1Q17 results miss expectation
Beijing Bashi announced 1Q17 results: Revenue was Rmb857mn, up 17.3% YoY; net profit attributable to shareholderswas Rmb18.80mn, down 25.1% YoY, or Rmb0.05 per share. Earnings growth missed expectation due to downsidesurprise in driving school business’ revenue and profit.
Trends to watch
Slight drop in advertising business; auto service maintained solid growth. Revenue from the ad business slid11% YoY in 1Q17. We expect the ad unit to generate stable and larger profits in 2017 given the lower amortized costsafter the renewal of ad contracts. Revenue from 4S stores rose 30.3% to Rmb658mn. Specifically, auto rental anddismantling services grew 22% and 43%. We expect Beijing Bashi’s auto service unit to maintain robust growth in 2017on the recovery of the macro economy.
Charging stations for electric buses likely to contribute incremental earnings in 2017. In 2016, thecompany built 20 charging stations, 155 bus chargers and 34 public chargers to be put into operation in 2017. BeijingBashi plans to build >400 bus chargers this year. Beijing Public Transport Group will further promote electric buses,which might reach 12,000 units by 2020. EV charging facilities could become one of the company’s major revenuedrivers from 2018.
Policy headwinds led to sluggish performance in driving school business. In 1Q17, revenue fell 26.0% YoYand gross margin dipped 7ppt. Enrolment in the driving school continued to decline due to policy headwinds, resultingin falling revenue and gross margin. The driving school business is unlikely to improve in the near term, in our view.
Earnings forecast
Given the sharp decline in revenue and gross margin at the driving school, we lower our earnings forecasts 16%from Rmb0.4 to Rmb0.33 per share for 2017 and 10% from Rmb0.52 to Rmb0.47 per share for 2018.
Valuation and recommendation
The stock is trading at 41x/29x 2017~2018e P/E. Given the downside earnings surprise, we maintain BUY, butlower TP 6.4% to Rmb16.24, implying 20.21% upside room. Our SOTP-based target market-cap is Rmb6.55bn.
Risks
Promotion of electric buses slows and utilization of EV chargers declines; registration at driving school shrinks further.
