity 20,237.7 19,869.2 20,130.5 20,926.4 Free float - Reported Net profit -1,427 -394 261 796 Qtr GAAP EPS (Rmb) 1Q 2Q 3Q 4Q Avg daily vol. 1.1MM shares Reported EPS (Rmb) (18.23) (5.00) 3.30 9.94 EPS (17) (0.65) (0.81) (6.48) (10.98) Avg daily val ($) 27.10MN P/E (x) NM NM 46.6 15.5 EPS (18) E (3.65) 0.35 (0.41) (1.27) Dividend Yield - Adj. EPS * 5.07 9.59 13.64 18.57 EPS (19) E (1.67) 2.01 1.89 1.06 Index (NASD) 7945.98 Adj. P/E (X) 30.3 16.0 11.3 8.3 1M 3M 12M Price Target 38.00 EV/EBITDA (x) 20.4 31.3 19.0 16.0 Abs. Perf.(%) (8.6%) 2.2% (39.6%) Price Target End Date 30-Jun-19 P/B (x) 1.1 1.1 1.1 1.0 Rel. Perf.(%) (11.3%) (4.7%) (66.1%) Price Date 27 Aug 18 Y/E BPS (Rmb) 144.72 139.33 141.63 150.15 Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense. www.jpmorganmarkets.com
55. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key catalyst for the stock price: • Ramp-up of transaction platform business • Margin improvement Upside risks to our view:'>view: • Outperformance of ad and subscription revenue • Faster-than-expected growth of transaction platform business Downside risks to our view:'>view: • Weakness in new car sales • Further increase in funding costs due to regulations • Increasing competition in auto financing space • Increasing provision expenses ratio Key financial metrics Revenues (RMBm) Revenue growth (%) Operating profit (RMBm) Operating margin (%) Tax rate (%) Net profit (RMBm) EPS (RMB) EPS growth (%) DPS (RMB) BVPS (RMB) Operating cash flow (RMBm) Free cash flow (RMBm) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions OEM revenue (RMBm) Transaction service revenue (RMBm) FY17A 8,751 51.6% 877 10.0% -16.7% 397 5.07 273.2% 0.00 144.72 928 (585) NM 4.5% 0.2 127.5% 80.3% 3.8% FY17A 2,051 3,871 FY18E 10,458 19.5% 1075 10.3% -78.5% 754 9.59 89.1% 0.00 139.33 -1093 (1,678) NM 7.2% 0.2 177.8% 111.3% 6.8% FY18E 2,318 5,756 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Sensitivity analysis Sensitivity to 1% chg in OEM ARPU 1% chg in Ecommerce revenue Operating profit FY18E FY19E 1% 1% 1% 1% FY19E 12,973 24.0% 1926 14.8% 57.3% 1081 13.64 42.3% 0.00 141.63 3966 3,290 NM 8.3% 0.2 227.5% 115.1% 9.7% FY19E 2,582 7,877 FY20E 15,658 20.7% 2694 17.2% 38.4% 1486 18.57 36.1% 0.00 150.15 -1626 (2,395) NM 9.5% 0.2 273.9% 143.8% 12.8% FY20E 2,820 10,212 EPS FY18E 1% 2% FY19E 1% 2% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Peer group valuation comparison Ticker Rating Bitauto BITA US OW Autohome ATHM US N Leju LEJU US N Fang Holdings SFUN US N Sina SINA US OW Price PT USD 22.6 USD 84.2 USD 1.7 USD 3.1 USD 71.6 USD 38.0 USD 80.0 USD 3.6 USD 3.6 USD 150 Mkt Cap USDm 1,642 9,891 229 1,390 5,117 Valuation and price target basis Our Jun-19 PT of US$38 is based on 2019E non-GAAP EPADS of US$2.00, a FY20-21E EPADS CAGR of 27% and a PEG of 0.7x, implying 2019/20E of 19x/14x. Non-GAAP operating margin trend 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 10.1% FY15 11.2% 10.0% 10.3% FY16 FY17 FY18E Non-GAAP OPM 14.8% FY19E 17.2% FY20E Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, Company and J.P. Morgan estimates. JPMe vs. consensus, change in estimates EPS (RMB) FY18E FY19E JPMe new 9.59 13.64 Consensus Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. 10.01 13.34 EV USDm 4,860 8,727 49 1,754 4,280 P/E FY19E FY20E 11.3 x 8.3 x 20.9 x 16.7 x 6.2 x 5.3 x 12 x 9.5 x 14.0 x 9.7 x P/S FY19E FY20E 0.9 x 0.8 x 7.6 x 6.6 x 0.5 x 0.4 x 3.0 x 2.7 x 1.8 x 1.4 x PEG FY19E 0.4 x 1.0 x 0.5 x 0.5 x 0.3 x CAGR 20-21E 26.8% 22.0% 13.8% 23.1% 42.4% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. Prices as of Aug 27, 2018 55
56. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Investment Thesis, Valuation and Risks BitAuto Holdings Limited (Overweight; Price Target: $38.00) Investment Thesis We are positive on BITA in light of 1) under-valued ad and subscription business, 2) long-term growth potential in auto-related transactions. Among the entire online auto-related transactions market (JPMe RMB70-100bn revenue by 2020E under base case scenario), we believe BITA is able to maintain its leadership in market share in the foreseeable future. Meanwhile, we expect platform business financial contribution to continue to ramp up in the next few years, and this should drive gradual margin improvement in the next few years (JPMe non-GAAP OPM of 17% in 2020E vs. 10% in 2017). The stock has been trading at below 14x 1-year forward P/E YTD 2018 (as compared to 28x of MSCI China Info Tech Index, 28x of BABA and 34x of Tencent), which we believe offers attractive risk/reward. Valuation Our Jun-19 PT of US$38 is based on 2019E non-GAAP EPADS of US$2.0, a FY2021E EPADS CAGR of 27% and a PEG of 0.7x, implying 19x/14x P/E for 2019/20E. We adopt PEG as our primary valuation methodology, as it is able to balance the growth outlook against P/E multiples. Risks to Rating and Price Target Downside risks include 1) weakness in new car sales; 2) further increase in funding costs due to regulations; 3) increasing competition in auto financing space; 4) increasing provision expenses. 56
57. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 BitAuto Holdings Limited: Summary of Financials Income Statement - Annual FY16A FY17A FY18E FY19E FY20E Income Statement - Quarterly Revenue 5,773 8,751 10,458 12,973 15,658 Revenue COGS (2,078) (3,235) (3,864) (4,724) (5,579) COGS Gross profit 3,695 5,517 6,594 8,249 10,079 Gross profit SG&A (3,395) (6,059) (6,225) (6,929) (8,043) SG&A Adj. EBITDA D&A 1,337 1,751 1,327 2,239 3,071 Adj. EBITDA (689) (874) (252) (313) (377) D&A Adj. EBIT 648 877 1,075 1,926 2,694 Adj. EBIT Net Interest (11) 0 42 79 140 Net Interest Adj. PBT 561 730 1,099 2,006 2,835 Adj. PBT Tax (142) (204) (173) (350) (497) Tax Minority Interest 0 0 0 0 0 Minority Interest Adj. Net Income 207 397 754 1,081 1,486 Adj. Net Income Reported EPS (4.88) (18.23) (5.00) 3.30 9.94 Reported EPS Adj. EPS 2.99 5.07 9.59 13.64 18.57 Adj. EPS DPS - - - - - DPS Payout ratio - - - - - Payout ratio Shares outstanding . Balance Sheet & Cash Flow Statement 69 78 79 79 80 Shares outstanding FY16A FY17A FY18E FY19E FY20E Ratio Analysis Cash and cash equivalents 2,022 9,555 13,214 22,619 27,221 Gross margin Accounts receivable 7,937 16,439 16,459 17,230 18,052 EBITDA margin Inventories 0 0 0 0 0 EBIT margin Other current assets 6,516 2,123 6,065 11,019 15,414 Net profit margin Current assets 16,475 28,117 35,738 50,867 60,688 PP&E 195 1,296 1,567 1,838 2,087 ROE LT investments 150 673 680 682 683 ROA Other non current assets 13,115 21,429 22,694 21,592 22,479 ROCE Total assets 29,935 51,516 60,679 74,980 85,937 SG&A/Sales Net debt/equity Short term borrowings 8,536 17,409 26,931 37,404 48,925 Payables 3,201 5,020 5,011 8,548 7,159 P/E (x) Other short term liabilities 217 270 289 318 348 P/BV (x) Current liabilities 11,954 22,699 32,231 46,270 56,432 EV/EBITDA (x) Long-term debt 4,073 8,394 8,394 8,394 8,394 Dividend Yield Other long term liabilities 146 185 185 185 185 Total liabilities 16,173 31,278 40,810 54,849 65,010 Sales/Assets (x) Shareholders' equity 9,544 11,329 10,960 11,221 12,017 Interest cover (x) Minority interests 4,218 8,909 8,909 8,909 8,909 Operating leverage Total liabilities & equity 29,935 51,516 60,679 74,980 85,937 BVPS 137.93 144.72 139.33 141.63 150.15 Revenue y/y Growth y/y Growth (2.1%) 4.9% (3.7%) 1.6% 6.0% EBITDA y/y Growth Net debt/(cash) 10,587 16,248 22,110 23,180 30,098 Tax rate Adj. Net Income y/y Growth Cash flow from operating activities 527 928 (1,093) 3,966 (1,626) EPS y/y Growth o/w Depreciation & amortization 689 874 252 313 377 DPS y/y Growth o/w Changes in working capital (55) (176) 148 2,144 (2,058) Cash flow from investing activities (16,967) (13,104) (4,769) (5,035) (5,293) o/w Capital expenditure (609) (1,755) (550) (610) (653) as % of sales 10.5% 20.1% 5.3% 4.7% 4.2% Cash flow from financing activities 15,423 19,842 9,522 10,474 11,521 o/w Dividends paid 0 0 0 0 0 o/w Net debt issued/(repaid) 12,380 13,003 9,522 10,474 11,521 Net change in cash (919) 7,533 3,659 9,404 4,602 Adj. Free cash flow to firm (6) (585) (1,678) 3,290 (2,395) y/y Growth (99.8%) 9987.5% 186.8% (296.0%) (172.8%) Source: Company reports and J.P. Morgan estimates. Note: Rmb in millions (except per-share data).Fiscal year ends Dec. o/w - out of which 1Q18A 2Q18A 3Q18E 4Q18E 2,171 2,564 2,704 3,018 (821) (941) (993) (1,108) 1,350 1,623 1,711 1,910 (1,510) (1,398) (1,519) (1,797) 71 492 416 340 (63) (63) (63) (63) 8 429 353 277 17 8 8 8 21 423 361 286 12 (74) (62) (49) 0 0 0 0 158 257 208 131 (3.65) 0.35 (0.41) (1.27) 2.00 3.28 2.65 1.66 - - - - - - - - 79 78 79 79 FY16A FY17A FY18E FY19E FY20E 64.0% 63.0% 63.1% 63.6% 64.4% 23.2% 20.0% 12.7% 17.3% 19.6% 11.2% 10.0% 10.3% 14.8% 17.2% 3.6% 4.5% 7.2% 8.3% 9.5% 2.3% 3.8% 6.8% 9.7% 12.8% 1.0% 1.0% 1.3% 1.6% 1.8% 3.0% 2.1% 2.2% 3.1% 3.5% 58.8% 69.2% 59.5% 53.4% 51.4% 76.9% 80.3% 111.3% 115.1% 143.8% 51.4 30.3 16.0 11.3 8.3 1.1 1.1 1.1 1.1 1.0 18.8 20.4 31.3 19.0 16.0 - - - - - 0.3 0.2 0.2 0.2 0.2 127.3 NM NM NM NM 144.2% 68.5% 115.8% 329.1% 192.6% 35.7% 34.0% 25.3% (31.6%) (40.4%) - 51.6% 19.5% 30.9% (24.2%) 27.9% 15.8% 91.8% 90.0% 69.5% 89.1% - - 24.0% 68.7% 17.5% 43.3% 42.3% - 20.7% 37.2% 17.5% 37.5% 36.1% - 57
58. Asia Pacific Equity Research 29 August 2018 Fang Holdings Ltd Re-focus on content and traffic a right move; financial impact is yet to come Neutral SFUN, SFUN US Price:'>Price:'>Price:'>Price: $3.13 ▼ Price Target: $3.60 Previous: $4.20 We assume coverage of SFUN with a Neutral rating and Jun-19 PT of US$3.6. SFUN has largely completed the transition back to an asset-light open platform model by end-2017. Moving into 2018, the company has become more focused on the innovations of legacy online ads and listing services, in order to better leverage SFUN's core competency in traffic and data. The stock has dropped another 50% YTD and currently trades at only 12x 19E P/E; however, we think fundamentally SFUN’s business outlook remains uncertain in 6-12 months, given that 1) developers' marketing demand continues to be overwhelmed by regulatory tightening (esp. price ceiling policy in tier 1 cities); 2) it may take some time for the efforts to enrich content and drive traffic growth to pay off. Neutral.  Transition back to an asset-light model; focused on ads and listing services. SFUN has largely completed the transition to open platform model by end of 2017, which can be evidenced by the significant reduction in headcount (below 5k as of 1Q18 vs. peak number of 50k+ in early 2016) and substantial improvement in margin (non-GAAP OPM of 10% in 2017 vs. -16% in 2016). We think the practice during 2015/16 demonstrated that the trials in real estate e-commerce face more difficulties than movable goods ecommerce and also are more vulnerable to regulations. While the experiments in real estate ecommerce may continue, we don’t expect such an initiative to become a key revenue driver in the next 1-2 years.  Expecting more innovations on traditional business. A part of the reason leading to lackluster growth of legacy businesses (ads and listing) in the past few years has been the aging of products. In light of this, SFUN has reinforced the products revamp this year. For example, SFUN has tested and rolled out CPC-based bidding model for listing service in a few cities. More recently, the company launched a major revamp of its main app to be more focused on content and UI. We don’t think these efforts will generate meaningful payoffs in 2018, but believe these changes are at least directionally right and might be able to re-fuel legacy business growth in the next 1-2 years.  Jun-19 PT of US$3.6 is based on 2019E non-GAAP EPS of US$0.26 and a P/E of 14x. This implies a PEG of 0.6x based on a 20-21E EPS CAGR of 23%. PT implies 19/20E P/E of 14x/11x. China Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Alex Yao AC (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 5.5 4.5 $ 3.5 2.5 Aug-17 Nov-17 Feb-18 May-18 Aug-18 SFUN share price ($) CCMP (rebased) YTD 1m Abs -43.9% -2.2% Rel -60.0% -5.8% 3m -42.1% -50.0% 12m -13.5% -41.1% Share Price:'>Price:'>Price:'>Price: $3.13, Date of Price:'>Price:'>Price:'>Price: (27 Aug 18), Bloomberg SFUN US, Reuters SFUN (Year-end Dec, $ mn) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E Net Sales 444 395 458 511 ROE(%) 3.8% 4.9% 12.8% 14.1% 52-Week range 5.69-2.65 Operating Profit (EBIT) 37 78 117 146 ROIC(%) (138.2%) - Shares Outstg 444MN EBITDA 74 105 147 181 Cash 228.3 61.9 182.6 340.0 Market Cap(US) US$1,390MN Pre Tax Profit 38 23 103 135 Equity 740.3 833.1 961.5 1,123.9 Free float - Reported Net profit 16 21 94 123 Qtr GAAP EPS ($) 1Q 2Q 3Q 4Q Avg daily vol. 2.1MM shares Reported EPS ($) 0.04 0.05 0.21 0.27 EPS (17) (0.03) (0.00) 0.03 0.03 Avg daily val ($) 9.17MN P/E (x) 87.9 67.0 14.9 11.4 EPS (18) E (0.10) 0.03 0.05 0.07 Dividend Yield 0.0% Adj. EPS * 0.05 0.09 0.26 0.33 EPS (19) E 0.00 0.05 0.08 0.08 Index (NASD) 8017.90 Adj. P/E (X) 60.9 35.9 12.2 9.5 1M 3M 12M Price Target 3.60 EV/EBITDA (x) 17.3 11.7 7.5 5.3 Abs. Perf.(%) (2.2%) (42.1%) (14.5%) Price Target End Date 30-Jun-19 P/B (x) 1.9 1.7 1.5 1.2 Rel. Perf.(%) (5.8%) (50.0%) (42.1%) Price Date 27 Aug 18 Y/E BPS ($) 1.67 1.87 2.15 2.50 Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense. www.jpmorganmarkets.com
59. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key catalysts for the stock price: • Recovery of ad and listing services • Margin improvement Upside risks to our view:'>view: • Outperformance of online ads and listing services • Policy loosening Downside risks to our view:'>view: • Margin downside due to investment in new initiatives • Weaker-than-expected performance in legacy advertising/listing business Key financial metrics Revenues (USDm) Revenue growth (%) Operating profit (USDm) Operating margin (%) Tax rate (%) Net profit (USDm) EPS (USD) EPS growth (%) DPS (USD) BVPS (USD) Operating cash flow (USDm) Free cash flow (USDm) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions Marketing service revenue (USDm) Ecommerce service revenue (USDm) FY16 916 3.7% -142 -15.5% -17.3% (162) -0.35 1047.1% 0.00 1.04 131 118 NM -17.7% 0.5 107.6% -13.5% -24.1% FY16 165.4 577.7 FY17 444 -51.5% 44 9.9% 56.8% 24 0.05 -114.9% 0.00 1.67 127 64 15.3 5.3% 0.2 79.1% 10.6% 3.8% FY17 149.3 87.8 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Sensitivity analysis Sensitivity to 1% chg in e-commerce revenue 1% chg in online marketing revenue Operating profit FY18E FY19E 2% 2% 1% 1% FY18E 395 -11.1% 96 24.3% 8.5% 39 0.09 69.8% 0.00 1.87 -78 (82) 8.1 9.8% 0.2 43.5% 2.6% 4.9% FY18E 138.8 34.2 FY19E 458 16.0% 137 29.9% 8.5% 115 0.26 194.4% 0.00 2.15 140 134 10.6 25.0% 0.2 38.6% -9.3% 12.8% FY19E 160.0 24.7 EPS FY18E 4% 2% FY19E 3% 2% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Peer group valuation comparison Ticker Rating Fang Holdings Leju Autohome Bitauto Sina SFUN US N LEJU US N ATHM US N BITA US OW SINA US OW Price USD 3.1 USD 1.7 USD 84.2 USD 22.6 USD 71.6 PT USD 3.6 USD 3.6 USD 80 USD 38 USD 150 Mkt Cap USDm 1,390 229 9,891 1,642 5,117 Valuation and price target basis Jun-19 PT of US$3.6 is based on 2019E non-GAAP EPS of US$0.26 and a P/E of 14x. Revenue growth trajectory US$m 1,000 884 916 30% 20% 800 703 10% 0% 600 511 444 458 -10% 400 395 -20% -30% 200 -40% -50% 0 -60% FY14 FY15 FY16 FY17 FY18E FY19E FY20E Revenues YoY growth Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, Company and J.P. Morgan estimates. JPMe vs. consensus, change in estimates EPS (US$) FY18E FY19E JPMe 0.09 0.26 Consensus 0.14 0.27 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. EV USDm 1,754 49 8,727 4,860 4,280 P/E FY19E FY20E 12.2 x 9.5 x 6.2 x 5.3 x 20.9 x 16.7 x 11.3 x 8.3 x 14.0 x 9.7 x P/S FY19E FY20E 3.0 x 2.7 x 0.5 x 0.4 x 7.6 x 6.6 x 0.9 x 0.8 x 1.8 x 1.4 x PEG FY19E 0.5 x 0.5 x 1.0 x 0.4 x 0.3 x CAGR 20-21E 23.1% 13.8% 22.0% 26.8% 42.4% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. Prices as of Aug 27, 2018 59
60. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Investment Thesis, Valuation and Risks Fang Holdings Ltd (Neutral; Price Target: $3.60) Investment Thesis SFUN has largely completed the transition back to an asset-light open platform model by end-2017. Moving into 2018, the company has become more focused on the innovations of legacy online ads and listing services, in order to better leverage SFUN's core competency in traffic and data. The stock has dropped another 50% YTD and currently trades at only 12x 19E P/E; however, we think fundamentally SFUN’s business outlook remains uncertain in 6-12 months, given that 1) developers' marketing demand continues to be overwhelmed by regulatory tightening (esp. price ceiling policy in tier 1 cities); 2) it may take some time for the efforts to enrich content and drive traffic growth to pay off. Neutral. Valuation Our Jun-19 PT of US$3.6 is based on 2019E non-GAAP EPS of US$0.26 and a P/E of 14x. Risks to Rating and Price Target Success/failure in the business transition of e-commerce business; higher/lower-thanexpected margin recovery; regulatory loosening/tightening. 60
61. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Fang Holdings Ltd: Summary of Financials Income Statement - Annual FY16A FY17A FY18E FY19E FY20E Income Statement - Quarterly 1Q18A 2Q18E 3Q18E 4Q18E Revenue COGS 916 444 395 458 511 Revenue (687) (175) (113) (114) (120) COGS 63 91 107 134 (20) (27) (30) (35) Gross profit 229 270 282 345 391 Gross profit 43 63 77 99 SG&A (381) (232) (204) (228) (245) SG&A (46) (46) (48) (63) Adj. EBITDA (111) 74 105 147 181 Adj. EBITDA 3 23 36 43 D&A Adj. EBIT Net Interest Adj. PBT Tax (31) (30) (9) (10) (11) D&A (142) 44 96 137 170 Adj. EBIT (9) (5) (13) (14) (11) Net Interest (136) 45 41 123 159 Adj. PBT (25) (21) (2) (9) (11) Tax (2) (2) (2) (2) 1 21 34 40 (3) (3) (3) (3) (45) 18 30 37 4 (1) (2) (3) Minority Interest 0 0 0 0 0 Minority Interest 0 0 0 0 Adj. Net Income (162) 24 39 115 147 Adj. Net Income 2 17 28 34 Reported EPS Adj. EPS DPS Payout ratio Shares outstanding . (0.36) 0.04 0.05 0.21 0.27 Reported EPS (0.35) 0.05 0.09 0.26 0.33 Adj. EPS 0.00 0.00 0.00 0.00 0.00 DPS 0.0% 0.0% 0.0% 0.0% 0.0% Payout ratio 469 444 444 446 448 Shares outstanding (0.10) 0.00 444 0.03 0.05 0.07 0.04 0.06 0.08 - - - - - - 444 445 445 Balance Sheet & Cash Flow Statement Cash and cash equivalents Accounts receivable FY16A FY17A FY18E FY19E FY20E Ratio Analysis 337 228 62 183 340 Gross margin 94 67 52 60 67 EBITDA margin FY16A FY17A 25.0% 60.7% (12.1%) 16.6% FY18E FY19E FY20E 71.4% 75.2% 76.5% 26.5% 32.1% 35.3% Inventories 0 0 0 0 0 EBIT margin (15.5%) 9.9% 24.3% 29.9% 33.2% Other current assets 363 453 429 429 429 Net profit margin (17.7%) 5.3% 9.8% 25.0% 28.7% Current assets 793 748 542 672 836 PP&E LT investments Other non current assets Total assets 320 232 270 1,615 622 471 159 2,000 630 471 159 1,802 639 471 159 1,941 650 471 159 2,116 ROE ROA ROCE SG&A/Sales (24.1%) (8.3%) (12.2%) 41.6% 3.8% 1.3% 2.0% 52.3% 4.9% 2.0% 7.3% 51.6% 12.8% 6.1% 10.1% 49.8% 14.1% 7.2% 11.1% 48.0% Short term borrowings Net debt/equity 164 180 71 80 88 (13.5%) 10.6% 2.6% (9.3%) (21.3%) Payables 319 159 92 92 97 P/E (x) NM 60.9 35.9 12.2 9.5 Other short term liabilities 213 243 243 243 243 P/BV (x) 3.0 1.9 1.7 1.5 1.2 Current liabilities 696 582 405 415 428 EV/EBITDA (x) NM 17.3 11.7 7.5 5.3 Long-term debt Other long term liabilities Total liabilities Shareholders' equity 360 405 291 291 291 Dividend Yield 71 273 273 273 273 1,127 1,260 969 979 992 Sales/Assets (x) 487 740 832 961 1,123 Interest cover (x) 0.0% 0.0% 0.5 0.2 NM 15.3 0.0% 0.0% 0.0% 0.2 0.2 0.3 8.1 10.6 16.2 Minority interests 1 1 1 1 1 Operating leverage 10109.6% 254.1% (1066.5%) 269.2% 203.7% Total liabilities & equity 1,615 2,000 1,802 1,941 2,116 BVPS 1.04 1.67 1.87 2.15 2.50 Revenue y/y Growth 3.7% (51.5%) (11.1%) 16.0% 11.6% y/y Growth (48.7%) 60.4% 12.4% 14.9% 16.4% EBITDA y/y Growth 945.1% (166.6%) 41.4% 40.9% 22.8% Net debt/(cash) (66) 79 21 (90) (239) Tax rate (18.4%) 47.7% 4.7% 7.1% 7.2% Cash flow from operating activities o/w Depreciation & amortization o/w Changes in working capital Cash flow from investing activities 131 127 (78) 31 30 9 241 30 (137) (128) (285) (17) Adj. Net Income y/y Growth 140 179 EPS y/y Growth 10 11 DPS y/y Growth 25 (19) (22) 124.0% (114.5%) 113.7% (114.9%) - - 64.8% 195.7% 28.3% 69.8% 194.4% 27.7% - - - o/w Capital expenditure (25) (66) (17) (19) (22) as % of sales 2.7% 14.8% 4.2% 4.2% 4.2% Cash flow from financing activities o/w Dividends paid o/w Net debt issued/(repaid) Net change in cash Adj. Free cash flow to firm (466) 34 (114) 0 0 0 182 67 (114) (481) (108) (166) 118 64 (82) 00 00 00 121 157 134 168 y/y Growth (154.1%) (46.1%) (229.4%) (262.6%) 25.4% Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Dec. o/w - out of which 61
62. Asia Pacific Equity Research 29 August 2018 Leju Holdings Limited Improving financial outlook amidst continued policy tightening; Neutral ▲ Neutral Previous:'>Previous: Underweight LEJU, LEJU US Price:'>Price:'>Price:'>Price: $1.69 ▲ Price Target: $3.60 Previous:'>Previous: $1.80 We assume coverage of LEJU and move to a Neutral rating with Jun-19 PT of US$3.6. We attribute the weakness in LEJU’s share price during the past two years (down 70% since early 2017) to 1) dampened business outlook (due to pressured marketing demand), and 2) expectations for further earnings downgrade (LEJU has remained loss-making from 4Q16 to 1Q18). We think the first issue arises from new home price-ceiling policy and LEJU has somehow managed through the difficulty by launching a couple of operational initiatives in 2018. Consequently, we expect the earnings outlook to gradually improve driven by 1) revenue growth recovery, and 2) cost structure optimization. Given LEJU has just turned profitable in 2Q18 from a continuous loss-making stage since end of 2016, we think it could take another 1-2 quarter earnings delivery for the market to gain confidence in earnings sustainability.  Earnings outlook improves with revenue recovery and cost reduction. Despite a continued regulatory tightening in new home transactions, Leju has restored growth in both ecommerce (+39%) and advertising (+22%) in 1H18, thanks to 1) product revamps 2) expansion of ecommerce projects to low-tier cities, and 3) capturing developers’ budgets on branding. LEJU’s efforts to reduce costs have started to pay off with total headcounts down to 2.5k in 2Q18 from 4k+ in 2017.  Policy tightening risk remains. Leju has shown increasing cyclicality in the past 2 years which makes it vulnerable to the tightening cycle of real estate market. Both its online ad and ecommerce services (95% of total revenue) are aimed to address developers’ marketing demand for new homes, which, however, is constrained by price-ceiling policy of new home transactions esp. in tier 1/2 cities. We think such a policy will remain a potential risk to LEJU’s core revenue growth.  Neutral with a PT of US$3.6, based on 2019E revenue/sh of US$3.6, and a 19E P/S ratio of 1.0x. A P/S ratio of 1.0x is below the low end of China Internet portals e.g. FENG US (1.6x) given the damped growth outlook of LEJU is 6-12 months. Downside risk primarily comes from earnings deterioration; upside risks include policy loosening and margin upside. China Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com AC Alex Yao (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 2.0 1.6 $ 1.2 0.8 Aug-17 Nov-17 Feb-18 May-18 Aug-18 LEJU share price ($) CCMP (rebased) YTD Abs 17.4% Rel 1.3% 1m 2.4% -1.2% 3m 47.0% 39.1% 12m 9.0% -18.6% Share Price:'>Price:'>Price:'>Price: $1.69, Date of Price:'>Price:'>Price:'>Price: (27-Aug-18), Bloomberg LEJU US, Reuters LEJU (Year-end Dec, $ mn) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E Net Sales 363 446 496 528 ROE(%) (41.5%) (6.8%) 12.7% 13.3% 52-Week range 2.23-0.96 Operating Profit (EBIT) -184 -38 30 38 ROIC(%) -- - - Shares Outstg 136MN EBITDA -157 -11 47 56 Cash 145.1 100.1 117.4 145.6 Market Cap(US) US$229MN Pre Tax Profit -182 -39 30 39 Equity 296.0 274.4 307.4 346.8 Free float 25.0% Reported Net profit -161 -34 23 0 Qtr GAAP EPS ($) 1Q 2Q 3Q 4Q Avg daily vol. 0.2MM shares Reported EPS ($) (1.19) (0.25) 0.17 0.00 EPS (17) (0.21) (0.64) (0.17) (0.16) Avg daily val ($) 0.33MN P/E (x) NM NM 10.1 - EPS (18) E (0.15) (0.01) (0.05) (0.04) Dividend Yield - Adj. EPS * (1.07) (0.14) 0.27 0.32 EPS (19) E (0.07) 0.18 0.04 0.02 Index (NASD) 8017.90 Adj. P/E (X) NM NM 6.2 5.3 1M 3M 12M Price Target 3.60 EV/EBITDA (x) NM NM 2.0 1.2 Abs. Perf.(%) 2.4% 47.0% 1.8% Price Target End Date 30-Jun-19 P/B (x) 0.8 0.8 0.7 0.7 Rel. Perf.(%) (1.2%) 39.1% (25.8%) Price Date 27-Aug-18 Y/E BPS ($) 2.18 2.02 2.26 2.55 Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense. www.jpmorganmarkets.com
63. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key catalysts for the stock price: • Revenue growth recovery • Achieving profitability Upside risks to our view:'>view: • Loosening of real estate policy tightening • Faster-than-expected recovery of ad and ecommerce revenue • Margin improvement Downside risks to our view:'>view: • Earnings deterioration Key financial metrics Revenues (USDm) Revenue growth (%) Operating profit (USDm) Operating margin (%) Tax rate (%) Net profit (USDm) EPS (USD) EPS growth (%) DPS (USD) BVPS (USD) Operating cash flow (USDm) Free cash flow (USDm) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions Marketing service revenue (USDm) Ecommerce service revenue (USDm) FY16 560 -2.8% 9 1.6% -15.4% 10 0.08 NM 3.00 35 29 NM 1.8% 0.9 0.0% -67.5% 2.4% FY16 117.9 419.0 FY17 363 -35.2% -166 -45.9% -11.2% (146) -1.07 -1527.6% 2.18 -120 (130) 119.6 -40.2% 0.7 0.0% -49.0% -41.5% FY17 113.2 234.8 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Sensitivity analysis Sensitivity to 1% chg in e-commerce revenue 1% chg in online marketing revenue Operating profit FY18E FY19E 2% 2% 1% 1% FY18E 446 22.9% -20 -4.6% -13.0% (19) -0.14 -86.7% 2.02 -36 (49) 10.3 -4.4% 1.0 0.0% -36.5% -6.8% FY18E 128.8 313.6 FY19E 496 11.2% 47 9.6% 25.1% 37 0.27 -289.9% 2.26 29 17 NM 7.5% 1.1 0.0% -38.2% 12.7% FY19E 136.2 356.9 EPS FY18E FY19E 4% 3% 2% 2% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Peer group valuation comparison Ticker Rating Leju LEJU US N Fang Holdings SFUN US N Autohome ATHM US N Bitauto BITA US OW Sina SINA US OW Price USD 1.7 USD 3.1 USD 84.2 USD 22.6 USD 71.6 PT USD 3.6 USD 3.6 USD 80 USD 38 USD 150 Mkt Cap USDm 229 1,390 9,891 1,642 5,117 Valuation and price target basis PT of US$3.6 is based on 2018E revenue per share of US$3.6, and a P/S ratio of 1.0x. Revenue growth trajectory US$m 700 48% 60% 600 576 560 496 496 528 40% 500 16% 446 400 363 11% 7% 20% 23% -3% 300 0% 200 100 -35% -20% 0 -40% FY14 FY15 FY16 FY17 FY18E FY19E FY20E Revenues YoY growth Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, Company and J.P. Morgan estimates. JPMe vs. consensus, change in estimates EPS (USD) FY18E FY19E JPMe -0.14 0.27 Consensus N/A N/A Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. EV USDm 49 1,754 8,727 4,860 4,280 P/E FY19E FY20E 6.2 x 5.3 x 12.2 x 9.5 x 20.9 x 16.7 x 11.3 x 8.3 x 14.0 x 9.7 x P/S FY19E FY20E 0.5 x 0.4 x 3.0 x 2.7 x 7.6 x 6.6 x 0.9 x 0.8 x 1.8 x 1.4 x PEG FY19E 0.5 x 0.5 x 1.0 x 0.4 x 0.3 x CAGR 20-21E 13.8% 23.1% 22.0% 26.8% 42.4% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. Prices as of Aug 27, 2018 63
64. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Investment Thesis, Valuation and Risks Leju Holdings Limited (Neutral; Price Target: $3.60) Investment Thesis We attribute the weakness in LEJU’s share price during past two years (down 70% since 2017) to 1) dampened business outlook (due to pressured marketing demand), and 2) expectations for further earnings downgrade (LEJU has remained loss-making from 4Q16 to 1Q18). We think the first issue arises from new home price-ceiling policy and LEJU has somehow managed through the difficulty by launching a couple of operational initiatives in 2018. Consequently, we expect the earnings outlook to gradually improve driven by 1) revenue growth recovery and 2) cost structure optimization. Given LEJU has just turned profitable in 2Q18 from continuous lossmaking stage since end of 2016, we think it could take another 1-2 quarter earnings delivery for the market to gain confidence in earnings sustainability. Valuation Our Jun-19 PT of US$3.6 is based on 2019E revenue per share of US$3.6, and a P/S ratio of 1.0x. Risks to Rating and Price Target Upside risks to our rating and price target include loosened price-ceiling policy, improving business outlook, margin upside. Downside risks include further earnings deterioration and longer-than-expected policy tightening. 64
65. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Leju Holdings Limited: Summary of Financials Income Statement - Annual FY16A FY17A FY18E FY19E FY20E Income Statement - Quarterly 1Q18A 2Q18A 3Q18E 4Q18E Revenue COGS 560 363 446 496 528 Revenue (57) (74) (86) (98) (105) COGS 82 123 (19) (18) 122 120 (27) (22) Gross profit SG&A 502 288 359 398 423 Gross profit (522) (434) (398) (368) (385) SG&A 63 104 95 97 (95) (95) (104) (104) Adj. EBITDA D&A 24 (157) (11) (15) (9) (9) 47 56 Adj. EBITDA 0 0 D&A (25) 16 (2) (2) (3) (0) (2) (2) Adj. EBIT 9 (166) (20) 47 56 Adj. EBIT (27) 14 (5) (2) Net Interest 1 1 1 1 1 Net Interest 0 0 0 0 Adj. PBT Tax Minority Interest Adj. Net Income Reported EPS (13) 2 2 10 (0.07) (182) 20 1 (146) (1.19) (39) 5 1 (19) (0.25) 30 39 Adj. PBT (8) (10) Tax 0 0 Minority Interest 37 43 Adj. Net Income 0.17 0.00 Reported EPS (28) 7 0 (17) (0.15) 5 (6) 0 3 (0.01) (9) 2 0 (3) (0.05) (7) 2 0 (1) (0.04) Adj. EPS 0.08 (1.07) (0.14) 0.27 0.32 Adj. EPS (0.13) 0.02 (0.02) (0.01) DPS - - - - - DPS - - - - Payout ratio Shares outstanding . - - - - - Payout ratio 135 136 136 136 136 Shares outstanding - - 136 136 - - 136 136 Balance Sheet & Cash Flow Statement FY16A FY17A FY18E FY19E FY20E Ratio Analysis FY16A FY17A FY18E FY19E FY20E Cash and cash equivalents 274 145 100 117 146 Gross margin 89.7% 79.6% 80.6% 80.3% 80.1% Accounts receivable Inventories Other current assets Current assets 71 89 110 122 130 EBITDA margin 0 0 0 0 0 EBIT margin 61 62 64 66 67 Net profit margin 406 296 274 306 343 4.3% (43.4%) (2.6%) 1.6% (45.9%) (4.6%) 1.8% (40.2%) (4.4%) 9.6% 10.6% 9.6% 10.6% 7.5% 8.2% PP&E 8 8 10 12 14 ROE 2.4% (41.5%) (6.8%) 12.7% 13.3% LT investments 0 0 0 0 0 ROA 1.7% (28.0%) (4.3%) 8.0% 8.7% Other non current assets 161 161 161 161 161 ROCE 2.5% (52.6%) (8.1%) 12.2% 12.8% Total assets 576 465 445 479 519 SG&A/Sales 93.3% 119.8% 89.4% 74.3% 72.8% Net debt/equity (67.5%) (49.0%) (36.5%) (38.2%) (42.0%) Short term borrowings Payables Other short term liabilities Current liabilities 0 0 0 00 2 2 2 3 3 P/E (x) 149 148 149 150 151 P/BV (x) 151 150 152 153 153 EV/EBITDA (x) 22.5 NM NM 6.2 5.3 0.6 0.8 0.8 0.7 0.7 NM NM NM 2.0 1.2 Long-term debt 0 0 0 0 0 Dividend Yield - - - - - Other long term liabilities 19 19 19 19 19 Total liabilities 170 169 171 172 172 Sales/Assets (x) 0.9 0.7 1.0 1.1 1.1 Shareholders' equity Minority interests 406 296 274 307 347 Interest cover (x) - - - - - Operating leverage NM 119.6 10.3 NM NM 3070.0% 5508.5% (383.4%) (2966.3%) 272.2% Total liabilities & equity 576 465 445 479 519 BVPS y/y Growth Net debt/(cash) 3.00 2.18 2.02 (4.7%) (27.4%) (7.3%) (274) (145) (100) 2.26 12.0% (117) 2.55 12.8% (146) Revenue y/y Growth EBITDA y/y Growth Tax rate Adj. Net Income y/y Growth (2.8%) (35.2%) (75.5%) (753.8%) (15.4%) (11.2%) (82.3%) (1532.3%) 22.9% (92.7%) (13.0%) (86.6%) 11.2% (515.2%) 25.1% (289.9%) 6.6% 18.0% 25.1% 17.6% Cash flow from operating activities 35 (120) (36) 29 41 EPS y/y Growth (82.2%) (1527.6%) (86.7%) (289.9%) 17.6% o/w Depreciation & amortization 15 9 9 0 0 DPS y/y Growth - - - - - o/w Changes in working capital Cash flow from investing activities o/w Capital expenditure as % of sales Cash flow from financing activities 5 (19) (21) (14) (9) (4) (9) (11) (12) (13) (4) (9) (11) (12) (13) 0.8% 2.4% 2.4% 2.4% 2.4% (5) 0 0 00 o/w Dividends paid 0 0 0 00 o/w Net debt issued/(repaid) 2 0 0 00 Net change in cash Adj. Free cash flow to firm y/y Growth 14 (129) (45) 17 28 29 (130) (49) 17 28 (17.5%) (543.0%) (62.7%) (134.7%) 64.6% Source: Company reports and J.P. Morgan estimates. Note: $ in millions (except per-share data).Fiscal year ends Dec. o/w - out of which 65
66. Asia Pacific Equity Research 29 August 2018 Phoenix New Media Ltd Expecting Yidian's investment value to kick in Overweight FENG, FENG US Price:'>Price:'>Price:'>Price: $4.58 Price Target: $10.00 We assume coverage of FENG with an OW rating and Jun-19 PT of US$10. Despite a lackluster core business performance (JPMe core ad revenue +8% /+5% YoY in 2018/19E), we think the real upside to the stock will come from its equity investments in Yidian. As one of China's leading algorithm-based news and information apps, Yidian continued to expand its DAU at 20-30% YoY (currently at 65m) and monetization capability (JPMe rev to reach RMB2.5-3bn in 2018E vs. RMB1.5bn in 2017). The stock had experienced significant fluctuations since 2017, which we attribute to: 1) uncertainty around Yidian consolidation schedule, 2) lack of liquidity, and 3) macro risk. Nonetheless, we think FENG's equity value in Yidian still remains regardless of which means FENG chooses to realize the value, through either cash-out or consolidation. We expect to see more clarity by year-end as Yidian’s F round financing closes.  Yidian: monetization progresses well with significant valuation upside. Revenue of Yidian tripled YoY in 2017 and management remains positive that revenue is likely to double for full-year 2018 (implying a revenue target of RMB3bn). With the F round financing around the corner, we think the major concern has focused on the capital market plan of Yidian (A-share or US listing), which will determine FENG's consolidation of Yidian. On 18E revenue basis, we think Yidian’s valuation could reach RMB15-18bn based on 6x P/S, a discount to Toutiao.  Mobile ads will remain solid growth. We believe FENG remains differentiated from other media platforms in China given its serious journalism and positioning with the well-educated white-collar group. Such a position would in our view make FENG relatively resilient to emerging competition from other traffic gateways. We expect online ad revenue to see 8% growth in 2018 and mobile ads to deliver 37% YoY growth, driven by the increase of advertisers, in particular from the programmatic buying platform which contributed ~40% of total mobile ads revenue.  OW with PT of US$10, based on SoTP: US$205m (US$2.8/sh) from ads, US$138m (US$1.9/sh) from net cash, and US$395m (US$5.4/sh) from Yidian. China Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com AC Alex Yao (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 9 7 $ 5 3 Aug-17 Nov-17 Feb-18 May-18 Aug-18 FENG share price ($) CCMP (rebased) YTD 1m Abs -29.4% 14.2% Rel -45.5% 10.6% 3m -16.9% -24.8% 12m 6.0% -21.6% Share Price:'>Price:'>Price:'>Price: $4.58, Date of Price:'>Price:'>Price:'>Price: (27-Aug-18), Bloomberg FENG US, Reuters FENG (Year-end Dec, Rmb mn) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E Net Sales 1,575 1,493 1,527 1,577 ROE(%) 2.2% 2.3% 2.9% 3.2% 52-Week range 8.14-3.82 Operating Profit (EBIT) 15 11 28 35 ROIC(%) 92.4% 110.4% 101.0% 133.9% Shares Outstg 73MN EBITDA 51 56 74 83 Cash 699.6 703.6 768.7 843.5 Market Cap(US) US$334MN Pre Tax Profit 49 60 75 84 Equity 2,501.2 2,544.3 2,604.6 2,672.2 Free float - Reported Net profit 37 44 60 68 Qtr GAAP EPS (Rmb) 1Q 2Q 3Q 4Q Avg daily vol. 0.2MM shares Reported EPS (Rmb) 0.52 0.60 0.80 0.86 EPS (17) (0.45) 0.35 0.46 0.16 Avg daily val ($) 0.87MN P/E (x) 60.4 51.9 39.2 36.2 EPS (18) E (0.79) 0.67 0.31 0.40 Dividend Yield 0.0% Adj. EPS * 0.72 0.79 1.00 1.08 EPS (19) E 0.01 0.58 0.10 0.10 Index (NASD) 8017.90 Adj. P/E (X) 43.5 39.5 31.3 29.0 1M 3M 12M Price Target 10.00 EV/EBITDA (x) 35.7 32.4 23.4 20.1 Abs. Perf.(%) 14.2% (16.9%) 0.4% Price Target End Date 30-Jun-19 P/B (x) 0.9 0.9 0.9 0.9 Rel. Perf.(%) 10.6% (24.7%) (27.2%) Price Date 27-Aug-18 Y/E BPS (Rmb) 34.90 34.78 34.43 34.19 Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense. www.jpmorganmarkets.com
67. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key catalysts for the stock price: • Redemption of Yidian's investment value • Mobile ad monetization Upside risks to our view:'>view: • Stronger-than-expected mobile monetization • Faster-than-expected monetization of Yidian • Less-than-expected investments Downside risks to our view:'>view: • Unclear consolidation schedule of Yidian • Competition in mobile ads • Heavier-than-expected investments Key financial metrics Revenues (RMBm) Revenue growth (%) Operating profit (RMBm) Operating margin (%) Tax rate (%) Net profit (RMBm) EPS (RMB) EPS growth (%) DPS (RMB) BVPS (RMB) Operating cash flow (RMBm) Free cash flow (RMBm) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions Mobile ad revenue contribution Yidian DAU (m) FY17A 1,575 9.0% 51 3.2% 30.0% 52 0.72 -38.6% - 34.90 173 120 -1.6 3.3% 0.5 13.2% -14.8% 2.2% FY17A 57% 55.0 FY18E 1,493 -5.2% 56 3.7% 28.1% 58 0.79 10.0% 34.78 48 (27) -1.4 3.9% 0.4 13.0% -14.7% 2.3% FY18E 73% 69.0 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Sensitivity analysis Sensitivity to 1% chg in sales growth 1% chg in gross margin Operating profit FY18E FY19E 5% 5% 14% 14% FY19E 1,527 2.3% 74 4.9% 20.0% 76 1.00 26.1% 34.43 111 31 -1.8 4.9% 0.4 12.7% -16.8% 2.9% FY19E 80% 86.5 FY20E 1,577 3.2% 83 5.2% 20.0% 84 1.08 8.0% 34.19 122 39 -1.9 5.3% 0.4 12.3% -19.2% 3.2% FY20E 83% 108.4 EPS FY18E 4% 10% FY19E 4% 10% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Peer group valuation comparison Ticker Rating Price Phoenix New Media FENG US OW USD 4.6 Baidu BIDU US N USD 228.6 Sina SINA US OW USD 71.6 Tencent 700 HK OW HKD 361.0 Fang Holdings SFUN US N USD 3.1 PT USD 10.0 USD 273 USD 150 HKD 460 USD 3.6 Mkt Cap USDm 331 80,038 5,117 437,907 1,390 Valuation and price target basis We are OW on FENG with a Jun-19 PT of US$10. PT is based on SoTP: 1) US$205m (US$2.8/share) from online ads, US$138m (US$1.9/share) from net cash, and US$395m (US$5.4/share) from Yidian. Non-GAAP operating margin trend 8% 7.0% 7% 6% 5% 4% 3% 2.6% 2.3% 3.3% 2.9% 1.5% 2% 1% 0% FY15 FY16 FY17 FY18E FY19E FY20E Operating margin (Non-GAAP) Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, Company and J.P. Morgan estimates. JPMe vs. consensus, change in estimates EPS (US$) FY19E FY20E JPMe 1.00 1.08 Consensus 1.24 1.37 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. EV USDm 177 70,773 4,280 452,213 1,754 P/E FY19E FY20E 31.3 x 29.0 x 18.7 x 16.8 x 14.0 x 9.7 x 26.6 x 19.8 x 12 x 9.5 x P/S FY19E FY20E 1.7 x 1.7 x 4.5 x 3.9 x 1.8 x 1.4 x 6.7 x 5.2 x 3.0 x 2.7 x PEG FY19E 4.7 x 1.8 x 0.3 x 0.9 x 0.5 x CAGR 20-21E 6.7% 10.4% 42.4% 28.2% 23.1% Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Prices are as of Aug 27, 2018 67
68. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Valuation Our SoTP approach generates a total valuation of US$738m (US$10 per share), which comprises:  US$205m (US$2.8/share) valuation from online ads, based on 1) 2019E online ad revenue of US$205m, 2) a 2019E ex-cash P/S of 1.0x.  US$138m (US$1.9/share) from net cash  US$395m (US$5.4/share) from Yidian based on 1) 65m DAU, and 2) value per DAU of US$20. Table 18: SoTP valuation of Phoenix New Media Online ads Cash Investment in Yidian Total valuation 2019E revenue (US$m) 205.0 152.9 Source: J.P. Morgan estimates. 19E ex-cash P/S 1.0 Value per DAU DAU (US$) Ownership 100% 100% 65 20.0 38% Discount 0% 10% 20% Valuation (US$m) 205 138 395 738 Value per share (US$) 2.8 1.9 5.4 10.1 Investment Thesis, Valuation and Risks Phoenix New Media Ltd (Overweight; Price Target: $10.00) Investment Thesis Despite a lackluster core business performance (JPMe core ad revenue +8% /+5% YoY in 2018/19E), we think the real upside to the stock will come from its equity investments in Yidian. As one of China's leading algorithm-based news and information apps, Yidian continued to expand its DAU at 20-30% YoY (currently at 65m) and monetization capability (JPMe rev to reach RMB2.5-3bn in 2018E vs. RMB1.5bn in 2017). The stock had experienced significant fluctuations since 2017, which we attribute to 1) uncertainty around Yidian consolidation schedule, 2) lack of liquidity and 3) macro risk. Nonetheless, we think FENG's equity value in Yidian still remains regardless of which means FENG chooses to realize the value, through either cash-out or consolidation. We expect to see more clarity by year-end as Yidian’s F round financing closes. Valuation Our SoTP approach generates a total valuation of US$738m (US$10 per share), comprising:  US$205m (US$2.8/share) from online ads, based on 2019E online ad revenue of US$205m and a 2019E ex-cash P/S of 1.0x.  US$138m (US$1.9/share) from net cash.  US$395m (US$5.4/share) from Yidian. Risks to Rating and Price Target Downside risks to our OW rating and price target include unclear consolidation schedule of Yidian, competition on mobile ads, and higher-than-expected investments. 68
69. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Phoenix New Media Ltd: Summary of Financials Income Statement - Annual Revenue COGS FY16A FY17A FY18E FY19E FY20E Income Statement - Quarterly 1,445 1,575 1,493 1,527 1,577 Revenue (727) (727) (544) (559) (582) COGS Gross profit SG&A 718 848 949 968 915 Gross profit (521) (641) (733) (742) (758) SG&A Adj. EBITDA D&A Adj. EBIT Net Interest Adj. PBT Tax Minority Interest Adj. Net Income Reported EPS Adj. EPS DPS Payout ratio Shares outstanding . Balance Sheet & Cash Flow Statement Cash and cash equivalents Accounts receivable Inventories Other current assets Current assets PP&E LT investments Other non current assets Total assets 77 51 56 74 83 Adj. EBITDA (42) (36) (45) (46) (47) D&A 35 15 11 28 35 Adj. EBIT 28 32 39 41 43 Net Interest 94 70 74 91 101 Adj. PBT (14) (15) (17) (15) (17) Tax 2 3 1 - - Minority Interest 84 52 58 76 84 Adj. Net Income 1.12 0.52 0.60 0.80 0.86 Reported EPS 1.17 0.72 0.79 1.00 1.08 Adj. EPS 0.00 0.00 0.00 0.00 0.00 DPS 0.0% 0.0% 0.0% 0.0% 0.0% Payout ratio 72 72 73 76 78 Shares outstanding FY16A FY17A 557 700 405 459 - - 1,160 1,085 2,123 2,243 72 64 - - 974 1,291 3,169 3,599 FY18E 704 409 - 1,073 2,186 64 - 1,291 3,542 FY19E FY20E 769 844 419 432 - - 1,074 1,076 2,262 2,352 64 64 - - 1,291 1,291 3,618 3,708 Ratio Analysis Gross margin EBITDA margin EBIT margin Net profit margin ROE ROA ROCE SG&A/Sales Short term borrowings Payables Other short term liabilities Current liabilities Long-term debt Other long term liabilities Total liabilities Shareholders' equity Minority interests 359 261 364 983 23 1,006 2,166 (3) 330 263 479 1,072 26 1,098 2,508 (6) 330 211 431 972 26 998 2,551 (6) 330 217 440 987 26 1,013 2,611 (6) 330 226 454 1,010 26 1,036 2,679 (6) Net debt/equity P/E (x) P/BV (x) EV/EBITDA (x) Dividend Yield Sales/Assets (x) Interest cover (x) Operating leverage Total liabilities & equity 3,169 3,599 3,542 3,618 3,708 BVPS y/y Growth Net debt/(cash) Cash flow from operating activities o/w Depreciation & amortization o/w Changes in working capital Cash flow from investing activities o/w Capital expenditure as % of sales Cash flow from financing activities o/w Dividends paid o/w Net debt issued/(repaid) Net change in cash Adj. Free cash flow to firm y/y Growth 30.14 34.90 19.2% 15.8% (199) (370) 34.78 (0.4%) (374) 34.43 34.19 (1.0%) (0.7%) (439) (514) 204 173 48 111 122 42 36 45 46 47 59 66 (39) 57 (314) (6) (45) (46) (47) (29) (28) (45) (46) (47) 2.0% 1.8% 3.0% 3.0% 3.0% 217 (16) 0 00 0 0 0 00 215 (29) 0 00 122 142 4 65 75 151 120 (27) 31 39 (2.0%) (20.4%) (122.5%) (215.5%) 25.8% Revenue y/y Growth EBITDA y/y Growth Tax rate Adj. Net Income y/y Growth EPS y/y Growth DPS y/y Growth Source: Company reports and J.P. Morgan estimates. Note: Rmb in millions (except per-share data).Fiscal year ends Dec. o/w - out of which 1Q18A 2Q18A 284 362 (128) (133) 156 230 (166) (152) (58) 29 - - (58) 29 8 10 (60) 61 5 (8) 1 0 (52) 53 (0.79) 0.67 (0.71) 0.72 - - - - 72 73 3Q18E 4Q18E 384 462 (136) (147) 248 315 (180) (236) 18 22 - - 18 22 10 10 32 40 (6) (7) 0 0 26 33 0.31 0.40 0.36 0.44 - - - - 74 74 FY16A 49.7% 5.4% 2.4% 5.8% FY17A FY18E 53.8% 63.6% 3.2% 3.7% 1.0% 0.7% 3.3% 3.9% FY19E FY20E 63.4% 58.0% 4.9% 5.2% 1.9% 2.2% 4.9% 5.3% 4.2% 2.9% 1.3% 36.0% 2.2% 1.5% 0.4% 40.7% 2.3% 1.6% 0.3% 49.1% 2.9% 2.1% 0.8% 48.6% 3.2% 2.3% 1.0% 48.1% (9.2%) (14.8%) (14.7%) (16.8%) (19.2%) 26.7 43.5 39.5 31.3 29.0 1.0 0.9 0.9 0.9 0.9 25.6 35.7 32.4 23.4 20.1 0.0% 0.0% 0.0% 0.0% 0.0% 0.5 0.5 0.4 0.4 0.4 NM NM NM NM NM 540.8% (639.8%) 519.8% 6969.5% 753.4% (10.2%) (37.9%) 15.0% (41.9%) (41.5%) - 9.0% (34.6%) 21.1% (38.3%) (38.6%) - (5.2%) 10.1% 22.9% 11.3% 10.0% - 2.3% 33.4% 16.6% 30.4% 26.1% - 3.2% 11.4% 16.7% 11.5% 8.0% - 69
70. Asia Pacific Equity Research 29 August 2018 Wise Talent Information Technology (Liepin) Model Update Overweight 6100.HK, 6100 HK Price: HK$25.35 Price Target: HK$40.00 Liepin reported 1H18 results with an outperformance on both topline and profit. This reinforces our structural view on Liepin in our initiation report (Please refer to Choosing Wisely; Initiate with OW published on Aug 8th, 2018). We are updating our model in light of a better growth outlook. Please see changes below.  We revise up revenue forecasts in 2018/19/20E by 3%/3%/2% primarily because of improving monetization of business customers. We expect to-B revenue to remain the key revenue driver in the foreseeable future, representing 94%/91%/88% of total revenue in 2018/19/20E.  We turn more positive on ARPU of business customers as management stressed that Liepin will focus on increasing sales efficiency in 2H18 and onwards, which should drive ARPU expansion. We forecast ARPU to reach RMB23k/26k/29k in 2018/19/20E.  We remain equally positive regarding individual users monetization, and expect professional career service revenue to reach RMB69m /159m /298m in 2018/19/20E, representing 6%/9%/12% of total revenue, respectively.  We revise up adjusted net profit forecast for 2018E by 31%, as a result of 1) topline and margin outperformance in 1H18, as well as 2) adding back IPOrelated expenses to be in-line with company's adjustment measures. We remain equally positive towards margin and profit outlook in 2019/20E, and maintain non-GAAP operating margin forecasts in 19/20E at 21%/28%.  Maintain Overweight rating and Jun-19 PT of HK$40. PT is based on 2020E adjusted EPS of HK$1.58 and a target P/E of 25x. Target P/E of 25x is at a premium to the peer average given Liepin’s faster expected growth. Our PT implies a 2019E P/E of 46x and 2020E P/E of 25x. China Internet AC Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com AC Alex Yao (852) 2800-8535 alex.yao@jpmorgan.com Bloomberg JPMA YAO Daniel Chen (852) 2800-8579 daniel.q.chen@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited Price Performance 40 36 HK$ 32 28 24 Aug-17 Nov-17 Feb-18 May-18 Aug-18 6100.HK share price (HK$) HSI (rebased) YTD 1m 3m 12m Abs -23.2% -19.1% -23.2% -23.2% Rel -18.0% -17.5% -15.3% -25.0% Wise Talent Information Technology Co., Ltd (Reuters: 6100.HK, Bloomberg: 6100 HK) Rmb in mn, year-end Dec FY16A FY17A FY18E FY19E FY20E Revenue (Rmb mn) 587 825 1,243 1,802 2,503 Net Profit (Rmb mn) (140) 8 47 302 572 EPS (Rmb) (0.35) 0.02 0.10 0.67 1.27 DPS (Rmb) 0.00 0.00 0.00 0.00 0.00 Revenue growth (%) 69.9% 40.5% 50.7% 45.0% 38.9% EPS growth (%) (39.4%) (105.4%) 458.4% 541.1% 88.6% ROCE 230.8% 15.8% 4.3% 10.7% 17.6% ROE 223.6% 7.4% 7.6% 11.5% 18.4% P/E (x) NM 1,173.3 210.1 32.8 17.4 P/BV (x) 138.1 23.0 3.5 3.2 2.7 EV/EBITDA (x) NM 211.3 128.1 16.5 7.4 Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% Source: Company data, Bloomberg, J.P. Morgan estimates. Company Data Shares O/S (mn) Market Cap (Rmb mn) Market Cap ($ mn) Price (HK$) Date Of Price Free Float(%) 3M - Avg daily vol (mn) 3M - Avg daily val (HK$ mn) 3M - Avg daily val ($ mn) HSI Exchange Rate Price Target End Date 449 9,886 1,450 25.35 28-Aug-18 2,8271.27 7.85 30-Jun-19 www.jpmorganmarkets.com
71. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Key catalyst for the stock price: • Earnings delivery Upside risks to our view:'>view: • Faster-than-expected adoption of business customers • Better-than-expected professional career service revenue Downside risks to our view:'>view: • Business customer revenue slowdown • Failure to deliver margin expansion as expected • Intensified competition in mid-to-high-end talent acquisition service market Key financial metrics Revenues (RMBm) Revenue growth (%) Operating profit (RMBm) Operating margin (%) Tax rate (%) Net profit (RMBm) EPS (RMB) EPS growth (%) DPS (RMB) BVPS (RMB) Operating cash flow (RMBm) Free cash flow (RMBm) Interest cover (X) Net margin (%) Sales/assets (X) Debt/equity (%) Net debt/equity (%) ROE (%) Key model assumptions No. of paying customers (k) Business customer ARPU (RMBk) FY17 825 40.5% 35 4.3% 0.0% 17 0.04 N/A 0.96 191 172 2.2 2.0% 1.0 0.0% -167.3% 7.4% FY17 39.9 20.0 FY18E 1,243 50.7% 68 5.5% 0.0% 121 0.27 553.3% 6.23 262 231 -4.9 9.7% 0.6 0.0% -116.2% 7.6% FY18E 50.7 23.1 FY19E 1,802 45.0% 375 20.8% 16.0% 338 0.75 177.9% 6.87 482 431 -17.8 18.7% 0.5 0.0% -119.3% 11.5% FY19E 63.3 25.9 FY20E 2,503 38.9% 706 28.2% 16.0% 622 1.38 83.2% 8.10 872 806 -28.1 24.8% 0.6 0.0% -123.1% 18.4% FY20E 77.3 28.5 Valuation and price target basis We have an OW rating on Liepin with a Jun-19 PT of HK$40. Valuation is based on 25x P/E and 2020E adjusted EPS of HK$1.58. This implies a 2019E P/E of 46x and a 2020E P/E of 25x. Total revenue growth trend 3,000 2,500 2,000 1,500 70% 40% 51% 1,243 80% 2,503 70% 1,802 45% 60% 50% 39% 40% 1,000 825 30% 587 500 346 20% 10% 0 0% FY15 FY16 FY17 FY18E FY19E FY20E Total revenue (RMBm) YoY growth Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company and J.P. Morgan estimates. Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, Company and J.P. Morgan estimates. Sensitivity analysis Sensitivity to 5% chg in paying customers 5% chg in ARPU Operating profit FY18E FY19E 4.7% 4.5% 4.7% 4.5% EPS FY18E 4.5% 4.5% FY19E 4.1% 4.1% JPMe vs. consensus, change in estimates EPS (RMB) FY19E JPMe 0.75 FY20E 1.38 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: J.P. Morgan estimates. Consensus 0.69 1.16 Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Bloomberg, J.P. Morgan estimates. Peer group valuation comparison Ticker Rating Price PT Mkt Cap EV P/E USDm USDm CY19E CY20E Liepin 6100 HK OW HKD 24.5 HKD 40 1,547 1,447 28.3 x 15.5 x 51job JOBS US NC USD 73.7 N/A 4,548 3,780 20.9 x 16.7 x 58.com WUBA US NC USD 76.0 N/A 11,202 10,501 22.7 x 18.2 x Career International 300662 CH NC CNY 24.0 N/A 633 Heidrick & Struggles HSII US NC USD 44.5 N/A 844 580 33.1 x 27.4 x 758 21.6 x N/A Robert Half RHI US OW USD 78.2 USD 82 9,580 9,272 20.6 x 19.1 x Hays HAS LN NC GBP 2.0 N/A 3,730 3,691 16.0 x 14.6 x PageGroup PAGE LN NC GBP 6.2 N/A 2,604 2,494 17.6 x 15.8 x Recruit Holdings 6098 JT N JPY 3,457 JPY 2,500 52,795 51,898 35.3 x 30.2 x Persol Holdings 2181 JT NC JPY 2,449 N/A 5,220 5,544 24.2 x 20.2 x Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source:'>Source: Company data, Bloomberg, J.P. Morgan estimates. Prices as of Aug 24th for UK-listed companies, and as of Aug 27th for other markets. P/S CY19E CY20E 5.3 x 3.8 x 6.8 x 5.6 x 5.0 x 4.2 x 1.8 x 1.4 x 1.2 x N/A 1.6 x 1.5 x 0.5 x 0.4 x 1.3 x 1.2 x 2.5 x 2.3 x 0.6 x 0.6 x PEG CY19E 0.5 x N/A 0.9 x N/A N/A N/A 2.0 x N/A 1.7 x 1.4 x CAGR 20-21E 62.6% N/A 25.6% N/A N/A N/A 8.1% N/A 20.9% 17.8% 71
72. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Investment Thesis, Valuation and Risks Wise Talent Information Technology (Liepin) (Overweight; Price Target: HK$40.00) Investment Thesis Wise Talent Information Technology Co (Liepin) has uniquely positioned itself in China’s talent acquisition service market by 1) addressing the increasing talent service demand from mid-to-high-end talent (annual salary above Rmb100k), and 2) offering a platform to connect individuals, business customers and headhunters to facilitate closed-loop recruitment. We believe Liepin will continue to gain market share in China’s talent acquisition service market, given 1) the fragmented market structure, 2) benign competition environment in the mid-to-high-end market, and 3) its scalable business model (i.e. platform approach). We expect the company to achieve solid earnings growth (JPMe 19-20E CAGR of 126%) driven by top-line strength and margin expansion. Valuation Our Jun-19 PT of HK$40 is based on 2020E adjusted EPS of HK$1.58 and a target P/E of 25x, at a premium to the peer average given Liepin’s faster expected growth. Our PT implies a 2019E P/E of 46x and 2020E P/E of 25x. Risks to Rating and Price Target Downside risks include  Uncertainty in earnings delivery  Revenue concentration risk  Competition  Limited visibility into individual user monetization  User churn to general social platforms 72
73. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Wise Talent Information Technology (Liepin): Summary of Financials Income Statement - Annual Revenue COGS FY16A FY17A FY18E FY19E FY20E Income Statement - Quarterly 587 825 1,243 1,802 2,503 Revenue (91) (132) (211) (324) (476) COGS Gross profit 496 693 1,032 1,478 2,027 Gross profit SG&A (563) (581) (864) (955) (1,126) SG&A Adj. EBITDA (130) 42 49 356 679 Adj. EBITDA D&A (14) (16) (13) (17) (23) D&A Adj. EBIT (133) 35 68 375 706 Adj. EBIT Net Interest Adj. PBT Tax Minority Interest 4 (19) 10 20 24 Net Interest (140) 8 47 359 680 Adj. PBT 0 0 0 (57) (109) Tax - - - - - Minority Interest Adj. Net Income (128) 17 121 338 622 Adj. Net Income Reported EPS (0.35) 0.02 0.10 0.67 1.27 Reported EPS Adj. EPS (0.32) 0.04 0.27 0.75 1.38 Adj. EPS DPS Payout ratio Shares outstanding . 0.00 0.00 0.00 0.00 0.00 DPS 0.0% 0.0% 0.0% 0.0% 0.0% Payout ratio 403 403 447 449 451 Shares outstanding Balance Sheet & Cash Flow Statement FY16A FY17A FY18E FY19E FY20E Ratio Analysis Cash and cash equivalents Accounts receivable Inventories Other current assets 129 251 2,833 3,271 4,083 Gross margin 4 18 23 37 46 EBITDA margin - - - - - EBIT margin 143 223 234 261 284 Net profit margin Current assets 688 873 3,473 3,946 4,791 PP&E 60 23 35 54 82 ROE LT investments Other non current assets Total assets 0 29 29 29 29 ROA 15 39 42 43 48 ROCE 774 942 3,559 4,052 4,929 SG&A/Sales Short term borrowings Payables Other short term liabilities Net debt/equity 87 108 136 150 190 P/E (x) 623 446 636 813 1,078 P/BV (x) Current liabilities 710 554 772 963 1,269 EV/EBITDA (x) Long-term debt Dividend Yield Other long term liabilities Total liabilities Shareholders' equity Minority interests - - - - - 710 554 772 963 1,269 Sales/Assets (x) 64 385 2,783 3,085 3,657 Interest cover (x) (0) 4 4 4 4 Operating leverage Total liabilities & equity 774 942 3,559 4,052 4,929 BVPS y/y Growth 0.16 0.96 6.23 6.87 8.10 Revenue y/y Growth (135.8%) 499.6% 551.8% 10.3% 17.9% EBITDA y/y Growth Net debt/(cash) - - - - - Tax rate Adj. Net Income y/y Growth Cash flow from operating activities (62) 191 262 482 872 EPS y/y Growth o/w Depreciation & amortization o/w Changes in working capital Cash flow from investing activities o/w Capital expenditure 14 16 13 17 23 DPS y/y Growth 63 136 206 165 282 (384) (10) (32) (44) (59) (21) (6) (25) (36) (50) as % of sales 3.6% 0.7% 2.0% 2.0% 2.0% Cash flow from financing activities 483 (57) 2,352 0 0 o/w Dividends paid 0 0 0 00 o/w Net debt issued/(repaid) Net change in cash Adj. Free cash flow to firm y/y Growth 123 (93) 37 122 (88) 172 (9.0%) (294.8%) 0 2,581 231 34.0% 0 438 431 86.8% 0 812 806 87.2% Source: Company reports and J.P. Morgan estimates. Note: Rmb in millions (except per-share data).Fiscal year ends Dec. o/w - out of which 1Q18A 2Q18A - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3Q18E 4Q18E - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FY16A 84.5% (22.2%) (22.6%) (21.9%) FY17A FY18E 84.0% 83.0% 5.1% 4.0% 4.3% 5.5% 2.0% 9.7% FY19E FY20E 82.0% 81.0% 19.8% 27.1% 20.8% 28.2% 18.7% 24.8% 223.6% (23.5%) 230.8% 95.9% - 7.4% 1.9% 15.8% 70.5% 7.6% 5.4% 4.3% 69.5% - - 11.5% 8.9% 10.7% 53.0% 18.4% 13.8% 17.6% 45.0% - - NM 138.1 NM 0.0% 531.6 23.0 211.3 0.0% 81.4 3.5 128.1 0.0% 29.3 16.0 3.2 2.7 16.5 7.4 0.0% 0.0% 1.1 1.0 0.6 0.5 0.6 31.2 2.2 NM NM NM (60.7%) (313.2%) 181.6% 1000.7% 227.3% 69.9% 40.5% 50.7% (43.6%) (132.3%) 17.0% 0.0% 0.0% 0.0% (42.2%) (113.0%) 625.4% (42.2%) (113.0%) 553.3% - - - 45.0% 623.3% 16.0% 179.3% 177.9% - 38.9% 90.6% 16.0% 84.1% 83.2% - 73
74. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Companies Discussed in This Report (all prices in this report as of market close on 27 August 2018, unless otherwise indicated) Autohome Inc (ATHM/$84.24/Neutral), BitAuto Holdings Limited (BITA/$22.58/Overweight), China Literature Limited (0772.HK/HK$54.05/Neutral), Fang Holdings Ltd (SFUN/$3.13/Neutral), Leju Holdings Limited (LEJU/$1.69/Neutral), Phoenix New Media Ltd (FENG/$4.58/Overweight), Sina Corp (SINA/$71.59/Overweight), Weibo Corporation (WB/$80.77/Overweight), Wise Talent Information Technology (Liepin) (6100.HK/HK$25.35[28 August 2018]/Overweight) Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention. Important Disclosures  Market Maker: JPMS makes a market in the stock of Weibo Corporation, Sina Corp.  Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in securities issued by Weibo Corporation, Sina Corp, BitAuto Holdings Limited, Autohome Inc, Fang Holdings Ltd, Leju Holdings Limited, Phoenix New Media Ltd.  Market Maker/ Liquidity Provider (Hong Kong): J.P. Morgan Securities (Asia Pacific) Limited and/or J.P. Morgan Broking (Hong Kong) Limited and/or an affiliate is a market maker and/or liquidity provider in the securities of China Literature Limited and/or warrants or options thereon, which are listed or traded on The Stock Exchange of Hong Kong Limited.  Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for China Literature Limited, Wise Talent Information Technology (Liepin) within the past 12 months.  Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of China Literature Limited, BitAuto Holdings Limited.  Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients:'>clients: Weibo Corporation, China Literature Limited, Autohome Inc, Fang Holdings Ltd, Leju Holdings Limited, Phoenix New Media Ltd, Wise Talent Information Technology (Liepin).  Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as investment banking clients:'>clients: China Literature Limited, Wise Talent Information Technology (Liepin).  Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and the services provided were non-investment-banking, securities-related: Weibo Corporation, China Literature Limited, Fang Holdings Ltd, Leju Holdings Limited, Phoenix New Media Ltd.  Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking services from China Literature Limited, Wise Talent Information Technology (Liepin).  Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from China Literature Limited, Wise Talent Information Technology (Liepin).  Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Weibo Corporation, China Literature Limited, Fang Holdings Ltd, Leju Holdings Limited, Phoenix New Media Ltd.  Other Significant Financial Interests: J.P. Morgan owns a position of 1 million USD or more in the debt securities of Weibo Corporation, Sina Corp, China Literature Limited, BitAuto Holdings Limited, Autohome Inc, Fang Holdings Ltd, Leju Holdings Limited, Phoenix New Media Ltd, Wise Talent Information Technology (Liepin). Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://www.jpmm.com/research/disclosures, calling 1-800-4770406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-4770406 or e-mail research.disclosure.inquiries@jpmorgan.com. 74
75. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 Wise Talent Information Technology (Liepin) (6100.HK, 6100 HK) Price Chart 54 45 36 Price(HK$) 27 18 OW HK$40 Date Rating Share Price Price Target (HK$) (HK$) 08-Aug-18 OW 27.90 40.00 9 0 Jun Jul Jul Jul Aug 18 18 18 18 18 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Aug 07, 2018. Aug 18 Aug 18 Aug 18 The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:'>Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia and ex-India) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com. Coverage Universe:'>Universe: Ding, Binbin: Wise Talent Information Technology (Liepin) (6100.HK) Yao, Alex: Alibaba Group Holding Limited (BABA), Autohome Inc (ATHM), Baidu.com (BIDU), Bilibili (BILI), BitAuto Holdings Limited (BITA), China Literature Limited (0772.HK), Ctrip.com International, Ltd (CTRP), Fang Holdings Ltd (SFUN), Huifu Payment (1806.HK), JD.com, Inc. (JD), Jianpu Technology (JT), Leju Holdings Limited (LEJU), Momo Inc (MOMO), NetEase (NTES), Phoenix New Media Ltd (FENG), Sina Corp (SINA), Sogou (SOGO), Tencent (0700.HK), Vipshop (VIPS), Weibo Corporation (WB), YY Inc (YY) J.P. Morgan Equity Research Ratings Distribution, as of July 02, 2018 J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients* Overweight Neutral (buy) (hold) 47% 41% 54% 48% 45% 42% 74% 66% Underweight (sell) 13% 40% 13% 58% *Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above. 75
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78. Binbin Ding (852) 2800 8572 binbin.ding@jpmorgan.com Asia Pacific Equity Research 29 August 2018 independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised August 18, 2018. Copyright 2018 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P 78 Completed 28 Aug 2018 06:28 PM HKT Disseminated 29 Aug 2018 04:12 AM HKT