Yonyou:Internet finance took a breather

1Q16 revenue beat but bottom line missed. 1Q16 revenue grew 19% YoYto RMB590mn, ahead of MQ/consensus of RMB537-588mn, due to strongersoftware revenue. Net loss widened from RMB125mn in 1Q15 to RMB230mnin 1Q16 due to additional RMB94mn investment in enterprise Internetservices and Internet finance, as well as related SBC.

Enterprise Internet services/cloud continued strong momentum.

Revenue from enterprise Internet services and cloud grew 248% YoY toRMB18mn, or about 6% of total software revenue. The digital marketingplatform Bingjun and SaaS-based apps for ERP customers are key growthdrivers. The number of enterprise users of Yonyou’s enterprise Internetservices and Chanjet’s micro/small enterprise cloud grew 25% and 33% fromDec 2015 to 1mn and 800k in Mar 2016, respectively.

Internet finance took a breather. Loan transactions on Yonyou’s P2Pplatform totalled RMB1.5bn in 1Q16, up modestly from RMB1.3bn in 4Q15, aswe suspect P2P lenders became more cautious after recent issues with otherP2P platforms. With regard to the acquiring business (i.e. processing of cardpayments), Yonyou handled transactions of about RMB6.3bn, down fromRMB9-10bn in 3Q-4Q15, owing to low seasonality in 1Q16 as its SMEmerchants closed their doors during the CNY holiday.

Outlook for emerging businesses remains positive overall. Yonyou’senterprise Internet services have gained strength on the back of richerproduct offerings (incl. Bingjun and cloud apps) as well as its solid marketleadership. We thus maintain an 8% software revenue CAGR in FY15-18E.

We also note the tightening policy stance around P2P and the upcoming feechanges of POS acquiring business proposed by the govt. That said, growthremains intact from its vast enterprise user base and potential adoption. Wethus trim slightly the revenue CAGR of Internet finance from 75% to 63% inFY15-18E.