Maintain long-state digital stock overweight rating

JPMorgan released its investment report today to maintain Nyse:gomo's "overweight" rating, but lowered its target share price from $32 to $28.

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

In our view, the financial performance of the State will continue to be under pressure in the short term as the government's crackdown on pornographic content has affected the mobile reading business of digital. In addition, the State digital acquisition of mobile application platform Getjar loss also exceeded expectations. But in the long run, the growth prospects for state digital are optimistic, as the application offerings will resume growth and the mobile gaming business will complement it. In short, state digital as a mobile flow exporter's strategic value has not changed. To this end, we continue to maintain its stock "overweight" rating. Given the recent pressure, we have lowered our target share price from $32 to $28.

Getjar losses led to lower than expected results in the first quarter: based on non-US general accounting standards, State Digital first quarter operating profit is 26% lower than our expectations, mainly by the loss of 6.7 million yuan from the getjar of the impact. Excluding Getjar effects, operating margins are only 3% below our expectations. As the consolidation is not very satisfying, we expect to continue to be affected by Getjar losses in the next few quarters of fiscal year 2014.

Expand Application Distribution Business customer base: We believe that State digital in this area is in the transition phase, that is, from serving a single customer to serve multiple customers. In view of its position as a strategic gateway to overseas markets, we believe that state digital is likely to discuss overseas expansion plans with other Internet companies, except Qihoo. Therefore, we expect the long state Digital 2014 and Fiscal 2015, this part of the revenue contribution will be significantly increased.

Lower mobile reading revenue forecasts: We cut the state digital second quarter and the 2014 fiscal year mobile reading revenue forecasts to reflect the government's net action. But the slump in this segment is likely to be offset by mobile portal marketing, mobile apps and mobile gaming businesses.

Valuation: We continue to maintain the "overweight" rating of the state digital stock, but reduce the target share price from 32 US dollars to $28.