Deutsche Bank maintains SouFun hold rating target price 12.4 USD

Deutsche Bank published a Thursday study that Nyse:sfun SouFun's stock rating to "hold" (Hold) unchanged, while raising its target price from $11 trillion to $12.4, according to the morning News of Beijing time August 8.

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

Second-hand housing is still the most worrying issue; maintain the "hold" rating

-second-quarter results are better than expected, especially profitability:

SouFun second-quarter revenue of 168 million U.S. dollars (17% year-on-year growth, 39% per cent), compared to our forecast of 9%, but the average lower than Wall Street analyst expected 3%, mainly due to second-hand housing listing income growth of 8.5% year-on-year, the first-hand house sales revenue to achieve rebound (increase 26%). Affected by the relative cost of stability, earnings per share are largely in line with Wall Street analysts ' average expectations, but far beyond our expectations. SouFun's 2014 revenue forecast is down from 22.5% to 25% year-on-year growth of 14% to 16%, a 3% lower than average Wall Street analyst forecast, but 11% higher than our forecast.

We expect the performance of deleveraging to be better than expected, with net profit for the second half of the year (not in accordance with US general accounting standards) falling 20% per cent year-on-year, rather than our earlier forecast of a 47% per cent year-on-year decline. In view of the uncertainty of second-hand housing listing, we will maintain the SouFun stock rating in the "hold" unchanged.

-second-year second-hand housing listing revenue will be hit by price reduction:

We expect that the second half of the second-hand housing listing income fell 21 year-on-year decline of 9%, mainly because: 1 price measures will start in the third quarter full impact; 2 Some large regional intermediaries have not yet recovered their inventories on the SouFun platform. We believe that the second-hand housing listing business is still vulnerable to further downside risks, the current soufun is waiting in Shanghai, Hangzhou and Shenzhen and other major cities in the market negotiations results.

More to be wary of, we believe that second-hand housing intermediaries established by the overall bargaining power of the more unfavourable cyclical factors are more worrying. But we expect a weaker bargaining power to bring a limited profit margin to soufun in fiscal year 2014 and 2015.

-Primary house sales revenue rebound; e-commerce competition is still challenging:

First-hand house sales have again scored a strong quarterly increase of 26% per cent year-on-year, largely due to SouFun's leadership in the online and mobile market. The 8% per cent year-on-year growth in E-commerce is still lagging behind the peers, which is consistent with our expectations. We are still predicting that SouFun will take a higher developer discount (through local media spending) in the lower-line city market to gain market share. We expect that the second half of SouFun sales will grow by 15% Year-on-year, with the highest growth in sales services.

-Raise the target price 12.7% to 12.4 USD; maintain the "hold" rating:

We expect that the net profit margin for the second half (not in accordance with US GAAP) will stabilize at 40%, higher than our previous estimate of 30%, as SouFun's cost management performance is good. We remain cautious about SouFun's ability to increase profitability again because the competitive landscape is changing and the bargaining power of second-hand housing intermediaries is enhanced. We are basically keeping the SouFun revenue forecasts for fiscal 2014, 2015 and 2016 unchanged, while increasing their earnings per share (not in accordance with US GAAP) by 26%, 19% and 21% respectively.

We still set the new target price of SouFun to $12.4 (up 13%) based on the peg value of 1 times times, because we adjusted the expected earnings growth rate from 2016 to 22% for the soufun of fiscal year 2014 through 19%. We keep the SouFun stock rating unchanged.

Main risk: Real estate market condition, supply chain risk, competition. (Tangfeng)