The stock rating of only commodities will remain unchanged in overweight (overweight)

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

The company reported earnings per share (not in accordance with US general accounting standards) of $0.49 in the quarter of 2013, a 1% lower than our expected 0.50 U.S. dollar, but 0.42 dollars higher than the average Wall Street analyst expected. The main impetus comes from continued strong growth in revenue and increased operational efficiency.

Only the fourth quarter net revenue of the goods will be 651 million U.S. dollars (70% year-on-year growth of 117%), compared to our expectations and Wall Street analyst average higher than 9% and 11% respectively, the main impetus from the strong overall order growth (up 102.4%), This growth is mainly due to the positive effects of seasonal factors.

Only goods will be the fourth quarter gross profit margin of 24.5%, the chain Rose 0.3%, an increase of 1.6%; operating profit margin (not in accordance with the United States General accounting standards) also rose 1.2% Year-on-year, up 2.7%, to 5.1%.

– Once again achieving robust quarterly performance and exceeding expectations:

Only the management of the commodities department attributed the robust and more than expected quarterly performance to the strong seasonal factors (such as the winter weather was colder than expected this year). The first quarter of the 2014 fiscal year was expected to have revenues of $640 million to $650 million, with a value of 10% and 19% per cent higher than we expected and Wall Street analysts expected. Only the management believes that the first quarter of the Quarter-on-quarter growth level is the normal seasonal performance, and from the Lok Bee Network merger transaction revenue contribution is insignificant.

-It is expected that the Lok Bee Network and ovation will bring strong medium and long term resultant force:

Potential resultant force will come from: 1 Cross sales opportunity; 2 expansion of the user base: Lok Bee network users concentrated in the High Line city, in contrast, only users of goods will be concentrated in the lower tier cities (the fourth quarter from the first-tier city revenue in the proportion of total revenue accounted for 13%); 3) with the brand partner's bargaining power increased; 4 Long-term profitability increases.

-Margins still have room to rise, but the space may be relatively limited in the near future:

Only the fourth quarter operating profit margin (not in accordance with U.S. General accounting standards) further rise to 5.1%, mainly due to operational efficiency. But management believes that the recent increase in operating profit margins is limited due to the fact that the performance costs (11.2% per cent of the fourth quarter's revenue) are unlikely to make significant improvements in the near term, and that long-term improvements will benefit the use of self-built warehouses and the automation of warehouses; sales and marketing costs ( The absolute value of 4.4% per cent of revenue in the fourth quarter is likely to grow, but the share of revenue in 2014 tends to fall.

Management expects that the acquisition of the Lok Bee net will not have a significant impact on the company's profitability in the near term, and will increase profitability in the long run. Therefore, we expect that the profit margin of the goods will rise moderately in 2014.

-Mobile revenue continues to grow:

Only the fourth quarter mobile revenue growth of 122%, the total revenue in the proportion of 23%, higher than the third quarter of 15%. Management noted that the February 2014 mobile business contribution to revenue accounted for 30%. According to management revealed that the only product will be currently with Tencent (0700.HK) cooperation, will soon join hands in micro-letter platform on the launch of the only goods will flash business.

-Investment Theme:

We believe that the main value proposition of the product as an online inventory clearing channel has not changed. We anticipate that, with the impetus of active user growth, the revenue of the goods will continue to grow steadily in 2014. We believe that the introduction of market models will be a complementary means to enhance the role of traffic commercialization. Revenue from the market model has a high profitability, should be able to continue to improve the profit margin in the next 12 months.

However, we believe that the growth of the market model in the next year or two is likely to be limited, due to the low penetration rate in China's e-commerce population (calculated as 7% per cent of the monthly active users and 2% per day active users).

Valuation：

We maintain the "overweight" rating of the only commodities stock, while maintaining its target price unchanged at $88. We set the target price for the only product is based on, it is expected that its 2014 per-share U.S. depository receipts are fully diluted earnings (not in accordance with the United States General accounting standards) for 2.30 U.S. dollars, 2014 to 2016 for each share of U.S. depository receipts of the composite annual growth rate of 38%, and 1 times times the Peg value ( Ratio of market surplus growth).

We use Peg as the main valuation method, because the valuation method balances the growth outlook with the P/E ratio. The target price we set for the only product will mean 38 times times the earnings per share expected by 2014.

In addition, we also use the cash flow discount law on the only goods will be valued, the result of the target price is 89 dollars. In the use of this valuation method, we make the main assumptions include: 1 long-term risk-free discount rate of 4%; 2 The Chinese market Equity risk premium is 7%;3) The 1.6;4 discount rate is 15%;5) The final growth rate of 3%.

-Target price risk: The competitive situation in China's online flash market has intensified over the medium to long term; over time, user access costs may rise.