Stock ratings remain unchanged during the gathering period

J.P. Morgan released its research report today, keeping the Nasdaq:yy stock rating at "overweight" (overweight) unchanged at a target price of 67 dollars.

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

In the 2013 fiscal year of the quarter, earnings per share (not in accordance with U.S. General accounting standards) of 3.63 yuan, compared to our expected 3.20 yuan high 13%, compared to the average expected by the Bloomberg survey economist 2.86 Yuan High 27%. The main reason for excess earnings per share during the gathering period was the strong revenue growth (RMB 612 million, the chain growth of 26%, year-on-year growth of 129%).

In the third quarter of the gathering period, gross profit margin and operating profit margin (not in accordance with US general accounting standards) were 52% and 36% respectively, compared with 49% and 36% in fiscal year 2013, and 2012 and 48% in the quarter.

Management estimates that the first quarter of the 2014 fiscal year's revenue was RMB 625 million to RMB 635 million, higher than our previous forecast of 10%.

-YY Music service Drives quarterly revenue growth:

The main impetus for the strong revenue growth in the gathering era came from the revenue from YY music services, which reached 337 million yuan in the fourth quarter (the chain grew 47%, up 217%), and accounted for 55% of the total revenue. Significant growth has been achieved in both the number of paid subscribers and average per user income. We anticipate that YY music service will continue to be the main driving force for the revenue growth in the 2014 years.

-Use game development opportunities other than web games:

Although the overall growth rate of the web game market is slowing, the 2013-year web game revenue of the gathering era has achieved more than 80% year-on-year growth. We attribute this performance to the platform advantage of the gathering era, which allows the company to provide content to its large and growing user base (the number of monthly active users in the fourth quarter is 92 million). In addition, the gathering times of users more entertainment-oriented, so it may bring a higher rate of web game conversion.

In addition to web games, the gathering era has also begun to enter the large multiplayer online games and mobile gaming market.

-The online education platform is still in the formative stages:

Similar to the web game and music business, the goal of the gathering era of education services is to provide an online platform for third party teachers and students. In the long run, the gathering age will strengthen investment in educational infrastructure, such as high-quality teacher resources, to ensure that it provides a good user experience.

Initial feedback indicates that after the introduction of the "100 Education" brand, this platform in the teacher's human tolerance is rising. But for this online education platform, the focus for 2014 years will be commercialization.

-profit margin pressures from investment activities are expected to be limited:

The management of the Gathering era defines 2014 as an investment year. We believe that a large part of the investment will be spent on: 1 user access and online education and other relatively new business, 2 research and development related personnel.

-Maintain an "overweight" rating:

We are looking at the performance expectations of the gathering time.

Investment theme:

From the commercial stage and profitability, we think that today's gathering time is similar to Tencent (0700.HK) in 2005.

We believe that the similarities among the two companies include: the size of the user base, social communications and customer-facing revenue models. As a result, we expect margins to rise in the gathering era, as Tencent did between 2005 and 2010, because the share of marketing spending, infrastructure and staff-related costs will fall in total revenue. We estimate that the operating profit margin for the 2014 gathering period was 27%, 2013 was 25%, compared with 2012 13%.

Valuation：

We maintain the "overweight" rating of the stock at the same time, with a target price of 67 dollars. The assumption of the target price set for the gathering time is that: in 2014, the United States depository receipts were fully diluted, with a combined annual growth rate of $2.40 per share of US depository receipts from 2014 to 2016 and a peg value of 0.9 times times. We use Peg as the main valuation method because it balances the growth outlook with the price/earnings ratio.

The target price we set for the gathering period means that it is 28 times times the earnings per share expected in 2014 and 21 times times earnings per share in 2015. 0.9 times times the peg value is lower than Tencent (1 time times) and other traditional portals.

We also used the cash flow discount method to estimate the time of the gathering, with a target price of USD 77. In the use of this valuation method, we make the main assumptions include: 1 long-term risk-free discount rate of 4%; 2 in the Chinese market, the equity risk premium is 7%;3) The 1.1;4 discount rate is 12%;5) The final growth rate of 3%.

-Target price downside risk: execution risk; increased competition from other platforms; marketing spending is higher than expected.