Weibo Drives Revenue and Gross Margin, Neutral 微博推动收入和毛利率, 中性

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1 GTJA Research 国泰君安研究 Company Report: Sina (SINA US) Ricky Lai 黎柏坚 公司报告 : 新浪 (SINA US) ricky.lai@gtjas.com.hk Weibo Drives Revenue and Gross Margin, Neutral 微博推动收入和毛利率, 中性 Sina s 3Q16 results met expectations with 68% growth in adjusted 3Q16 net profit, driven by Weibo advertising revenue growth and gross profit margin expansion. Sina Weibo succeeded in boosting platform traffic and grew young segmented user numbers through the launch of short videos and the introduction of video apps from Yixia. We revise up FY16-FY18 Weibo advertising revenue forecasts by 3.1%/ 4./ 5.3%, respectively, due to stronger SME customer contributions and mobile Weibo adoption. Weibo MAU reached 297 million in Sep. 216, up 34% yoy thanks to the introduction of short videos and live broadcasting functions on mobile platforms. Gross profit margin to benefit from higher SME customer contributions to Weibo. 3Q16 overall gross profit margin grew by 3.8 ppt yoy to 67.1% due to a 5 ppt improvement in weibo margin, offset by a 1 ppt decline in portal business. The increasing SME customer contributions is expected to grow Sina s overall gross profit margin in FY17-FY18. Downgrade the investment rating to Neutral and maintain the TP at US$ 72.. We revise up FY16-FY18 EPS forecasts by.4%/ 1.4%/ 1.7%, respectively, due to the revision of Weibo advertising revenue. The TP represents 26.6x FY16 PER, 31.9x FY17 PER, 25.5x FY18 PER and 1.92 FY15-18 PEG. We lower the Company s investment rating to Neutral based on the limited upside potential. 216 年第 3 季度业绩符合预期, 经调整后的第 3 季度净利润同比增长 68%, 是由于微博 广告收入增长和毛利率提高 新浪微博成功地提升了平台流量及增加年轻用户的比例, 因 通过一下科技推出短视频和直播视频的应用程序 由于中小企业客户贡献的增加和移动微博平台的使用, 我们分别上调 年微博广 告收入预测 3.1%/ 4./ 5.3% 由于在移动平台上推出短视频和直播功能, 微博在 216 年 9 月的月度活跃用户数达 297 百万, 同比增长 34% 毛利率将受益于中小企业客户更高的微博贡献 第 3 季度整体毛利率同比升 3.8 个百分点 至 67.1%, 是由于微博毛利率增 5 个百分点, 但门户网站下降 1 个百分点 随着中小企业 客户更高的贡献, 年新浪整体的毛利率将改善 下调投资评级至 中性 及维持目标价为 72. 美元 由于调整微博广告收入, 我们分别 上调 年的每股盈利预测.4%/ 1.4%/ 1.7% 目标价相当于 26.6 倍 216 年市 盈率 31.9 倍 217 年市盈率 25.5 倍 218 年市盈率及 年 PEG 为 1.92 我 们下调投资评级至 中性, 因有限的上升空间 Rating: Neutral Downgraded 评级 : 中性 ( 下调 ) 6-18M TP 目标价 : US$72. Revised from 原目标价 : US$72. Share price 股价 : Stock performance 股价表现 (2) % change US$7.59 (4) Dec-15 Mar-16 May-16 Jul-16 Oct-16 Dec-16 Change in Share Price 股价变动 NASDAQ COMP Index Sina 1 M 1 个月 3 M 3 个月 1 Y 1 年 Abs. % 绝对变动 % 2.3 (1.8) 46.4 Rel. % to NASDAQ index 相对纳指变动 % (3.4) (11.9) 42.7 Avg. Share price(us$) 平均股价 ( 美元 ) Source: Bloomberg, Guotai Junan International Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结 收入 股东净利 每股净利 每股净利变动 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$) (%) (%) 214A A (84.3) F 1, F 1, (16.8) F 1, Shares in issue (m) 总股数 (m) 77.5 Major shareholder 大股东 Charles Chao 17.9% Market cap. (US$ m) 市值 (US$ m) 5,47.7 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( ) 1,413.1 FY17 Net gearing 17 年净负债 / 股东资金 %) Net Cash 52 Weeks high/low (HK$) 52 周高 / 低 / 37.9 FY15-18 PEG (x) 1.9 See the last page for disclaimer Page 1 of 8

2 3Q16 Results Review Sina s 3Q16 results met expectations. Adjusted 3Q16 net profit grew by 68% yoy, driven by Weibo advertising revenue growth and gross profit margin improvement. Thanks to stronger contributions from SME customers and the launch of short videos, Weibo revenue surged by 41.8% yoy in 3Q16. 3Q16 gross profit margin improved by 3.8 ppt yoy to 67.1% due to stronger contributions from higher margin SME customers. Although Alibaba s (BABA US) contributions declined recently, Sina Weibo succeeded in shifting its customers focus towards small and medium sized enterprises (SME) and Key Accounts (KA). We expect that Sina s business can be further propelled by Weibo s growth with higher adoption of advertising from SME customers. The guidance for Weibo s net revenue in 4Q16 is to be between US$ 25 million and US$ 21 million, representing a yoy growth rate of 37.6% and 4.9%, respectively, which is in line with expectations. Table-1: Sina s Income Statement Analysis US$ (Million) 3Q16 3Q15 2Q16 YoY QoQ Comments Net revenue % 12.7% -Advertising % 14. -Non-advertising % 5.9% Gross profit % 19. Sales & marketing (64.2) (53.3) (56.9) 2.5% 12.8% S&M / revenue (55.7) (54.4) (53.5) 2.4% 4.1% General & administrative Equity method investments, net Gain on sale on investments, net Fair value change in option liability Interest & other income, net (28.4) (2.8) (23.8) 36.5% 19.3% (6.2) 511.1% n.a (1.1) 34.9 n.a % (2.7).. N.a. n.a % 6.3% Net profit ,394.9% 238.3% EPS (US$) ,123.5% 235.5% GPM 67.1% 63.3% 63.5% 3.8ppt 3.6ppt Net profit margin 53.3% 4.3% 17.7% 49.ppt 35.5ppt Driven by SME and KA customers to the Weibo business Contributions from investments disposals GPM improved thanks to stronger contributions from SME customers FY16-FY18 Weibo revenue is expected to grow by 36.4%/ 29.6%/ 25.5% yoy, respectively. 3Q16 advertising revenue improved by 2.7% owing to 45. growth in Weibo advertising revenue offset by a 16. decline in portal advertising. Weibo MAU reached 297 million, up 34% yoy, with over 89% of the users using the mobile platform. Weibo DAU grew at a similar pace of 32% yoy and reached 132 million. Although revenue contributed from Alibaba declined by 71.4% yoy to US$ 9.3 million, the management emphasized that Alibaba is still one of the Company s most important business partners. We attributed the drop in Alibaba s revenue to the limited need for brand building due to its well known label in the China market. Unlike the reduction in advertising spending from Alibaba, advertising revenue to weibo from SME and KA increased by 11.1% yoy in 3Q16 due to higher mobile Weibo traffic and user growth. We think SME and KA will spend higher advertising on Weibo pages for targeting their desired market segments in FY17. We also believe that Weibo users are spending more time on surfing than ever before on mobile platforms thanks to the lowering of telecom service tariffs with faster network transmission rates and stable networks. Sina Weibo succeeded in boosting platform traffic and grew young segmented user numbers through the launch of short videos and the introduction of video apps from Yixia ( 一下科技 ). Yixia owns several short video and live broadcasting apps including Yi Zhibo( 一直播 ), Xiao Kaxiu ( 小咖秀 ) and Miaopa ( 秒拍 ). Short videos are highly favored by younger generations thanks to the ease of emotional expression and the lowering of See the last page for disclaimer Page 2 of 8

3 mobile telecom tariffs. The auto roll-out of short advertising videos can help Weibo to sustain its advertising revenue growth. Key accounts are also launching more pages and updating their news pages frequently on Weibo to promote their products and initiate market campaigns to boost user purchases. KA can interact with their target customers more easily through their own Weibo company page, and issue discounts to their customers if the users like their pages. By growing their user numbers, the KA can notify their customers of the latest products and handle public relations easier than before. Many foreign mobile applications including Facebook and Instagram have also been able to boost advertising revenue through the launch of short videos. We expect Weibo s advertising can further propel higher platform utilization and stronger SME and KA customer contributions. We project 4Q16 Weibo advertising revenue and non-advertising revenue to grow by 45. and 6., respectively, this also implies FY16 overall revenue to grow by 36.4% yoy. Thanks to higher mobile Weibo adoption with the launch of short video features and supported by SME customers, FY17-FY18 Weibo revenue will grow by 26.9%/ 25.5% yoy, respectively. We revise up FY16-FY18 Weibo advertising revenue by 3.1%/ 4./ 5.3%, respectively. Table-2: Alibaba and non-alibaba to Weibo Advertising Contributions US$ (Million) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Alibaba advertising revenue yoy 73.7% 28.1% 18.2% 26.8% (67.8%) (54.8%) (71.4%) SME and KA advertising revenue yoy 39.6% 58.9% 93.8% 62.8% 97.3% 92.3% 11.1% Figure-1: Sina Weibo Quarterly Advertising Revenue and YoY Growth USD (Million) Weibo advertising revenue (LHS) YoY growth (RHS) % % % % Q15 4Q15 1Q16 2Q16 3Q16 Figure-2: Sina Weibo Annual Advertising Revenue and YoY Growth USD (Million) Weibo advertising revenue (LHS) YoY growth (RHS) 1, % 971 1, % FY14A FY15A FY16F FY17F FY18F Figure-3: Weibo s MAU and YoY Growth Figure-4: Weibo s DAU and YoY Growth Million Weibo MAU (LHS) 64.1% YoY growth (RHS) Million Weibo DAU (LHS) YoY growth (RHS) % % % % % 35.5% Q15 4Q15 1Q16 2Q16 3Q16 3Q15 4Q15 1Q16 2Q16 3Q16 See the last page for disclaimer Page 3 of 8

4 Portal advertising contributions were lower than expected. 3Q16 portal advertising revenue declined by 12.3% yoy, which showed a downward trend in revenue contributions to the Company due to the lackluster appeal of advertising platforms to customers. We expect 4Q16 portal advertising revenue to further decline by 16% yoy because of competition from other social advertising platforms. Sina s FY16-FY18 portal advertising revenue is expected to decline by 12.6%/ 1./ 7., respectively. 3Q16 portal non-advertising revenue grew 51.5% yoy thanks to higher e-commerce traffic, online games and value-added business contributions. Alipay is also playing an important role for Sina s platform and transactions with customers for facilitating purchases. We revise up FY16-FY18 portal non-advertising revenue by 3.7%/ 7.3%/ 8.1%, respectively. FY16-FY18 Sina overall portal revenue is expected to decline by 7.1%/ 3.5%/ 7.7% yoy, respectively. Table-3: Sina s and Weibo s Quarterly Revenue Analysis US$ (Million) 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16F Weibo advertising revenue yoy 52.7% 47.5% 61.9% 47.2% 25.4% 44.7% Weibo non-advertising revenue yoy 9.4% 12.6%.6% 15.3% 17. (1.3%) 6.9% 6. Sina portal advertising revenue yoy (15.1%) (8.2%) (13.6%) (.4%) (1.5%) (11.) (12.3%) (16.) Sina non-advertising revenue yoy (14.9%) 26.7% 6.9% 13.1% (8.4%) 12.9% 51.5% 5. Gross profit margin benefits from SME customer contributions. Sina s 3Q16 overall gross profit margin improved by 3.8 ppt yoy to 67.1% due to a 5 ppt improvement in Weibo margin offset by a 1 ppt decline in portal business. Weibo gross profit margin in 3Q16 was 75%, up 5 ppt yoy thanks to higher SME customer contributions. SME customers have a much higher gross profit margin which is expected to improve Weibo s margin in FY17. Sina s FY16-FY18 overall gross profit margin is expected to increase by 2. ppt/.3 ppt/.5 ppt to 63.9%/ 64.2%/ 64.7% yoy, respectively. Figure-5: Gross Profit Margins of Portal and Weibo in 3Q15, 3Q16 and 2Q16 Portal Weibo Overall 8 75% 7 67% 72% 63% 64% 6 54% 55% 51% 2 3Q16 3Q15 2Q16 Figure-6: Sina s Profit Margins Estimations % 63.9% 64.2% 64.7% 61.9% 6 Gross profit margin Operating profit margin Net profit margin % % 1.9% 2.9% % 9.1% 1.4% FY14A FY15A FY16F FY17F FY18F -5.3% -2 See the last page for disclaimer Page 4 of 8

5 Profit Revision We revise up Sina s FY16-FY18 EPS by.4%/ 1.4%/ 1.7%, respectively. We revise up Sina s FY16-FY18 revenue by.7%/ 1.6%/ 1.9%, respectively, due to the revisions to Weibo revenue and value-added services forecasts. Due to stronger SME customer contributions and better mobile Weibo adoption, we revise up FY16-FY18 Weibo advertising revenue by 3.1%/ 4./ 5.3%, respectively. We cut FY16-FY18 portal revenue by.8%/ 2.2%/ 3., respectively, because of its lackluster business outlook and stronger competition from other advertising platforms on social networks. Sina s FY16-FY18 EPS is revised up by.4%/ 1.4%/ 1.7%, respectively. Table-4: Sina s Financial Estimation Revisions OLD US$ (Million) 216F 217F 218F 216F NEW 217F 218F 216F CHANGE 217F Net revenue 1,19 1,27 1,438 1,26 1,226 1,465.7% 1.6% 1.9% -Advertising 854 1,3 1, ,27 1, % 2.4% 2.8% -Non-advertising % 1.1% 1.5% Net profit % 1.4% 1.7% EPS (US$) % 1.4% 1.7% Source: Guotai Junan International. 218F Valuation Downgrade the Company s investment rating to Neutral and maintain the TP of US$ 72.. We expect weibo to take a more important role in Sina s business outlook due to its lackluster portal business and stronger mobile Weibo adoption. We maintain the Company s TP of US$ 72. and downgrade the investment rating to Neutral due to the limited upside potential. The TP represents 26.6x FY16 PER, 31.9x FY17 PER, 25.5x FY18 PER and 1.92 FY15-18 PEG. See the last page for disclaimer Page 5 of 8

6 Table-5: Peers Comparison Market PER (x) PBR (x) ROE(%) ROA(%) Company Ticker Currency Price Cap 16F 17F 18F 16F 17F 18F 16F 16F 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 ,799, Boyaa Interactive Int. 434 HK HKD , IGG 799 HK HKD 5.9 7, Netdragon 777 HK HKD ,99 n.a (2.2) (1.7) Simple Average Weighted Average Advertising Companies Sohu.Com Inc SOHU US USD ,312 n.a. n.a. n.a n.a. n.a. Weibo WB US USD , Bitauto BITA US USD , Cheetah Mobile CMCM US USD , (.5) com WUBA US USD ,585 n.a (2.8) n.a. Soufun SFUN US USD 3.2 1,436 n.a n.a. n.a. Phoenix New Media FENG US USD Sina SINA US USD , Facebook FB US USD , Simple Average Weighted Average E-commerce Companies Alibaba BABA US USD ,573 n.a VIPSHOP VIPS US USD ,833 n.a Jumei JUMEI US USD n.a EBay EBAY US USD ,537 n.a JD.com JD US USD , n.a. n.a. AMAZON MZN US USD , Gome Electrical Appliances 493 HK HKD 1. 21,967 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 6 of 8

7 Financial Statements and Ratios INCOME STATEMENT BALANCE SHEET Year end Dec, USD m 214A 215A 216F 217F 218F Year end Dec, USD m 214A 215A 216F 217F 218F Advertising revenue ,27 1,221 Cash & cash equivalences 1, Non-advertising revenue Short-term investments 943 1,446 2,997 3,331 3,58 Total revenue ,26 1,226 1,465 A/R Prepaid expenses & others Cost of revenue (29) (335) (37) (439) (517) Total current assets 2,536 2,72 3,873 4,152 4,57 Gross profit Sales & Marketing expenses (229) (23) (257) (295) (343) PPE, net Product development expenses (192) (21) (234) (257) (32) Investment in equity interest 86 G&A expenses (83) (93) (14) (123) (144) Other assets 244 1, , Others Total non-current assets 1,168 1, ,122 Interest & other income, net Total assets 3,73 4,362 4,587 5,61 5,628 Income before income taxes Accounts payable Income tax expenses (7) (1) (32) (29) (37) Accrued liabilities Net income Income taxes payable EPS (USD) Others Total current liabilities 393 1,383 1,459 1,643 1,881 Deferred revenue CASH FLOW Convertible debt 8 Year end Dec, USD m 214A 215A 216F 217F 218F Other long-term liabilities Net Income Total long-term liabilities Adjustments Total liabilities 1,282 1,485 1,576 1,783 2,26 Investment impairment (gain) 2 (11) (235) (15) (115) Stock-based compensation Ordinary shares Provision for losses on receivables Additional paid-in capital Changes in WP (5) Retained earnings 1,27 1,634 1,841 2,9 2,215 Others (13) (17) Others Net cash flow from operating activities Total shareholders' equity 2,146 2,565 2,762 2,964 3,27 MI Purchases of PPE (13) (46) (3) (21) (15) Total liabilities & equity 3,73 4,362 4,587 5,61 5,628 Others (89) (51) (425) (422) (422) BPS (USD) Net cash flow from investing activities (192) (547) (455) (443) (436) FINANCIAL RATIOS Proceeds from issuance of shares Year end Dec 214A 215A 216F 217F 218F Repurchase of shares (249) (5) (5) (3) (15) Profitability Others Gross margin (%) Net cash flow from financing activities 45 (35) (186) (48) 52 Operating margin (%) (5.3) Net margin (%) ROE (%) Effect of exchange rate change (7) (6) (5) (5) (4) ROA (%) Net Net Net Net Net Net change in cash & cash equivalents 37 (319) (45) (36) 194 Net gearing (%) cash cash cash cash cash Cash at the beginning of year 916 1, Current ratio Cash at the end of year 1, Debt/equity ratio See the last page for disclaimer Page 7 of 8

8 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) and Link Holdings Limited (8237 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. 216 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 8 of 8