Morgan Stanley to maintain Phoenix new media overweight rating target price 9.4 USD

In the early morning of August 14, Beijing time, Morgan Stanley released its research report today, keeping the stock rating of Phoenix New Media (Nyse:feng) unchanged at overweight and raising its target price from $4.8 to $9.4.

The following is a summary of the contents of the report:

Strong advertising sales;

Changes：

-The target price, based on the cash flow discount method, was raised from USD 4.8 to $9.4;

-the earnings per share of US depository receipts for fiscal year 2013 and 2014 were raised by 68% and 59% respectively.

Phoenix New media sales rose 29% in the second quarter from a year earlier, mainly because of increased advertising sales. Phoenix New Media expects advertising sales in the third quarter to rise 47% to 54% over a year earlier, while operating profit margins for the 2013 fiscal year (not in accordance with U.S. General accounting standards) will grow 7% per cent year-on-year, to 15%.

Based on our expectations for the earnings per share of the Phoenix New media for the 2013 fiscal year, the stock has a price-to-earnings ratio of 19 times times. We estimate that the annual growth rate of the Phoenix New media will reach 50% between 2012 and 2015. We will maintain the stock rating of Phoenix New media in "overweight" unchanged.

Profit exceeded expectations: Phoenix New Media sales in the second quarter of 364 million yuan, a 29% increase from the same period last year, compared to the company's previous expected range of the upper limit of 7% higher than our expectations. Phoenix New Media net profit for the second quarter was 77 million yuan, 1.2 times times higher than last year, compared to our previous forecast of 84%, mainly because the company implemented better cost control measures.

Favorable factors:

1 by the increase in the number of customers (compared with the same period last year 30%) and the average customer spending (up 9%) over the same period last year, Phoenix New media advertising sales in the second quarter than the same period last year increased 42%, in the company's total sales accounted for 58%;

2 Phoenix New Media second-quarter video advertising sales rose 91% from the same period last year, in advertising sales accounted for 14%, higher than the same period last year 11%, mobile advertising sales than the same period last year significantly increased 1.7 times times, the proportion of advertising sales to 9%, higher than the same period last year 5%;

3 The revenue from the services offered by Phoenix New Media is 3.9 times times higher than the same period last year, which accounts for 6% of sales, mainly due to revenue growth from web games;

4 Phoenix New Media operating profit margin in the second quarter of 19%, compared with the same period last year 7%, the highest level since the third quarter of 2010;

5 Phoenix New Media provides a strong third-quarter performance outlook, the third quarter is expected to increase advertising sales over the same period last year 47% to 54%.

Adverse factors:

Phoenix New media revenue from paid services delivered via telecom carrier platforms is flat compared with the same period last year, mainly because of weak demand for pay-per-view services based on 2G text messages.

Maintain "overweight" rating:

1) based on our expectation for the earnings per share of the Phoenix New media for the 2013 fiscal year, this stock has a earnings ratio of 19 times times, based on our expectation of earnings per share of the Phoenix New media for the 2014 fiscal year, the stock has a P/e ratio of 14 times times. We expect that the annual growth rate of Phoenix New media will reach 50% between 2012 and 2015;

2 The total amount of net cash held by Phoenix New Media is the high-end of 20% to 30% range in the company market value;

3 Phoenix New Media advertising price is equivalent to other Chinese online portal advertising price level of two-thirds.

Key value drivers:

1 The increase in the number of advertisers and the increase of average advertising expenditure;

2 The number of paid subscribers and paid service revenues have steadily increased.

Potential irritant momentum:

1 advertising costs continue to increase;

2 The advertising demand of the core advertising category is higher than the market expectation;

3 The increase in the number of paid subscribers and the growth of average expenditure exceeded expectations.

Main risks:

1 The high concentration of sales in wireless value-added services, which makes Phoenix New media is facing the risk of mobile operators, 2 China's internet and mobile industry in the competitive situation increased; 3 The increase in content costs and bandwidth costs leads to impaired margins. (Tangfeng)