Summary of the report
The overall GMV of 1H2016 increased by 59.2% over the same period last year. Ketong Core City announced its results for the first half of 2016, and the overall GMV increased significantly by 59.2% to 9.25 billion yuan compared with the same period last year, of which proprietary / third-party platform / supply chain financing business accounted for 60.6% 26.5% 12.9% respectively. Overall revenue increased by 31.9% year-on-year to 5.65 billion yuan, gross profit margin slightly increased by 0.2% to 8.2%, and sales expense rate increased slightly by 0.2% to 3.5% due to the company's increased investment in hard egg platform marketing. The above led to a 22.4 per cent year-on-year increase in net profit to 203 million yuan. Excluding non-cash share option expenses, core net profit increased by 28.3 per cent year-on-year to 228 million yuan, and the core net profit margin remained stable at about 4 per cent.
Strong growth in online trading customers is the core driving force. By the end of June 2016, the company's online trading customers had increased significantly by 99.8% to 14952 compared with the same period last year, with blue-chip / SME customers accounting for 1.2% and 98.8% respectively. The number of registered customers increased by 69.1% to 69137 compared with the same period last year. On the other hand, the company's one-stop supply chain service Internet of things innovation platform "hard egg" platform has attracted more than 12.5 million fans and more than 13000 Internet of things projects as of June 30, 2016. The hard egg platform contributed RMB 1.2 billion in GMV to 2Q2016, accounting for about 22.4% of the total GMV.
Actively layout the field of robots. According to IDC, the global robot market has reached US $71 billion in 2015 and is expected to reach US $135.4 billion in 2019E. Hard egg has reached a cooperation with Intel Corp, a leading enterprise in the field of computing innovation, to jointly build a robot ecosystem. At the same time, the company has launched the easy-to-build Robot Network (www.ez-robot.cn) to create a global industrial robot procurement e-commerce service O2O platform, including industrial robot manufacturers and industry components manufacturers, system integrators professional community. In addition, Hardy has also reached cooperation with a number of core suppliers of robots in Japan and Germany, which will cover robots in the fields of industry, business services, family services and education in the future. Management aims to attract more than 1000 robot innovation projects and 300 robot upstream and downstream suppliers to gather on the hard egg platform.
Reiterate the "buy" rating. We believe that Ketong Core City is the target of scarcity in the field of smart hardware, and it is expected that I) accelerated O2O expansion of IC industry, ii) faster-than-expected promotion of supply chain finance, and iii) faster-than-expected monetization of hard-egg platforms will become an upward catalyst for stock prices. We reaffirm the company's "buy" rating and give the target price HK $14.80 based on the DCF valuation method.
Risk tips: I) the pace of e-commerce in the IC industry is slower than expected; ii) the monetization of the hard-egg platform is slower than expected; and iii) fierce market competition drags down the gross profit margin.
