Report summary
The full-year results were in line with expectations. Haotian Finance announced FY2016 annual results. Overall revenue maintained steady growth, up 18.2% year on year to HK$619 million. Among them, financial PR/international roadshow revenue increased 12.1%/39.4% year on year, accounting for 73.5%/26.5% respectively. The company currently has a leading share of about 70% of the Hong Kong stock IPO market. The top 5 IPOs of the Hong Kong Stock Exchange in terms of capital raised in 2015, including Huatai Securities, Guangfa Securities, China Huarong Asset Management, China Reinsurance (China Reinsurance), and Lenovo Holdings, have all become the company's long-term customers or international roadshow customers. The company's overall gross margin narrowed slightly by 1.5 percentage points to 52.7% year on year due to an increase in the contribution of the prospectus printing business, which is still in the investment period; administrative expenses increased by 49.2% year on year to HK$75.8 million due to increased investment in prospectus printing and Haotianyun's business team, accounting for a year-on-year increase of 2.5 percentage points to 12.2%. Net profit increased 20.6% year on year to HK$240 million, and net interest rate increased slightly by 0.7 percentage points year on year to 38.7%. Overall performance was in line with our and market expectations.
The “Haotianyun” platform is worth looking forward to. The company is continuously updating and deepening the database platform, and is also actively building the Haotianyun financial service platform. Haotianyun uses the form of mobile internet (including webcasts) to jointly develop online and offline business, and provides specialized data services to capital market professionals, listed enterprise executives, and public users on an interactive platform. We believe Haotianyun will help the company expand new online services, increase customer stickiness, and help the company expand regionally. Haotianyun has now entered the closed beta stage. It is scheduled to be launched in the first quarter of 2017, and will first be promoted and used by customers of listed companies and some large investment institutions.
The FY2016E-18E net profit CAGR is expected to reach 17.8%. We believe that in addition to the increasing number of long-term financial PR customers and international IPO roadshow clients, the newly launched prospectus printing business and domestic A-share IPO business will also be the driving force for the company's future revenue growth. We expect the company's FY2016 E-18E revenue/net profit CAGR to reach 15.6%/17.8%, respectively. The company's cash flow is strong, and nearly 70% of revenue will come from continuously increasing long-term customers. It is estimated that the total net cash and financial assets of FY2017 E will reach HK$1.27 billion. It is believed that the company can maintain an attractive dividend rate of about 60% in the future.
Reiterate the “buy” rating. The company's current valuation is attractive. The FY2017-18E dynamic price-earnings ratio is only 8.3/7.1 times, and the dividend yield is 7.2%/8.5%, respectively. We reaffirmed the company's “buy” rating, priced 0.8 times FY2016E-18EPEG (or 12 times FY2017-E dynamic price-earnings ratio), and maintained the target price of HK$2.88.
Risk warning: i) Hong Kong stock IPO market is slowing down; ii) market competition is intensifying; iii) Haotian Cloud platform execution risks.