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On September 28, Liaison Interactive announced a planto acquire a 55.70% stake in Newegg for US$264mn incash (equivalent to Rmb1.77bn); the deal will also give LiaisonInteractive voting rights.

Comments

Acquisition target is a leading US e-commerce platformoperator and the deal sees Liaison gain a valuable e-commerceretailer at a relatively low price.

Deal enables two strong parties to create significantsynergies in funding, sales channels and products:

Deal provides Newegg with an important fundingsource; it plans to leverage the ample funds to strengthencore products and further expand business scale.

Newegg could become an important platform forLiaison to monetize its user traffic, and will represent akey part of the latter’s “traffic + e-commerce” strategy.

Liaison has >100mn new active users p.a., and could directall its users to Newegg’s platform to raise ARPU andstrength its traffic portal value.

Newegg can effectively fill Liaison’s gap in theonline sales channel market and improve its smarthardware ecosphere. Newegg will become an importantplatform for the company to sell its hardware products.

Valuation and recommendation

Maintain 2016/17e net profit at Rmb498mn/704mn(+57.5%/+41.5% YoY). Considering the contribution ofNewegg’s fair value, Liaison Interactive’s major business linesshould have a market value of Rmb31.8bn, implying 45x 2017eP/E. Maintain BUY and TP of Rmb30.

Risks

Slower-than-expected progress in game projects.