Investment suggestion

Taking into account the decline in revenue and profits of the company's application distribution business, as well as some uncertainty in the middle of business transformation, the contact interaction rating was downgraded to neutral, and the target price was lowered by 30% to 7.3 yuan per share. The reasons are as follows:

The company's performance was lower than expected, and the revenue and net profit of the main business of application distribution declined. The company's operating income in 2017 was 12.35 billion, an increase of 928% over the same period last year.

Among them, the e-commerce business of the new egg merger table contributed 11.57 billion, and the revenue of the original main business application distribution and data operation was 426 million, down 45.5% from the same period last year, mainly due to the gradual saturation of mobile network users and the shrinking market of application distribution business. The composite gross profit margin fell 30pct to 17%, mainly due to the higher gross profit margin of the e-commerce business with consolidated tables and the decline in revenue from the application distribution business with high gross margin. The company's net profit in 2017 was 65.23 million, down 81.6% from the same period last year. The non-net profit of home deduction was-163 million, down 171.4% from the same period last year. Non-recurring profit and loss of 228 million, mainly from investment income.

The company is building a diversified mobile Internet business, gradually transforming to e-commerce and housing leasing. Xindian, the company's e-commerce platform, is the largest technology e-commerce in North America, with 36 million registered users and more than 17 million monthly unique visitors. While maintaining the original channels and markets, New Egg has actively developed two-way cross-border e-commerce business, which has covered more than 50 countries and regions, and will become the main revenue contribution of listed companies in the future. At the same time, the rental phased business of contacting the financial sector has begun to take shape, and in the future, it will seize the policy opportunity of "renting and selling the same rights" and actively expand the housing market, which is expected to become a new business support for listed companies for a long time.

The company's active layout of e-commerce and housing leasing are in the stage of development, and facing fierce competition, there is some uncertainty in the future development. Long-term optimistic about the direction of transformation, but the medium-term business promotion effect, as well as the profit contribution to listed companies remains to be seen.

What is the biggest difference between us and the market? We are optimistic about the direction of the company's transformation for a long time, and believe that the effect of medium-term business promotion remains to be seen.

Potential catalyst: better-than-expected operating data for e-commerce and housing rental business.

Profit forecast and valuation

Taking into account the decline in the main business, the effect of the transformation still needs to be observed. We have reduced the company's 2018 net profit by 35% to 200 million yuan, and introduced a net profit of 246 million yuan in 2019, an increase of 207% and 23% respectively over the same period last year. The company's current share price corresponds to a price-to-earnings ratio of 76x62X for 2018Universe 2019, and we have lowered our target price by 30% to 7.3 yuan per share, compared with a price-to-earnings ratio of 79Mobil 65X for 2018Universe 2019. At the same time, it downgraded to neutral.

Risk

The competition between e-commerce and rent leasing business is fierce and the development is not up to expectations.