SouFun's stock rating remains neutral

Ultra-expected performance: E-commerce revenue rose 84%

Overview：

SouFun's second-quarter performance in fiscal 2013 was better than analysts expected. SouFun's net revenue for the second quarter was $144 million (up 49% from the same period last year), while the higher-sheng group analysts expected 23%. Not in accordance with U.S. general accounting standards, SouFun in the second quarter of each share of U.S. depository receipts for 75 cents (a 58% increase from the same period last year), higher group analysts expect 36%.

SouFun revised its revenue forecast for fiscal year 2013 to $538 million to $548 million (with a value of 26% per cent in the 2012 fiscal year) in line with Goldman Sachs Group analysts ' expectations and the average estimate of analysts surveyed by Bloomberg. SouFun's growth is driven by the growth of E-commerce revenues (up 84% from a year earlier). SouFun in the new market has introduced membership card services, such as Chengdu and Chongqing. SouFun's second-quarter sales growth rate was only 6%, mainly as developers shifted their budgets to the E-commerce market; the year-on-year growth rate for listed services was 147%, mainly due to the growth of institutional subscriber base.

Investment advice:

China's real estate industry is undergoing a consolidation phase, with small developers facing financial challenges, while large companies are cutting sales, general services and administrative spending. By providing brand-based (marketing) and transaction-based (e-business) solutions, SouFun offers customers the flexibility to choose the product portfolio to accommodate structural changes in the market.

In the past two quarters, despite weak demand performance in the second quarter, SouFun's listing services have achieved three-digit growth. The rapid growth in listing services reflects an increase in brokers ' online penetration, which is likely driven by brokers using online stores and "house search" services. SouFun Management also stressed that the company has achieved strong growth in the two or three-tier cities (with revenues rising 60% per cent year-on-year) and that mobile applications have performed well (700,000 daily active users and 20% per cent of total traffic).

We will increase the earnings forecast for each share of fiscal year 2013 to 2015 by 7% to 9% to reflect the strong demand for all its portfolio soufun. Therefore, based on the peg value of 0.75 (the market surplus growth rate), we will raise its 12-month target price from 29 US dollars to 31.5 dollars. SouFun shares have limited upside space, so we keep their stock rating "neutral".

Risk: Changes in the real estate market;