1Q17 met expectations
Ketong Xincheng announced results for the first quarter of 2017: revenue reached RMB 3.27 billion, an increase of 35% over the previous year; net profit reached RMB 120 million, an increase of 42% over the previous year, corresponding to a profit of 0.09 yuan per share. Non-GAAP net profit increased 34% to $134 million.
Development trends
GMV continues to grow strongly. In the first quarter of 2017, Ketong Xincheng's GMV increased 57.8% year-on-year to 6.13 billion yuan. Among them, proprietary platforms contributed 52%, third-party platforms contributed 27%, and supply chain finance business contributed 20%. The company's strong GMV growth was mainly due to: 1) the company's online trading customer base increased 90% year over year; 2) new technologies such as the Internet of Things and artificial intelligence increased market demand for electronic components; 3) the company introduced new financial services, which rapidly improved the GMV performance of related businesses.
Ketong Xincheng expects the company's GMV to increase 50% year over year in 2017, and the company's operating profit is expected to increase 30% year over year.
The financial business is developing well, and it is expected that more value-added services will be launched. At the end of 2016, Ketong Xincheng established Gravity Financial Services to integrate and upgrade the original supply chain finance business.
Gravity Financial Services mainly provides supply chain financial services, asset mortgage services, and M&A loan services to customers of the company's trading platform. As of the first quarter of 2017, Gravity Financial's book loan balance reached 1.9 billion yuan. Gravity Financial Services' loan interest rates are basically around 8%, financing costs are around 3%, and more than 90% of transactions are completed in US dollars. We anticipate that Ketong Xincheng will use the company's trading platform to continue to drive the development of its financial business.
Ketong Xincheng launched a share repurchase program. In order to stabilize the company's stock price and exclude abnormal fluctuations to reflect its intrinsic value, if there is no significant change in fundamentals, Ketong Xincheng will repurchase shares in due course.
Profit forecasting
Considering the company's strong GMV growth, we raised the company's 2017 revenue forecast by 3% to 17 billion yuan, and the 2018 revenue forecast by 3% to 20.5 billion yuan. At the same time, the company's 2017 non-GAAP net profit forecast was lowered slightly by 3% to $670 million, and the company's 2018 non-GAAP net profit forecast was lowered slightly by 2% to $871 million.
Valuation and advice
Currently, the company's stock price corresponds to HK$10.0. Maintain the company's “recommended” rating and target price of HK$15, based on 30 times the 2017 non-GAAP price-earnings ratio.
risks
Macroeconomics are weak; market competition is intensifying.