The company's recent situation

Yiju Enterprise Holdings announced on July 31 that it plans to conduct a number of transactions: 1) The company plans to issue 246 million shares to Leju shareholders to acquire 56.19% of Leju's shares; the issue price is HK$9.22/share, a 6.79% discount over the average closing price of the past 10 trading days. 2) The company plans to issue 118 million shares to Alibaba at HK$7.00/share, a discount of 29.24% over the average closing price of the past 10 trading days; the company plans to issue 3-year convertible notes to Alibaba at a coupon interest rate of 2%, with a share exchange price of HK$10.37, corresponding to about 99.5 million shares after all shares have been exchanged. 3) The company signed a cooperation agreement with Alibaba. The two sides plan to jointly establish an online real estate transaction service platform. Alibaba will provide technological empowerment for Easyhome.

reviews

The medium- to long-term benefits of strategic transformation are expected to offset the effects of short-term dilution. Although EasyJu's share capital will increase 33% after the transaction is completed, we expect the total funding amount of HK$1.86 billion to rapidly improve the company's cash position and increase equity. Furthermore, with the addition of Leju's business and the empowerment of Alibaba, we think EasyJu is expected to transform into a comprehensive service platform for online and offline real estate transactions in the medium to long term.

It is expected that Lijuu will complement the business. As an online and offline real estate service provider, Leju's main business includes online advertising, real estate e-commerce, and online listing services.

We think EasyJu is expected to improve the marketing, customer discovery, and conversion steps in its service content value chain.

Alibaba brings potential empowerment. We anticipate that the online real estate transaction service platform jointly built by the two parties will become Alibaba's only mainstream platform in the real estate field. Considering potential technology, brand, and traffic enablement, we expect EasyHome's operations to be more digital (especially the tenant platform and its second-hand housing broker and store network), and efficiency will be further optimized.

Valuation recommendations

We kept our profit forecast unchanged and outperformed industry ratings. We raised our target price by 75% to HK$14.48, corresponding to 18 times the price-earnings ratio in 2020, with 29% room for improvement over the current stock price.

Although the above deal is still subject to approval by the Extraordinary General Meeting of Shareholders, we expect the deal to boost investor sentiment in the short term. Currently, EasyJu is trading 13.9 times 2020 and 11.4 times 2021's price-earnings ratio.

risks

The deal was not approved by the Extraordinary General Meeting of Shareholders.