Core views
The decline in the company's performance in a single quarter has gradually narrowed, and an inflection point in performance is about to come. In the first three quarters of 2017, the company achieved operating income of 350 million yuan, a year-on-year decrease of 21.6%; net profit attributable to shareholders of listed companies was 80 million yuan, down 12.3% from the previous year; gross margin and net interest rate were 94.9% and 22.4% respectively, up 1.4 and 2.4 percentage points from 93.5% and 20.0% in the first three quarters of last year. Judging from the situation in the single quarter of 2017, the company's performance decline narrowed from -25.0% in 2017 Q1 to -2.6% in 2017 Q3. The current stable real estate market environment is conducive to the recovery of the company's agency business performance. It is expected that the real estate market will maintain its current state next year, so we think the company's performance inflection point will occur.
The company's small loan platform is gradually improving, and the scale of financial business is expanding rapidly. The operation of the company's small loan platform has gradually improved since the company obtained the small loan license. The company's loan balance increased rapidly to 680 million yuan in the first three quarters of 2017, with a cumulative loan of 1.17 billion yuan. Thanks to the high level of interest spreads, the net profit margin of the company's financial business was close to 35%. At the same time, the company's financial business has a complete risk control system, uses 5 levels of provision, and the calculation standards are higher than industry standards. We expect the company's loan balance to reach 800 million yuan throughout the year.
Leasing SAAS system suppliers, participating in Becker Apartments, and laying out the long-term rental industry chain from various parties. As the company's new strategic business, leasing achieved many breakthroughs in 2017. The SAAS leasing system and the iRent app were officially launched in April of this year. Additionally, the company issued an announcement on October 18 to invest 125 million yuan of its own capital to participate in Becker Apartment and obtain 20% of its shares. The company is positioned as a comprehensive leasing service provider, using platform+finance as a starting point to enter the leasing industry chain. We believe that participating in Becker Apartments is just the beginning. It is expected that in the future, the company will continue to invest in high-quality apartment companies to help expand their scale, help the development of the rental market, and implement the “housing without promotion” program.
Financial forecasting and investment advice
Maintain the buying rating and raise the target price to 26.80 yuan (originally 25.46 yuan). We forecast the company's earnings per share for 2017-2019 to be $0.67/0.77/0.92, respectively. Using the Comparable Company Law, the comparable company's PE in 2017 was 40X, corresponding to a target price of 26.80 yuan, maintaining the purchase rating.
Risk warning
Real estate regulation policies have caused online marketing business growth to fall short of expectations.
The growth of the Internet finance business fell short of expectations.
The development of the rental market and information platforms fell short of expectations.