Event

The company reported that the net profit attributed to the parent company in the first three quarters was 20.14 million, down 20% from the same period last year, of which the net profit attributed to the parent company in the third quarter was 6.09 million, up 529% from the same period last year. At the same time, the company announced that the company intends to change the use of funds to increase the investment of Gaoyang investment card exchange platform with 100 million. And invested 290 million yuan to build Datang Gaohong Electronic Information Industry Park in Yiwu, mainly producing related products based on Internet of things and 3G/4G technology.

Core viewpoints

Recharge has ushered in a real outbreak, which is expected to become the guarantee of Gaohong's performance growth. Recharge business has broken out this year. The flow of water for the whole of last year was 7.5 billion, and in the first half of this year it exceeded 15 billion. It is estimated from the cash flow statement of the three quarterly reports that the flow of water in the first three quarters is expected to exceed 25 billion, and that of a single month has exceeded 3 billion. We estimate that Gaoyang Jiexun's annual profit will reach 80 million. After the comprehensive merger of Gaoyang Jiexun, it is expected to become a strong guarantee for the growth of Gao Hong's performance.

The recharge platform will promote the profitability of the card exchange business. As a scarce mobile Internet platform in A shares, Gaoyang can conduct card exchange business based on abundant top-up traffic and use top-up cards as intermediaries, with a gross profit margin of 3% and 5% of the flow. The card exchange business with high gross margin will determine the speed of improvement of the company's performance to a large extent. The company announced that it will increase the capital of 100 million yuan plus card exchange business, indicating that the company has focused on the development of card exchange business, but also shows that the business is currently developing rapidly. We expect that after the increase in recharge flow, the flow of card payment will increase rapidly next year, greatly raising next year's profit forecast.

Business development and stock incentive programs will enhance the potential of the company in the future, and it is expected that the reform of mixed ownership will be beneficial.

The company invests 290 million yuan to build an electronic information industry park in Yiwu, which is expected to be a voluntary e-commerce park to enhance the company's future development potential. At the same time, the company's stock incentive has been approved and no more than 7.45 million shares will be awarded. We believe that the above advantages will be more conducive to the rapid development of business under the background of the outbreak of recharge business and the rapid growth of card exchange business. As a central enterprise, the company is expected to become a pilot enterprise in the reform of mixed ownership of state-owned enterprises, which will further push up the valuation in the future.

Financial forecasts and investment suggestions: we predict that the EPS of the company in 2014-16 will be 0.16,0.61,0.82 yuan respectively. According to the 2015 PE segment valuation, we get the company valuation of 11.94 billion, give the corresponding target price of 20.44 yuan, and give the buy rating.

Risk hints: competition risk, policy failure risk, acquisition risk