Incidents:
The company released its financial report for the third quarter on October 27, 2016: the company's revenue for the first three quarters was 872 million yuan. Net profit increased 85.50% year on year, net profit of 263 million yuan increased 31.19% year on year, net profit after deduction was 232 million yuan, up 18.36% year on year.
Reviews:
The company's performance was basically in line with expectations. Both revenue and net profit maintained a high growth rate. The company's operating costs in the first three quarters were 419 million yuan, an increase of 146.77% over the previous year. The sharp increase in operating costs was mainly due to the corresponding cost increase brought about by revenue growth. Sales expenses were 78.86 million yuan, an increase of 344.76% over the previous year. The sharp increase in sales expenses was mainly due to the company's increased investment in R&D and the increase in management personnel The resulting increase in payroll expenses.
Smartphone OS system, enjoy 100 million user ports: The company specializes in smartphone OS operating system development. The company's products basically cover all middle- and low-end smartphone manufacturers. The company provides OS operating systems free of charge to low- and middle-end manufacturers, controls traffic entry through game centers and application distribution centers that embed its own apps and intermodal smartphones, and ultimately monetize businesses such as application distribution and advertising. The integration of software and hardware opens a new era of IoT. The company actively lays out smart hardware products such as smart homes, the Internet of Vehicles, and smart wearables with its accumulated technology accumulation in the smartphone era and its huge user base, promotes the derivation of connected OS systems into other smart hardware products, builds a large communication OS platform to achieve connections between different hardware and end to end, and opens a new era of IoT for everything. In addition to independent research and development, the company has also reached cooperation with high-quality enterprises in the industrial chain such as Haier, Razer, and De Haier through outreach mergers and acquisitions, equity joint ventures, and strategic cooperation to jointly build a pan-intelligent ecosystem linked to OS.
Endogenity+Outreach to Build a Smart Hardware E-commerce Platform: The company established its own e-commerce platform and contact mall with the goal of building the largest vertical smart hardware e-commerce platform in China. In addition to launching its own smart hardware, it also set up third-party cooperative sectors such as Apple Zone and Haier Zone. In 2016, the company plans to spend 264 million US dollars to acquire 55.7% of NEWEGG, the second largest e-commerce company in the IT/CE category in North America. If the transaction is successful, the company will rapidly increase its market share in the field of smart hardware sales and expand its influence in overseas markets.
Profit prediction and valuation: We are optimistic about the company's strategy of combining software and hardware to establish a broad ecosystem of pan-intelligent communication OS. Relying on good cooperative relationships with many hardware vendors, the company's card results are obvious, and we continue to be optimistic about the company's future development. We predict that in 2016-2018, the company's EPS will be 0.25, 0.37, and 0.58 yuan, and the corresponding PE will be 81, 55, 34 times, giving it an “increase in holdings” rating.
Risks: Newegg acquisition risk, increased market competition risk, smart hardware launch falls short of expectations, VR product sales fall short of expectations, advertising+game business development falls short of expectations, overseas business falls short of expectations