Key points of investment

Incident: The company announced results for the first quarter of 2016. The company's operating income was 715 million yuan, total profit was 1,193 million yuan, and net profit attributable to owners of the parent company was 1,315,500 yuan, an increase of 41.91% over the same period last year, an increase of 331.44%, and an increase of 467.97%.

Comment:

This time, the first-quarter results turned a loss into profit. The main reason was that the page game business Dow Hee Technology merged in September 2015. Dow Hee contributed more than 15 million net profit in the first quarter. As a high-quality partner of Tencent's page game platform and Facebook, it promised that 2015-2017 net profit would not be less than 60 million, 78 million, and 101.4 million, respectively. The first quarter is the traditional off-season for the company's main business, and we expect the main business to be slightly profitable throughout the year.

After 16 years of worry-free results, there is now a rainbow after the ups and downs. The company lost 80 million dollars in 15 years. We determined at the time that the main reason was that it was easy to join the battle in 2016 and release performance, which provided a good foundation. The total goodwill value of Beijing Yizhong Post and Central Asia Internet is about 110 million yuan. Almost all impairment is calculated in the annual report. There is no risk of goodwill impairment in the future. We are optimistic that the company is expected to achieve impressive performance in 2016.

The company has now strategically cooperated with China Mobile to develop cloud services for small and medium-sized enterprises. It is the only listed company that provides a full range of services, from cloud platform construction and SaaS applications to platform support. It is expected that the additional revenue will face several times growth. The transformation of its SaaS application ecosystem, from previous emails to a unified cloud office platform that now includes IM, OA, and video conferencing, we believe the company will occupy an important market position in the enterprise SaaS field with first-mover advantages, customer resources and technology accumulation.

Profit forecast and valuation: The company's 2016-2018 EPS is expected to be $0.27, $0.38 and $0.52, maintaining the “increase in holdings” rating.

Risk warning: SaaS competition plus