Video Ads to Strengthen Social Marketing, Buy

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1 股票研究 Equity Research : Ricky Lai 黎柏坚 公司报告 : 新浪 (SINA US) ricky.lai@gtjas.com.hk Video Ads to Strengthen Social Marketing, Buy 社交营销视频广告, 买入 公司报告证券研究报告 Equity Research Report 1Q17 results beat market and our expectations by 19%/ 15%, respectively, driven by better-than-expected Weibo advertising revenue and gross profit margin. 1Q17 non-gaap operating margin improved by 3 ppt yoy to 23% in 1Q17 thanks to a higher margin contribution from SME customers to revenue. We raise FY17-FY19 Weibo advertising revenue forecasts by 17.5%/ 2.8%/ 22.8%, respectively, due to more spending by customers on the Weibo platform. We expect that live broadcasting, short video and news feeds will be the key revenue drivers. Weibo MAU reached 34 million in March 217, up 3% yoy. Weibo is adopting sports videos and live broadcasting in cooperation with sports leagues (NBA, NFL and La Liga) to attract users. We lift FY17-FY19 gross profit margin by 1.9 ppt/ 2.2 ppt/ 2.6 ppt to 69.6%/ 71.4%/ 73.3%, respectively, due to better-than-expected 1Q17 profit margin. Gross profit margin in 1Q17 improved by 9.6 ppt yoy to 68.9% thanks to better margin contribution from SME customers. Upgrade the investment rating to Buy and revise up TP from US$74. to US$119.. We lift FY17-FY19 EPS forecasts by 16.8%/ 19.2%/ 22.%, respectively, due to revisions to Weibo advertising revenue and gross profit margin. The new TP represents 39.5x FY17 PER, 32.6x FY18 PER, 25.8x FY19 PER and.9x FY16-FY19 PEG. 217 财年第 1 季度业绩分别好于市场和我们预期 19%/ 15%, 因好于预期的微博广告收入和毛利率 第 1 季度非 GAAP 营业利润率升 3 个百分点至 23%, 是受惠于较高毛利率的中小企业客户收入比例 Rating: Buy Upgraded 评级 : 买入 ( 上调 ) 6-18m TP 目标价 : US$119. Revised from 原目标价 : US$74. Share price 股价 : Stock performance 股价表现 % change US$12.11 (2) Apr-16 Jun-16 Aug-16 Nov-16 Jan-17 Mar-17 Sina NASDAQ COMP Index 互联网行业 Internet Sector 由于客户对微博平台的支出增加, 我们分别上调 财年微博广告收入预测 17.5%/ 2.8%/ 22.8% 我们预计现场直播 短视频和新闻导入将成为收入的关键来源 微博活跃用户于 217 年 3 月达 3.4 亿, 同比增长 3% 微博亦与体育组织联盟(NBA NFL 和 La Liga) 合作推出体育视频和现场直播, 以吸引用户 由于 217 年第 1 季度毛利率好于预期, 我们分别上调 217 财年至 219 财年毛利率 1.9 个百分点 / 2.2 个百分点 / 2.6 个百分点至 69.6%/ 71.4%/ 73.3% 第 1 季毛利率同比升 9.6 个百分点至 68.9%, 归因于中小企业客户的更好的贡献 上调投资评级至 买入 及目标价从 74. 美元上调至 119. 美元 由于调整微博广告收入和毛利率预测, 我们分别上调 年的每股盈利预测 16.8%/ 19.2%/ 22.% 新目标价相当于 39.5 倍 217 年市盈率 32.6 倍 218 年市盈率 25.8 倍 219 年市盈率及 年 PEG 为.9 倍 Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to NASDAQ index 相对纳指变动 % Avg. ADS price(us$) 平均 ADS 股价 ( 美元 ) 1 M 1 个月 3 M 3 个月 1 Y 1 年 Source: Bloomberg, Guotai Junan International. 新浪 Non-GAAP Net Profit 股东净利 Non-GAAP EPS 每股净利 Non-GAAP EPS 每股净利变动 Year End Turnover PER BPS PBR DPS Yield ROE 年结 收入 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (US$ m) (US$ m) (US$) ( %) (x) (US$) (x) (US$) (%) (%) 215A A 1, F 1, F 1, F 2, Shares in issue (m) 总股数 (m) 71. Major shareholder 大股东 Guowei Chao 15.8% Market cap. (US$ m) 市值 (US$ m) 7,249.8 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( ) 1,89.3 FY17 Net gearing FY17 年净负债 / 股东资金 %) Net Cash 52 Weeks high/low (HK$) 52 周高 / 低 / 42.7 FY16-19 PEG (x).8 See the last page for disclaimer Page 1 of 7

2 1Q17 Results Review Sina s 1Q17 results beat market and our expectations by 19% and 15%, respectively. 1Q17 net profit grew 151% yoy, driven by better-than-expected Weibo revenue and gross profit margin. Non-GAAP operating margin rose 3 ppt yoy to 23% in 1Q17, thanks to Weibo margin expansion and SME customer contribution. Gross profit margin improved by 9.6 ppt yoy to 68.9% due to higher margin SME customers from the Weibo platform. SME customers accounted for over 95% of Weibo s advertising revenue in 1Q17. We expect Sina to benefit from margin expansion from Weibo with better customer segments and an economies of scale effect. Weibo was able to grow active user numbers thanks to information feeds, short videos and live broadcasting features. Higher active platform users are expected to improve platform traffic, which can attract advertising spending from SME customers. Customers from commercial companies are more willing to set up official pages and accounts for marketing. Table-1: Sina s Consolidated Income Statement Analysis USD (Million) 1Q17 1Q16 YoY Comments Revenue % -Advertising % -Non-advertising % Gross profit % Contributed by improvement of Weibo advertising contribution Driven by membership revenue from Weibo and online financial services in portals S&M expenses (68.1) (51.7) 31.7% Higher marketing costs to boost platform traffic Product development (54.4) (52.5) 3.6% G&A expenses (24.) (22.1) 8.6% Non-operating income % Income before tax % Taxes (13.8). n.a. GAAP Net profit % Non-GAAP Net profit 37.6 (2.8) n.a. EPS (USD) % Gross profit margin 68.9% 59.3% 9.6 ppt Net profit margin 13.8% 7.7% 6.1 ppt Significant improvement thanks to higher contribution margin from SME customers We revise up FY17-FY18 Weibo advertising revenue forecasts by 17.5%/ 2.8%/ 22.8%, respectively. Weibo s 1Q17 advertising revenue grew 7.6% yoy, better than our expectation by 16%, driven by better contributions from SME customers. Weibo MAU reached 34 million, up 3% yoy, and mobile platforms accounted for 91% of total users. Revenue generated from SME customers grew 86% yoy due to Weibo s app downloads and advertising and organic advertising effectiveness. Social marketing is becoming more critical for SME customers because of better user engagement, which helps to improve interaction and communication with customers. Live broadcasting, short videos and third party video content helped Weibo to maintain strong user growth. In 4Q16, Weibo succeeded in boosting platform traffic by allowing Youku videos to be shared in Weibo. Weibo has also co-operated with several satellite TV stations to broadcast live content, including the 217 Chinese New Year and content from sports leagues (NBA, NFL and La Liga) to boost user engagement. Weibo has managed to obtain the rights to stream live content and launch short videos for a number of NFL games. Weibo is also partnered with NBA to broadcast related short videos. By teaming up with international sports leagues, we expect Weibo can benefit from better platform traffic and acquire more users overseas. Weibo plans to grow the scale of news feeds by launching more relationship based information feeds to improve user engagement. Thanks to better smartphone cameras, displays and video processing technology, videos have replaced photos as Weibo users preferred medium for interacting with others. Video advertising customers increased 5% qoq in 1Q17. Social marketing through video advertising with Weibo is expected to be a key focus in FY17 with more user-generated content. Weibo users are spending more internet surfing time than ever for social networking with others. Weibo will leverage its success in 217 through the increase in video advertising and information feeds. See the last page for disclaimer Page 2 of 7

3 , Table-2: Sina s and Weibo s Quarterly Advertising Revenue Analysis US$ (Million) 2Q15 3Q15 4Q15 Weibo advertising YoY 47.5% 61.9% 47.2% 25.4% 44.7% 48.% 45.% 7.6% Weibo non-advertising YoY 12.6%.6% 15.3% 17.% (1.3%) 6.9% 25.2% 49.2% Portal advertising YoY (8.2%) (13.6%) (.4%) (1.5%) (11.%) (12.3%) (12.8%) (6.2%) Sina non-advertising YoY 26.7% 6.9% 13.1% (8.4%) 12.9% 51.5% 4.3% 28.7% The growth rate for Sina s portal advertising revenue in 1Q17 was -6.2%, compared to -12.8% in 4Q16. The decline in portal revenue was alleviated by better adoption of the Sina mobile news app. More than 78% of platform traffic was attributable to the mobile platform, with 53% of total advertising revenue generated from mobile devices. Sina is boosting its advertising on news feeds on its news app which is expected to boost its advertising revenue growth. According to China Internet Watch, Sina s news app ranked sixth in China s mobile news app market with over 6.6 million MAU. We expect a higher platform linkage between Weibo and Sina news app with the launch of more news feed advertising. Non-advertising revenue is estimated to grow by 38.6% yoy in FY17. Weibo s 1Q17 non-advertising revenue improved by 49% yoy due to membership service contribution. Sina s portal non-advertising revenue grew 34% yoy, driven by online finance business. Sina will focus on two major areas for online finance business, which includes asset management and loan services. The demand for online loan services in China has been growing in recent years thanks to its ease of application, lower transaction costs and faster processing time. The adoption of Sina Pay has increased due to higher platform users and third party participation. Table-3: Advertising Contributions from Alibaba and SME & KA Customers to Weibo US$ (Million) 2Q15 3Q15 4Q15 Alibaba advertising revenue YoY 28.1% 18.2% 26.8% (67.8%) (54.8%) (71.4%) (48.8%) (29.7) SME & KA advertising revenue YoY 58.9% 93.8% 62.8% 97.3% 92.3% 11.1% 1.7% 83.3% Figure-1: Sina Weibo Quarterly Advertising Revenue Figure-2: Sina Weibo Annual Advertising Revenue and and YoY Growth YoY Growth USD (Million) Weibo quarterly advertising revenue (LHS) USD (Million) Weibo advertising revenue (LHS) % % % 45.% 7.6% % 6% 4% 2% 2,1 1,8 1,5 1, % % % 982 1, % 1,86 28.% 8% 7% 6% 5% 4% 3% 2% 1% % FY15A FY16A FY17F FY18F FY19F % See the last page for disclaimer Page 3 of 7

4 Figure-3: Sina Weibo s MAU and YoY Growth Figure-4: Sina Weibo s DAU and YoY Growth Million % 261. Weibo MAU (LHS) 33.8% 33.% % % 35% 3% Million Weibo DAU (LHS) 35.5% 34.8% % % 4% 3% % % 5 3 2% 2% We lift FY17-FY19 gross profit margin by 1.9 ppt/ 2.2 ppt/ 2.6ppt to 69.6%/ 71.4%/ 73.3%, respectively. 1Q17 gross profit margin was 68.9%, up 9.6 ppt yoy, thanks to better margin SME customer contribution. Due to the lift in Weibo advertising revenue estimations, we project FY17-FY19 operating margin to improve by 6.2 ppt/ 1.1 ppt/ 3.2 ppt to 13.3%/ 14.4%/ 17.2%, respectively. Figure-5: Sina Weibo s Gross Profit Margin Figure-6: Sina s Profit Margin Estimations 78% 75% 72% 69.3% 72.3% 74.8% 76.8% 76.7% 8% 6% 4% 61.9% 65.6% 69.6% 71.4% 73.3% Gross profit margin Operating profit margin Net profit margin 69% 66% 2% 21.8% 13.3% 14.4% 17.2% 63% Profit Revision 2.9% 13.% 11.7% 11.4% 7.1% % 1.4% FY15A FY16A FY17F FY18F FY19F We revise up Sina s FY17-FY19 EPS by 16.8%/ 19.2%/ 22.%, respectively. We lift Sina s FY17-FY19 revenue by 13.2%/ 16.%/ 2.7%, respectively, due to contribution from the Weibo platform. Thanks to a higher margin SME customer revenue proportion, we raise FY17-FY19 gross margin by 1.9 ppt/ 2.2 ppt/ 2.6ppt, respectively. Sina s FY17-FY19 EPS is revised up by 16.8%/ 19.2%/ 22.%, respectively. Table-4: Sina s Financial Estimations Revisions OLD US$ (Million) 217F 218F 219F 217F NEW 218F 219F 217F CHANGE 218F 219F Net revenue ,486 1,986 2, % 16.% 2.7% Net profit % 19.6% 22.4% Non-GAAP net profit % 18.8% 21.7% EPS (US$) % 19.2% 22.% Source: Guotai Junan International. See the last page for disclaimer Page 4 of 7

5 Valuation Upgrade the Company s investment rating to Buy and revise up TP from US$74. to US$119.. The increasing adoption of Weibo by SME customers as their social marketing tool should help Sina to grow revenue and margins. Short videos, live broadcasting and news feeds will be the drivers for Weibo s user growth. We expect more advertising spending on the Weibo platform. We raise the TP from US$74. to US$119.. The new TP represents 39.5x FY17 PER, 32.6x FY18 PER, 25.8x FY19 PER and.9x FY16-FY19 PEG. Table-5: Peers Comparison PER (x) PBR (x) ROE(%) ROA(%) Company Ticker Currency Price 17F 18F 19F 17F 18F 19F 17F 17F US Online Game Companies Changyou CYOU US USD Electronic Arts Inc EA US USD Activision Blizzard Inc ATVI US USD Netease NTES US USD Simple Average Weighted Average HK Online Game Companies Tencent 7 HK HKD Boyaa Interactive Int. 434 HK HKD IGG 799 HK HKD Netdragon 777 HK HKD 21.8 n.a Simple Average Weighted Average Advertising Companies Sohu.Com Inc SOHU US USD n.a. n.a. n.a n.a. (9.2) Weibo WB US USD Bitauto BITA US USD n.a Cheetah Mobile CMCM US USD n.a n.a com WUBA US USD n.a n.a. 2. Soufun SFUN US USD n.a n.a. 2.6 Phoenix New Media FENG US USD 3.14 n.a (1.9) Sina SINA US USD Facebook FB US USD Simple Average Weighted Average E-commerce Companies Alibaba BABA US USD n.a VIPSHOP VIPS US USD n.a Jumei JUMEI US USD 3.17 n.a n.a. n.a. n.a..8 n.a. EBay EBAY US USD n.a JD.com JD US USD n.a (.2) AMAZON MZN US USD Gome Electrical Appliances 493 HK HKD 1.2 n.a Simple Average Weighted Average Search Engine Companies Alphabet Inc GOOG US USD Baidu Inc - Spon Adr BIDU US USD Simple Average Weighted Average Overall Average Overall Weighted Average Source: Bloomberg. See the last page for disclaimer Page 5 of 7

6 Financial Statements and Ratios Income Statement Balance Sheet Year end Dec, USD m 215A 216A 217F 218F 219F Year end Dec, USD m 215A 216A 217F 218F 219F Advertising revenue ,265 1,719 2,113 Cash & cash equivalences 763 1,48 1,436 1,64 1,968 Non-advertising revenue Short-term investments 1, Total revenue 881 1,31 1,486 1,986 2,421 A/R Prepaid expenses & others Cost of revenue (335) (355) (451) (569) (647) Total current assets 2,715 2,656 2,884 3,29 3,667 Gross profit ,35 1,418 1,775 Sales & Marketing expenses (23) (247) (367) (493) (591) PPE, net Product development expenses (21) (216) (318) (433) (521) Long term investments 1,213 1,318 1,969 2,572 3,51 G&A expenses (93) (99) (152) (27) (247) Other assets Others Total non-current assets 1,642 1,629 2,257 2,878 3,385 Interest & other income, net Total assets 4,357 4,285 5,141 6,87 7,52 Income before income taxes Accounts payable Income tax expenses (1) (27) (43) (51) (68) Accrued liabilities Net income Income taxes payable Non-GAAP Net income Others 1, EPS (USD) Total current liabilities 1, ,127 1,339 1,574 Non-GAAP EPS (USD) Deferred revenue Cash Flow Convertible debt Year end Dec, USD m 215A 216F 217F 218F 219F Other long-term liabilities Net Income Total long-term liabilities Adjustments Total liabilities 1,48 1,194 1,346 1,553 1,783 Investment impairment (gain) 8 44 (45) (31) (22) Stock-based compensation Share capital 1,812 1,836 2,488 3,81 3,535 Provision for losses on receivables Reserves ,48 1,38 1,656 Changes in WP Total shareholders' equity 2,565 2,68 3,537 4,389 5,191 Others 2 (182) MI Net cash flow from operating activities Total liabilities & equity 4,357 4,285 5,141 6,87 7,52 BPS (USD) Purchases of PPE (45) (38) (34) (31) (27) Others (1,121) 883 (247) (183) (222) Net cash flow from investing activities (1,167) 845 (281) (214) (249) Financial Ratios Year end Dec 215A 216A 217F 218F 219F Proceeds from issuance of shares Profitability Repurchase of shares (62) (26) (24) (21) (19) Gross margin (%) Others 449 (613) Operating margin (%) Net cash flow from financing activities 396 (63) Net margin (%) ROE (%) Effect of exchange rate change (18) (41) (37) (33) (3) ROA (%) Net change in cash & cash equivalents (46) Net gearing (%) Net cash Net cash Net cash Net cash Net cash Cash at the beginning of year 1, ,48 1,436 1,64 Current ratio Cash at the end of year 763 1,48 1,436 1,64 1,968 Debt/equity ratio See the last page for disclaimer Page 6 of 7

7 Company Rating Definition The Benchmark: NASDAQ Composite Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: NASDAQ Composite Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for SMI Holdings Group Limited (198 HK), Guotai Junan International Holdings Limited (1788 HK), Binhai Investment Company Limited (2886 HK), Link Holdings Limited (8237 HK), GFI MSCI A I-R (CNY) (83156 HK), GFI MSCI A I (3156 HK) and CAM SCSMALLCAP (3157 HK), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. 217 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 7 of 7