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58.com (WUBA.US) Summary

Core Content

58.com (WUBA.US) has been actively expanding its business through strategic acquisitions and diversification. On 21 April 2015, the company announced the acquisition of a 43.2% stake in Ganji, valued at US$3.6bn, through the issuance of 34mn ordinary shares and US$412.2mn in cash. This follows its 100% acquisition of Anjuke in March 2015. The acquisitions are part of WUBA's strategy to consolidate its position in the online marketplace and reduce competition pressure, especially in the O2O (online-to-offline) sector.

Main Views and Key Information

Strategic Acquisitions

• Ganji Acquisition: WUBA acquired 43.2% of Ganji, reducing competition and enhancing its O2O capabilities.
• Anjuke Acquisition: WUBA previously acquired Anjuke at a valuation of US$267mn, which is significantly lower than Anjuke's pre-IPO valuation of US$1bn.
• Market Share: The integration of the two largest O2O players has resulted in WUBA and Ganji holding over 70% of the market share in China's O2O sector.

Diversified Strategy

• WUBA's strategy includes traditional yellow pages, property rental, recruitment, used car (auto business), and O2O (58 Dao Jia).
• The company is aggressively investing in housing services and other areas to drive long-term growth, even at the expense of short-term profitability.

Financial Performance

• 1Q15 Revenue: Estimated to range between US$82.0mn and US$84.0mn, representing 70% and 74.1% YoY growth, respectively.
• Market Cap: As of 21 April 2015, the company's market cap is US$8.79bn.
• Valuation Metrics:
  • EV/EBITDA: Not available for 2015.
  • P/E: 159.81 (2014A), not available for 2015.
  • P/B: 6.51 (2014A), 14.92 (2015F).
  • Normalized Income: Negative in 2015F, indicating ongoing investment and potential losses.
  • EPS: Negative in 2015F, suggesting continued financial pressure.

Outlook

• The company is expected to achieve 65%+ topline growth and improved bottom-line performance in the future.
• The diversified strategy is seen as a positive move for long-term development in the O2O and other emerging markets.

Market Overview

Stock Market Performance

• Hang Seng Index: Closed at 27,095 on 20 April 2015, down 2.0%.
• H-share Index: Closed at 14,111, down 2.9%.
• CSI 300 Index: Closed at 4,522, down 1.6%.
• Sh Composite Index: Closed at 13,872, down 2.0%.
• Sz Composite Index: Closed at 2,094, down 2.0%.
• Nikkei 225: Closed at 19,634, down 0.1%.
• Korea KOSPI: Closed at 2,147, up 0.1%.
• Taiwan TWSE: Closed at 9,553, down 0.2%.
• India Sensex 30: Closed at 27,886, down 2.0%.
• US Indices:
  • DJIA: 18,035, up 1.2%.
  • S&P 500: 2,100, up 0.9%.
  • NASDAQ: 4,995, up 1.3%.
  • UK FTSE 100: 7,052, up 0.8%.
  • Germany DAX: 11,892, up 1.7%.
  • France CAC40: 5,188, up 0.9%.

Other Indicators

• WTI Oil: $56.4/bl, up 1.1%.
• Gold: $1,194.6/troy oz, down 0.7%.
• Copper Futures: $6,060.0/metric ton, no change.
• Aluminum Futures: $1,815.0/metric ton, no change.
• Reuters/Jefferies CRB Futures: 222.7, down 0.5%.
• Baltic Dry Index: 598.0, up 0.2%.
• UST Yield 3m: 0.01%, down 0.01%.
• UST Yield 10y: 1.89%, up 0.024%.
• HIBOR 3m: 0.39%, up 0.004%.
• USD LIBOR 3m: 0.28%, no change.

Shareholdings and Valuation

Shareholdings

• Top Ten US Listed Companies:
  • Petrochina: ADR cls HK$ eqv. 10.04, up 0.74%.
  • China Mobile: ADR cls HK$ eqv. 110.56, up 2.56%.
  • HSBC: ADR cls HK$ eqv. 70.54, up 0.13%.
  • China Life: ADR cls HK$ eqv. 37.44, up 0.79%.
  • Sinopec Corp: ADR cls HK$ eqv. 6.87, up 0.38%.
  • CNOOC: ADR cls HK$ eqv. 13.02, up 1.28%.
  • Hutchison Whampo: ADR cls HK$ eqv. 111.83, up 0.03%.
  • China Telecom: ADR cls HK$ eqv. 5.63, up 0.39%.
  • Cheung Kong: ADR cls HK$ eqv. 168.99, up 2.73%.
  • Sun Hung Kai: ADR cls HK$ eqv. 124.78, up 0.79%.

Valuation Table

• 2012A: Turnover USD 87.1mn, Net Profit USD -30.4mn, EPS USD -0.92, EV/EBITDA -.
• 2013A: Turnover USD 145.7mn, Net Profit USD 19.6mn, EPS USD 0.26, EV/EBITDA 149.74, P/E 147.46, P/B 13.83.
• 2014A: Turnover USD 265.0mn, Net Profit USD 22.6mn, EPS USD 0.26, EV/EBITDA -, P/E 159.81, P/B 6.51.
• 2015F: Turnover USD 474.2mn, Net Profit USD -107.0mn, EPS USD -1.51, EV/EBITDA -, P/E -, P/B 14.92.

TMT Sector Highlights

Key News

• Aliyun: Building China's first "Cloud Hospital" in partnership with Xi'an International Medical Investment and DHC Software.
• E-commerce Complaints: Increased by 174.4% in Q1 2015 to 24,100 cases.
• Kalading: Secured $10M in funding for its on-demand auto repair startup.
• Alibaba Fine: Fined $129,000 for pricing violations.
• Real Estate Firm Join-In: Acquired 51% of Wingtech, a handset maker.

Summary

The TMT sector in early 2015 saw a mix of developments and challenges. While some companies like Aliyun and Kalading made strategic moves to expand their offerings, others faced regulatory issues. The overall stock market showed varied performance, with some indices in Asia and Europe experiencing minor declines or increases. WUBA's strategic acquisitions and diversified approach are expected to drive long-term growth, despite current financial pressures.