Shanghai 2345:MacVisit,Network Holding Group:Leveraging traffic to build consumer fin biz

Company profile

Shanghai 2345 Network Holding Group Co., Ltd (002195 CH) is attending ourA-Share Corporate Day on 17 January 2017.

The company generates revenues mainly from two divisions: 1) InternetServices, i.e., the operation of 2345.com, its PC and mobile navigation site;and, 2) Software Outsourcing Services, with Japanese enterprises as maintarget clients. 2345.com is the No.3 online navigation site in China afterHao123.com (owned by Baidu) and 360.com (owned by Qihoo), according toiResearch.

History

The company was listed in the A-share market in 2007 as Shanghai HailongSoftware, which was principally engaged in the software outsourcing businesswith the Japanese enterprises.

Shanghai Hailong Software acquired 100% stake in 2345.com in July 2014 forRmb2.65bn and was renamed as Shanghai 2345 Network Holding.

Business segments and development plan

Internet Services, which generate revenues from placing ads on itsnavigation sites as well as sharing revenue with search engines, generatedRmb54.9m revenue (up 18% YoY) and Rmb20.5m profit (up 13.8% YoY) in1H16. Total users of the navigation site 2345.com exceeded 47m in 1H16.

Software Outsourcing Services, the legacy business of Hailong Software,encompass security trading software development, mobile phone contentdevelopment and CAD software design. Its main customers include Nomura,and Omron.

Internet finance is a new strategic growth area for the company wherein itdisburses consumer loans ranging from Rmb500k to Rmb550k. The companyhas partnered with Bank of China to issue these loans. As of 1H16, total loanissuance grew by 382% HoH to Rmb1.37bn.

9M16 earnings highlights

The company reported 15.5% YoY growth in revenue (Rmb1251m) and25.6% YoY growth in net profit (Rmb366m) in 9M16, owing to 1) higherinternet service revenue; 2) higher government subsidy; and, 3) lower interestexpense.

Earnings estimates and valuations

Wind consensus estimates -35%/23%/34% EPS growth for 2016/17/18E. TheEPS decline in 2016 was due to a share count increase. The stock is currentlytrading at 30x/23x 2017/18E PE.

Conclusion

The company is among the top 10 internet and software companies listed onthe A-share market by market cap.