Online service results see strong growth
HC just released a positive profit alert that the Group is expecting to record >100% YoY bottom line growth in 1Q14. The increase is primarily due to the strong performance of MMT paying accounts and penetration rates from on-line services/products. We expect HC topline to grow 40% YoY to Rmb226mn and bottom line to grow ~110% to Rmb43mn.
Trends to watch
Online services will continue to expand in 2014: 1) By end-2013, there were 170,000 MMT paying accounts. We believe the target of 230,000 MMT paying members by end-2014 is on track given the expected 1Q14 growth momentum. 2) The number of paid listing keywords will keep ~20% penetration rate representing 35% YoY growth. 3) For advertising, we think HC will deepen the cooperation with other search engines such as Baidu to optimize its traffic acquisition. 4) The online transaction platform will ramp up gradually.
HC is expected to initiate O2O projects this year: Since the Jiadian City O2O project in Shunde is progressing quite well, HC might take on more O2O projects in other cities this year.
Microcredit business on track: We expect the microcredit JV to kick off in 2H14. With the existing Minsheng cooperation, the total loanable capital would reach Rmb8~10bn.
Excellent financial performance is proof that HC is qualified to transfer to the HKSE main board. We expect that the transfer will probably be realized in this half.
Valuation and recommendationWe maintain our BUY rating and TP of HK$28 based on 50x 2014e EPS.
Risks
Top-line growth disappoints; weakening domestic demand weakens; O2O initiation fails.