The performance was slightly lower than expected
Contact Interactive announced the results for the third quarter of 2016: operating income of 281 million yuan, an increase of 43.4% over the same period last year; net profit belonging to the parent company was 68.774 million yuan, an increase of 14.3% over the same period last year, corresponding to earnings per share of 0.03 yuan.
Trend of development
1. The performance was slightly lower than the market expected. We judge that it is mainly due to the impact that the growth of cloud search business and game business is not as expected. Unicom's recent restructuring may have affected the cloud search business. And the game business due to the registration of the new rules and regulations, the online rhythm has been delayed. In terms of hardware, the hardware that contributed revenue in the first three quarters was mainly Glyph glasses, as well as the cool energy investment and other company results.
The gross profit margin has fallen. Gross profit margin fell 10.8ppt to 41.8% year-on-year, mainly due to a decline in high-margin gaming and cloud search business, while an increase in revenue from low-margin hardware business; significant increase in sales and administrative expenses: sales expenses, mainly due to increased promotion costs for smart hardware The main reason for the management cost is that the increase in the number of management staff leads to the increase in staff salary and the increase in R & D investment in intelligent hardware leads to the increase in R & D cost.
two。 Contact 55% holding New Egg, which is expected to play a significant synergy in terms of funds, channels and ecology. The investment of contact provides important funds and foodstuffs for New Egg. The new egg can effectively complement the online sales channels of communication, help promote and expand hardware products, and consolidate the company's intelligent hardware ecosystem.
Profit forecast
Considering that cloud search and games business are not up to expectations, we have lowered our earnings per share forecasts for 2016 and 2017 by 14% and 13% from 0.23 yuan and 0.32 yuan respectively to 0.20 yuan and 0.28 yuan, respectively.
Valuation and suggestion
At present, the company's shares are trading at 68 times 2017 earnings. If the fair value contribution of the new egg is taken into account (11 billion), the target market capitalization of the main industry is about 35.1 billion and the price-to-earnings ratio for 2017 is about 57 times. Although the short-term performance falls short of expectations, we are still optimistic about the import value of the contact OS, as well as the continuous improvement of the company's smart hardware ecological map and broad space for long-term development. We maintain the recommended rating, but lower the target price by 30.0% to RMB 21.00.
Risk.
The release rhythm of all online dramas is not up to expectations, and the box office of the film is not up to expectations.