Sohu Stock rating from "overweight" down to "neutral"

The following is the full report:

In the brand advertising business uncertain environment, Sohu's advertising business embodies a good trend. Due to the "Tianlong eight" new information to prepare for the launch, Sohu gaming business in the third quarter is likely to be affected.

-Continue to focus on martial arts games

As an online gaming company, Sohu's game internal research and development and operation have been proved, especially martial arts games, such as "Tianlong eight". Sohu recently won the 10 of Jin Yong's martial arts novel authorization, which will help Sohu future game product line. We anticipate that in the mobile game strategy, Sohu will take advantage of the professional in the field of martial arts game.

-Brand advertising rebound

Although the overall outlook for the brand advertising market is weak, Sohu's advertising business has achieved a year-on-year growth rate of over 40% in the first half of this year. This may be due to: 1 The lower base of the same period of 2012, 2 the rapid growth of video and real estate advertising. We believe that this trend will continue in the second half of this year.

-Stable video advertising growth

Video ads in the second quarter of the year-on-year growth rate reached 70%. Revenue from "China's good voice" will be credited mainly to the second half of 2013, so video advertising revenues will grow rapidly in the second half of the year.

-Maintain a "neutral" rating with a target price of 66 USD

Our valuation is based on: 1 Portal advertising business, 2014 non-US GAAP forward-looking earnings 10 times times; 2 Sogou business, 2014 forward-looking market sales rate of 2.5 times times, 3 video advertising business, 2014 prospective market sales rate of 3 times times; 4 online gaming business, in addition to cash, 2014 forecast P/E of Non-US GAAP 5 times times 5) mobile value-added services, 2014 non-US General accounting standards forward earnings multiples 8 times times. Our target share price considers the revenue contribution of the good voice of China and the likely slowdown in the growth of the online games business. Possible risks include the weakness of the advertising business and the performance of the video business.