2016 results in line with expectation
　　Chanjet announced 2016 annual results: revenue wasRmb430.8mn, up 25% YoY; recurrent net profit was Rmb2.0mn,down 96% YoY, or Rmb0.01 per share. The decrease was mainlydue to fast rising investments in cloud biz.
　　Trends to watch
　　Software business reported decent growth with softwaresales up 13% YoY in 2016 thanks to market recovery and productupgrade. In particular, its T3 product integrating traditionalsoftware with cloud grew ~50% YoY. Chanjet would pay moreattention on channel construction and sales promotion. Weexpect its traditional software to maintain a solid growth of~18% in 2017 with stable net margins of ~50%.
　　Cloud business ramps up quickly. Its cloud product realizedstrong growth after launch, revenue increasing 61% YoY in 2016.
　　Chanjet fully utilizes its advantage in distribution channels & O2Oexperiences to accelerate cloud service expanding user base. Weexpect its cloud business to triple revenues in 2017.
　　Margins expansion due to efficient cost saving. Chanjet isexpected to break even in 2017 as: 1) cloud ramps up itsrevenue & lifts margins; 2) R&D on cloud will see downtrend; 3)share-based compensation is expected to strikingly drop; 4)potential spin-off of payment business will cut losses.
　　Earnings forecast
　　We slightly lift revenue forecasts by 2% to Rmb530mn & expectnet profits of Rmb2.4mn. And we introduce 2018e forecasts withrevenue of Rmb641mn and net profits of Rmb20mn.
　　Valuation and recommendation
　　The stock is trading at HK$10.5. Maintain BUY and TP ofHK$17 based on SOTP with a 12x 2017e P/E on its traditionalbusiness only from a prudent view. TP foresees a 61.9% upside.
　　Risks
　　Fiercer market competition, failures in cloud product promotion.