First quarter 2017 results are in line with expectations

Leo AG announced its results for the first quarter of 2017: operating income was 2.098 billion yuan, up 51.50% over the same period last year; net profit attributed to the parent company was 150 million yuan, up 12.14% from the same period last year, corresponding to earnings per share of 0.09 yuan. The non-return net profit was 147 million yuan, an increase of 25.57% over the same period last year. As expected.

Trend of development

The addition of smart ads and the expansion of digital marketing have led to a substantial increase in revenue. Smart Advertising was merged in September last year, and the scale of consolidation this year is higher than that of last year. At the same time, the overall scale of digital marketing business has expanded, especially the scale of Wansheng Weiye and the era of micro-innovation, resulting in a 51.5% increase in revenue. On the other hand, the gross profit margin of digital marketing businesses such as smart advertising and Wansheng Weiye and the minimally invasive era is relatively low, and there are seasonal fluctuations, resulting in a year-on-year growth of gross profit of only 18.12%, which is lower than the revenue growth rate.

The sales rate and management rate decreased, while the interest expense increased. With the expansion of the company's business scale, sales expenses and management expenses increased by 19.54% and 30.92% respectively compared with the same period last year. Due to the difference in the rate of the consolidated company, the overall sales rate / management rate of the company decreased by 1.00pct/0.85pct respectively. In terms of financial expenses, the company's bank borrowing increased in the first quarter, resulting in an increase in interest expenses. Financial expenses increased by 89.94% compared with the same period last year, and the financial expense rate increased from 0.51% to 0.63%.

The performance is expected to maintain steady growth in the first half of 2017. The company issued a forecast of operating results from January to June 2017, with an estimated net profit of 300,382 million yuan, an increase of 1040% over the same period last year, including a new intelligent table (Zhiqu promised to deduct non-net profit of 75.4 million yuan in 2017). At present, the company has successfully established an integrated marketing platform from basic Internet traffic integration to omni-directional and accurate digital marketing services, and it is expected that the overall operating performance of the digital marketing business sector will grow steadily.

Profit forecast

We keep our earnings per share forecast for 2017 / 2018 unchanged. The company is expected to make a profit of 780 million yuan in 2017 and 1.002 billion yuan in 2018.

Valuation and suggestion

At present, the company's shares are trading at 25.6 times 17-year earnings. We maintain our recommended rating and target price of 17.00 yuan, which is 36.77% higher than the current share price.

The target price corresponds to a 17-year price-to-earnings ratio of 35.0 times.

Risk.

Pump business decline, M & A target performance is not up to expectations, resulting in less than expected net profit growth and goodwill impairment, integration synergy effect is not as expected.