BofA Merrill Lynch today released its research report, keeping its stock rating unchanged

Source: Internet
Author: User
Keywords Only goods will the target price we
Tags based consumer cross discount entertainment integration key market

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

Cross-selling opportunities with the combination of Lok Feng Network

-Cross-selling opportunities from strategic investments:

The only product will announce a 132 million dollar cash price from Ovation Entertainment to buy the Lok Bee net (by the user flowmeter is ranked the top five cosmetics website) 75% shares, this transaction conforms to the only product will improve the number of users (especially female users) and a variety of product mix strategy. As part of the deal, Ovation Entertainment will provide its own branded cosmetics, apparel and consumer products to the sole product, retail through vip.com and lefeng.com.

Only the goods will promise to achieve at least 900 million yuan in 2014 years of sales, and can be based on sales commission. The potential benefits of this transaction are as follows:

1) Only products will be able to access to the Lok Bee network of young female shoppers cross-selling the opportunity to sell products, these users are very brand awareness and price sensitivity, in line with the only product will target users;

2 The repeated consumption of cosmetics will improve the user "stickiness";

3 The predictable purchase mode of cosmetics will bring higher conversion rate;

4 Diversification of product categories.

We expect the 2014-year sales will be 340 million U.S. dollars, but at the same time will be included in some integration costs, the company's performance will be lost. Based on this, we will reduce the earnings per share of the 2014 only 3%, but at the same time the 2015 and 2016 earnings forecasts for each increase by 1% and 9% respectively to reflect the performance of the Lok Bee Network is expected to improve.

We also upgraded the medium-term composite annual growth rate between 2016 and 2019 to 9% (previously expected to be 8%) and raised its target price to $133 based on the cash flow discount model, which means that the expected sales of the goods in 2015 are calculated, Its market sales rate is 1.8 times times, in line with our previous expectations.

-There are potential forces, but execution will be key

We believe that the Lok Bee network can become the only important source of traffic (expected in the only product will be the proportion of user traffic will reach 20%). In view of the fact that two companies have a similar target audience, we believe that the Lok Bee Network will provide cross-selling opportunities for the only products. The consumer behavior data and analysis of the Le Bee network can be used to improve the conversion rate.

But at the same time, implementation is important. Data integration and the traffic between cosmetics and clothing sales channels and advertising competition will be a key problem to be solved.

Investment theme:

Compared with the online market or multiple categories of the consumer Web site, the only product has successfully established a business model that is different from these sites, that is, discount flash online retail mode.

The only product will occupy a leading position in a niche market, which can benefit from: 1 The rising penetration rate of e-commerce; 2. Higher inventory on the apparel market. The optimization of brand combination, the expansion of product category and the market model can form key support for profit margin. Only products will be able to invest in the Lok Bee Network will expand its user base and product portfolio.

Target Price and risk:

We use the cash flow discount method to value the goods only because we think it best reflects the intrinsic value of the product and the long-term growth trajectory in the clothing and cosmetic discount retail market.

We set the target price of the only product to $133, which includes: 1 net cash per share of USD 8, 2 per share of 12% USD, based on the discount rate of 9%, the medium-term of 4% (between 2016 and 2019), and the final growth rate of 125. In our view, 9% of the medium-term free cash flow compound annual growth rate is expected to be more conservative, because it should be able to gradually integrate China's discount sales market and have stable cash flow.

The risks to the target price of the product will include: 1) increased competition, 2 industry inventory reduction, 3 the implementation of problems and the transition towards the mobile domain may have an impact on the user's shopping experience, 4 capacity management and expansion costs, 5 in the integration of Lok Bee Network cosmetics Sales process implementation risk.

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