Earnings expected to reach strong growth in 1Q17Chanjet released a positive profit alert on April 18th, reporting itsoperating revenue would realize 40% YoY growth in 1Q17 andnet profits would turn around to >Rmb35mn, compared with itsnet loss of Rmb16.6mn in 1Q16. Without considering the impactof the employee share-based compensation costs, net profits areexpected up >50% YoY, reflecting a trend of margin expansion.
　　Trends to watch
　　Traditional software to keep decent growth. Due to risingdemands on enterprise management software and macro–economic recovery, we expect revenues from traditional softwareto show solid 20% growth in 2017, and keep a favorable growthtrend in 2018. Through updates and better integration with thecloud, Chanjet’s traditional software raises competitiveness andmarket penetration. Chanjet will continue focusing onestablishing channels & training distributors to boost sales.
　　Cloud revenues quickly ramping up, its products realizingstrong growth after launch, revenue increasing 61% YoY in 2016.
　　We expect it will keep that fast momentum and gain more than200% in 2017. Chanjet can fully utilize its advantages on O2Oexperience & distribution channel to drive future cloud growth.
　　Margin expansion due to efficient cost saving. Chanjet isexpected to turn around in 2017 as: 1） strong growth of revenueincreases profits; 2） R&D expenses are declining after newproduct launches; 3） share-based compensation is expected tosignificantly decrease by ~50% since most related costs werebooked in 2015/16; 4） potential spin-off of payment business willhelp save net losses and further increase profits.
　　Valuation and recommendation
　　We maintain our 2017 forecasts: top line +23% YoY with netprofits around Rmb2.4mn. Reaffirm BUY rating and TP ofHK$17.00, based on SOTP valuation.
　　Risks
　　Uncertainties on cloud business; fiercer market competition.