Results in the first half of 2017 were lower than expected
Ketong Core City announced its results for the first half of 2017: revenue was 6.12 billion yuan, up 8% from the same period last year, lower than the market consensus of 19%; net profit was 270 million yuan, up 33% from the same period last year, corresponding to 0.18 yuan per share.
Trend of development
The company adjusts its business to deal with short-term disadvantages. Due to the impact of short selling reports, Ketong Core City has recently encountered some difficulties in financing commercial banks in the Hong Kong market. As for the distribution business, it is highly dependent on cash flow to expand the sales scale and enhance profitability, so the company's distribution business is facing greater financial pressure. As a result, the company expects GMV and net profit to come under pressure in the short term (it is expected to be flat in 2017). At the same time, the company plans to adjust its development strategy to promote the recovery of performance growth (the profit growth rate is expected to be 1015% in 2018). The company will focus its business development on core businesses with high profit margins and positive cash flow (such as third-party platforms and services). Gradually restore the direct selling business of electronic components that need more capital support And suspend financial business (the loan balance of Gravitation Financial Services has dropped sharply to 340 million yuan, recovering a large amount of funds).
The transformation of hardball to artificial intelligence platform. Ketong Core City released the "K-system" artificial intelligence platform, which is committed to helping enterprises speed up the pace of innovation and the survival and transformation of artificial intelligence technology. In the future, Ketong Core City will reduce direct investment in companies on the hard egg platform and provide more services and data support, so as to enhance the profitability of the hard egg and further ease the pressure on liquidity. Although the company's growth is currently affected by many adverse factors and faces certain financial and operational risks in the short term, we expect that the relatively conservative development strategy currently adopted by the company can help the company effectively reduce financial and operational risks. gradually resolve the pressure on the company in the short term, and then promote its future growth.
Profit forecast
We lowered the company's 2017 revenue forecast by 41% to 10.1 billion yuan and the company's 2018 revenue forecast by 41% to 12.1 billion yuan. At the same time, we lowered the company's 2017 adjusted net profit forecast by 23% to 513 million yuan (corresponding to adjusted earnings per share of HK $0.40), and reduced the company's 2018 net profit forecast by 35% to 569 million yuan (corresponding to adjusted earnings per share of HK $0.44).
Valuation and suggestion
At present, the company's share price is 5.30 Hong Kong dollars. Maintain the recommended rating, lowering the target price by 56 per cent from HK $15 to HK $6.6, based on a price-to-earnings ratio of 15 times 2018 (1.0x PEG).
Risk.
The transformation is faced with uncertainty and capital liquidity risk.