Investment positives

We initiate coverage of Haili Metal One (HMO) with aBUY rating and a target price of Rmb36.18.

Why a BUY rating

Internet finance has passed the stage of disorderly

development; HMO’s financial technology business– such as payment and big data – is entering a rapidgrowth stage. The company maintains a good risk controlsystem amid a doubling of transaction volume, and it hasformed a healthy operation model with controllable costs,ensuring the increase of its profit margin.

Telecom operator information service and fee

settlement business steps out of the trough;business data shows value. With the improvement ofbank services, penetration of electronic paymenttransactions and rapid breakthroughs in the SMS platform,more than 70bn short messages were sent in 2015, and theinformation-service business revenue recovered to 2013’s44%, up 72% from 2014.

Transformation of traditional manufacturing

business has paid off, positive to new businessexploration.

How do we differ from the market. We believe thetransaction volume and profit of its payment business will exceedmarket expectations, and the big data business will become animportant profit contributor.

Potential catalysts: 1) Higher-than-promised earnings fromUMF; 2) breakthroughs in the big-data credit check business.

Financials and valuation

In 2016/17/18, we expect EPS to be Rmb0.39/0.78/0.99 and netprofit to be Rmb221mn/443mn/565mn, with a CAGR of 60.1%.

Risks

Tightening regulatory policies; Systemic correction in valuation.