2016 results beat expectation

Bright Oceans Inter-Telecom announced its 2016 results:revenue grew 11.15% YoY to Rmb1,331mn; net profitattributable to shareholders grew 22.99% YoY to Rmb130mn,implying EPS of Rmb0.223. The company’s net profit attributableto shareholders is 7.3% higher than our forecast. Its grossmargin rose 4.9% YoY; net profit grew faster than revenue.

Trends to watch

Telecommunications software business expanding fromnetwork management into business management andnew sectors. The company created a full range of businessmanagement solutions and supply-chain & project managementsolutions for sectors outside telecoms sectors.

Network optimization business to keep expanding.

Information security business expands presence outsidetelecoms sector. The company’s information security businessis just getting started and the business has established apresence in telecoms sector.

Steady growth in smart city and smart transportationbusinesses. The company won the bidding for severalsmart-city projects in Beijing, Xinjiang, Shandong and others.

Earnings forecast

As its revenue and net profit in 2016 beat our expectation, weraise our earnings forecast by 5% from Rmb0.23 toRmb0.24 per share for 2017.

Valuation and recommendation

The stock is trading at 56x 2017e P/E. As the market’s riskappetite fell, maintain BUY rating but trim TP by 14.68% toRmb15.40.

Risks

Exploration of clients in non-telecoms sectors disappoints; sharpdeclines in prices of telecoms operators’ network optimizationservice procurements.