Earnings in line

Haili Metal One announced 2016 results: revenue was Rmb2.634bn, up 27.56% YoY; net profit attributable toshareholders was Rmb233mn, up 218.30% YoY, or Rmb0.41 per share. It also preannounced 1Q17 net profit to rise145~175% YoY to Rmb81.22~91.16mn. After tapping into consumption finance via two small loan firms, Haili alsooptimized the structure of the traditional parts manufacturing to boost gross profit.

Trends to watch

Revenue/net profit from Union Mobile Finance +13.48%/+27.53% YoY to Rmb793mn/Rmb225mn. （1）SMS volume by mobile information service exceeded 100bn with Rmb113mn revenue consolidated, indicating rapidmomentum despite the overall segment sluggishness. （2） Full-year revenue from telecom operator billing & accountingservice reached Rmb124mn, of which Rmb50.80mn was consolidated; （3） Full-year transactions via third-partypayment jumped 125% YoY to >Rmb900bn （Rmb145mn consolidated）。 Transactions via overseas payment hitRmb1.3bn after establishing cooperation with over 30 vendors. （4） In 2016, revenue from big data business surged732.45% YoY to Rmb43.10mn thanks to breakthroughs in data resource, technical platforms and applications. （5） Byleveraging the vendor and data resources as well as its own risk control system, the small loan business is expected tosee progress in 2017 and 2018.

Revenue/net profit from parts business +10.07%/14.80% YoY to Rmb2.266bn/Rmb84.01mn. （1） Autoparts revenue rose 18.42% YoY to Rmb1.610bn thanks to the optimized business mix and focus on the PV market. （2）Home appliance parts recorded a 14.06% revenue decline with gross margin up 1.98ppt YoY to 11.82% thanks tocontinued transformation.

Earnings forecast

We maintain our 2017/18e net profit forecast at Rmb456mn/Rmb580mn, implying fully-diluted net profit ofRmb0.80/Rmb1.02 per share and YoY growth of 95.0%/27.0%.

Valuation and recommendation

The stock is trading at 39x2017e P/E. We maintain our BUY rating and Rmb36.18 target price, implying 14.60% upside.

Risks

Internet finance and parts business transformation disappoint.