Investment company Day Hao Capital (T.h.capital) released investment Report today

Investment company Day Hao Capital (t.h.capital) today issued an investment report to maintain the Nyse:yoku "buy" rating, the target share price from 28 U.S. dollars to 33 dollars.

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

Youku's third-quarter results were mixed in fiscal year 2013, with revenues outpacing Wall Street expectations, while diluted earnings per share were slightly lower than Wall Street's expectations, mainly because Youku potatoes adjusted the content-cost amortization policy. In a conference call, Youku said the company is implementing a diversification strategy in its content and distribution channels, which we believe will help improve profitability. To this end, we maintain the Youku "buy" rating, the target share price from 28 U.S. dollars to 33 dollars.

Content diversification is necessary: in all of China's online video service providers, Youku is the only video company without financial support from the parent company. Competing on the content could be the worst model for Youku potatoes, as the cost of content has been elevated by rivals such as Baidu, Sohu and Tencent. Youku has no capital advantage, so there is no choice but to implement a diversification strategy.

Content diversification drives traffic growth and improves profitability: Youku's content diversification will reduce reliance on mandated content and rely more on homegrown content, a cost-efficient way to increase traffic. Compared with the authorized content, the self production content has higher ROI and higher profit margin.

Accelerating mobile popularity will also drive profit margins: Youku is aggressively promoting mobile apps, and we believe that Youku has made great achievements in this regard. Our data show that, as of October 25, Youku's mobile apps have been downloaded 581 million times. In the third quarter, about 3% of Youku's revenue came from mobile channels. Mobile traffic has a higher profit margin than a PC. We expect that, based on non-US GAAP, the 2014 operating profit margin for Youku will reach 0.6%, 2015 will reach 2.5%, and this year is expected to be 14.3%.

Revenue forecasts for the quarter: Youku potatoes expect the fourth-quarter revenue to reach 860 million yuan to 900 million yuan, up 35% to 42% per cent year-on-year, below Wall Street's expected 921.5 million yuan. Advertising revenue will reach RMB 780 million to 820 million yuan, an increase of 36% to 43%, below our expectations.

Third-quarter results: Net revenue of 140.2 million U.S. dollars, slightly higher than the Wall Street expected 139.7 million yuan, and our expected 138.7 million yuan. Based on US general accounting standards, the loss of 0.21 U.S. dollars per share, while Wall Street is expected to be a thin loss of 0.06 dollars per share, we are expected to be diluted per share loss of 0.07 U.S. dollars. If the impact of the content-cost amortization policy is excluded, Youku's third-quarter deficit of $0.02 per share is in line with our expectations.

Adjustment of performance expectations: We will be a cool potato in the quarter from 152.7 million U.S. dollars revenue forecast to 143 million U.S. dollars, diluted earnings per share is expected to remain unchanged, to 0.01 U.S. dollars. For the entire 2013 fiscal year, we have reduced our revenue forecast from $498.3 million to $490.8 million, and the projected loss per share is expected to be adjusted from $0.23 to $0.37. As for fiscal year 2014, we have reduced our revenue forecast from $710.1 million to $664.7 million, and adjusted the projected earnings per share from $0.24 to $0.00.

Valuation: We continue to maintain the "buy" rating of the Youku potato stock, which will increase the target share price from 28 US dollars to 33 dollars.