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Online property:Long winter coming;downgrading SFUN and WUBA

类型:投资策略  机构:德意志银行   研究员:德意志银行研究所  日期:2017-01-09
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Online property segment struggling in the weak property market

    Both the online property transaction business and the related listing business are suffering from the cold property market. Continuing strict policies have frozen transactions and hurt the desire of property agents to spend. We expect this weak market to last for at least six months. We downgrade SFUN (from Hold to Sell) and WUBA (from Buy to Hold) to fully incorporate this risk.

    Property market is entering a long winter for at least six months, we believe

    Starting from mid-2016, the government introduced a series of strict policies to manage property prices, limiting property transactions. The continuing policies capped property transactions in most cities. According to the DB property team, the weakness in the property market will last until at least late 2017.

    Transactions service shrinks severely; listing also impacted

    As a result, the property transaction volume in the top 10 cities decreased 25% MoM sequentially in October. The listing business is not linear to the transaction business, but has also been negatively impacted by the market weakness. We believe SFUN’s transaction business will decline 32% QoQ in 4Q16, while SFUN and WUBA’s property listing business will only drop 10-15% QoQ. For 2017, we estimate SFUN’s transactions revenue will decline 7% YoY. Listing revenue will decline 5-10% YoY for both SFUN and WUBA.

    Protecting margin is top priority for 2017

    We expect both SFUN and WUBA will scale down the property business to improve margin in 2017. We estimate SFUN’s non GAAP operating margin will rise to +1% vs. -14% in FY16E. We estimate WUBA’s non-GAAP operating margin will improve 761 bps YoY to 15%. This solid net income could also support its share price under the macro headwind.

    SFUN suffers from large exposure. WUBA has other verticals to offset

    SFUN is a pure online property company. The previous main focus transaction business suffered most from the strict policies. It will need more time to cut the team, rebalance the business focus and restructure the team in our view. Marketing and listing business will likely continue to lose market share to other players with diversified channels. WUBA has 57% revenue coming from non-property verticals. We believe the 50%+ YoY growth in job and auto verticals (53% of revenue in total for FY17E) could partly offset property market risk.

    Downgrading SFUN to Sell, WUBA to Hold

    We downgrade SFUN to Sell and cut the TP to USD2.6 to reflect our concern on the continuing weakness in the property segment and the risks of SFUN’s rapid scaling down. There is no solid support for the share price because of the lack of net income visibility. We thus cut FY16-18E revenue by 22%/39%/38% and adjust non-GAAP OPM by -4ppts/+1.7ppts/+3.3ppts, respectively. Upside risks: (1) favorable property policy; and (2) mergers and acquisitions.

    We downgrade WUBA to Hold and cut the TP to USD36 to reflect our concern on the continuing weakness in the property segment. Meanwhile, we believe the risk is mostly priced in, considering the 20% price drop after its 3Q16 results release and current 15x FY18 PE. We cut FY16-18E revenue by 2%/13%/21% and adjust non-GAAP OPM by +47bps/+59bps/+140bps, respectively. Risks: (1) favorable property policy (2) competition from news feed apps.

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