Investment Highlights:
Bewinner, a time-honored value-added service provider in thetelecom space, is seeking transformation to an integrated mobileInternet service provider. The Internet information service subsectoris taking off on diversifying demand. In addition to improving profitabilityof traditional businesses through resources consolidation, the Companyalso leverages its abundant industry expertise and extensive channelresources to build up first-move advantages in emerging fields such astraffic monetization, and further strengthens combo of its mobile Internetbusinesses through the industrial base project, in order to become an“integrated mobile Internet service provider”. Amidst transformation, itcurrently derives 50% of revenue from emerging businesses, signalizinggrowth of the game and traffic monetization businesses is entering thefast lane. We expect its earnings to beat market estimate in future.
Efficiency of traditional businesses is picking up: decline in thevalue-added service business started to ease, and video and gamebusinesses are gaining traction. Revenue from value-added servicebusiness slipped 1.2% YoY in 2015, and we predict the decline to stayat single digit during 2016~18E. In addition, the Company terminatedsome meagerly profitable game projects, and consolidated the gameand video resources: (i) mobile video: it cooperates closely with CCTVInternational and China Mobile, operates the sports and animationchannels of wap.cmvideo.cn, and benefits from popularization of 4Ghandsets and live broadcast of sporting events; and (ii) mobile game: itfocuses on international intellectual properties (IP), and has obtainedthe publishing right to many blockbuster games such as EA, King etc.We expect profit from the game and video business to stabilize andrecover in 2016E.
New business outstrips estimate: data traffic will likely become theCompany’s new growth driver. Leveraging solid strength in channelnetwork and business expertise, the Company made inroads into themobile Internet access field, and became the only A-share listedcompany covering both WiFi and 3G/4G data traffic businesses.Through cooperation with China Telecom, it drove the WiFi resellingbusiness to cumulatively more than 10mn hours, representing thelargest share in the third party market. Additionally, its 3G/4G datatraffic distribution business also grew rapidly thanks to cooperation withInternet giants, and the Company developed customized trafficmarketing plans to meet demand of the financial, Internet sectors etc.Thanks to a high starting point and extensive layout, the Company hasbuilt up first-mover advantage in the data traffic field. We predict its datatraffic business to register a revenue CAGR of 68% during 2015~18E,becoming its new growth driver.
Industrial base aims to explore the makerspace model and become an incubation platform formobile Internet companies. The Company’s industrial base is located in the high-tech industrial park ofNanjing, and covers a usable area of 80,000 square meters. We predict occupancy rate of the industrialbase to reach 60% by end-2016, and annual rental income to exceed Rmb70mn after all of propertiesare rent out. Moreover, the Company actively explores the makerspace model and is looking forbusiness cooperation with and financial investment in start-ups, which could yield remarkable synergieswith its core business through the industrial base project, in order to accelerate organic and inorganicdevelopment.
Risks: 1) Adjustment of the income settlement policies, fast deterioration in traditional value-addedservices; 2) rise in mobile game publishing cost, slower-than-expected increase in the number of gameusers and revenue; 3) lower gross margin in data traffic business, and slack promotion efforts.
Earnings estimate, valuation and investment rating: We believe the Company is embracing a turningpoint on its development path, thanks to accurate and clear transformation strategies. Given that (a)mobile videos and data traffic businesses are expected to drive an upturn in earnings and (b)development of the industrial base will lend stronger support to its cash flow, we maintain the Company’s2016-17E EPS forecast of Rmb0.21/0.34 and project its 2018E EPS to be Rmb0.43. Considering itssmall capitalization, asset-light business model, low equity concentration and the huge potential drivenby business transformation and development, our conservative estimate puts the Company’s targetmarket cap at Rmb5.0bn-plus, implying a fair price of Rmb20. Reiterate OVERWEIGHT rating.
