1. New customers in the cross-border payment business are expected to gradually land in the future to fill the traffic decline gap for Uber customers.
The company acquired 26% of the shares in Huiyuantong's business in the early stages. In the future, we believe that the company will not rule out continuing to acquire its remaining shares to complete the actual consolidation of its holdings. We are optimistic about the card position of the Huiyuantong business for cross-border payment services at home and abroad. Uber, one of the company's biggest customers in the early stages, is expected to decline in future traffic due to the merger of Didi, but the company promptly added new customers. It is estimated that overall traffic will reach the level of 5 billion to 7 billion US dollars in 2017, which can offset the negative impact brought about by Uber's decline.
2. Higher cost levels will affect short-term profits, and they will return to normal in the future.
Since the additional bill to acquire Huiyuantong was finally withdrawn, the intermediary business expenses paid by the company in the early stages had to be spent in that year and could not be amortized until '17. In addition, in order to acquire 26% of the shares, the company increased its debt level, and the debt ratio increased by 13 percentage points from the 23% in the interim report. We estimate that the increase in expenses will reach 40 million in 2016, making us think that corporate profits in 2016 may be less than expected, but overall, this year's cost overruns may have reduced the 2017 cost level, so we believe that in 2017, as new customers land and expenses return to normal, performance will still likely exceed market expectations.
3. The cross-border payment industry chain continues to be deployed. Currently, it is lower than the equity incentive price and maintains the “Highly Recommended - A” rating.
From a traditional manufacturer mainly in the stationery export business, the company participated in Boyuan Technology in 2015 through a merger and acquisition of the internet marketing company Lingyun Media, 15, launched the cross-border e-commerce Global Tao.com, and joined the cross-border payment provider Huiyuantong in '16 to achieve the harmonization of interests by launching an equity incentive program. We believe that the company has gradually realized the transformation from traditional manufacturing to a comprehensive service provider with multiple businesses such as Internet advertising and marketing, cross-border e-commerce, and cross-border payments, and that the continued layout of the cross-border payment industry chain in the future may be even more worth looking forward to. Currently, the stock price is lower than the equity incentive exercise price of nearly 20 yuan announced by the company earlier. We maintain the company's EPS expectations for 2016-2018 at 0.31, 0.35, and 0.38 yuan, respectively, and maintain the “Strongly Recommended - A” rating.
Risk warning: Uber's business operations in China are at risk, and the commission rate for Huiyuantong has declined.
