Goody is one of the earliest and largest plastic pipe producers inChina. Against the mounting competition pressure in its originalmarket, the Company gradually transforms to the sports andtourism market to cultivate new growth drivers. On 1 June, 2016, itannounced that it has reached in-depth strategic cooperation withFBLIFE.COM and Xiangdi Yike to tap huge potential in the “sports +tourism” market. Under the program, it will （a） buy a 5% stake ofFBLIFE, （b） cooperate with the other two companies to set up amotocross event management company, and （c） build a campinvestment company with the other two companies. This is forecast todrive the Company into a new growth stage. In particular, the vastpotential in China’s sports and tourism market, driven by both policytailwinds and growing demand, lays a solid foundation for closecooperation between the Company, FBLIFE and Xiangdi Yike.
FBLIFE has abundant IP resources for monetization. FBLIFE is aconglomerate engaging in SUV club, industry media, shopping guidewebsite, vertical social networking, event operation etc. Through 16years of dedication to the SUV auto culture field, it has gathered 6mnhigh-net-worth members, set up a motocross event platform andaccumulated abundant premium motocross event IPs. For instance,170k members attended the “Gathering of Cross-Country Heroes inAlxa” event FBLIFE organized in 2015. Assuming per memberconsumption is Rmb10,000, total spending during the event should havereached RMB1.7bn. FBLIFE has absolute leading advantage in the SUVauto culture field and extremely wide moat in the motocross eventmarket （publicity of event information, development of rules, judges,organization, publication etc.）。 We expect the abundant resources ofFBLIFE will be gradually monetized after the core event IPs andoperation resources are injected into Goody.
Xiangdi Yike may become an asset integrator in Chinese auto campmarket. In Nov 2015, Xiangdi Yike reached strategic cooperation withthe tourism and culture company of Guizhou province on building 15~18auto camps across Guizhou province. We believe （i） it will receive alarge number of cooperation offers as a pioneer in the auto campoperation field, suggesting huge opportunity for resources integration; （ii）the management team of Xiangdi Yike has rich experience in hotelsmanagement, scenic spot management and cultural creative. We expectXiangdi Yike to extend business from auto camps to tourisms route andtourism culture in future.
Infrastructure construction such as sponge city （i.e. buildingrainwater collection and storage facilities in cities）， undergroundpipeline etc. bodes well for recovery of Goody’s core business. （i）Goody has passed the slack management period during equity transferprocess, and we expect it to boost its product profit margins by strengthening corporate managementand improving the incentive mechanism going ahead; （ii） its expenses are stabilizing; （iii） Goody hasengaged Adfaith to offer corporate management consulting service, in an effort to improve itsmanagement; （iv） it promotes the ERP project and OA system across the headquarters, branches andsubsidiaries to implement informatization. The above efforts are tipped to fuel recovery of the Company’splastic pipeline business.
Potential risks: Drastic decline in profitability of the plastic pipeline business; slow development ofmotocross event business and monetization of the event IPs; long payback cycle for camp investment,and long time for the team to grind in.
Earnings estimate, valuation and investment rating: FBLIFE is expected to focus on operation of itsabundant motocross event IPs in the next few years （it has delegates or partially transfer the right ofsome IPs to capable partners, and the Company is continuously offering media, advertising, driver andstandards support to IPs）。 This will boost development of the motocross event management subsidiary.
Assuming the motocross event business starts to make earnings since 2017 and camp business starts tocontribute profit since 2019, we project the Company’s 2016~18E EPS to be Rmb0.13/0.25/0.35. Its lastshare price of Rmb14.85 translates to 60x 2017E PE. Considering the FBLIFE’s prominent position in themotocross event field and its huge potential from IP resources monetization, we expect the Company togain rapid growth as the most important IP monetization platform of FBLIFE, and initiate coverage withan OVERWEIGHT rating. Our TP is Rmb17.4, equivalent to a market capitalization of Rmb6bn.
