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An Interesting Chinese Online Auto Play - ATHM

Jun 04, 2021 | Team Kalkine
An Interesting Chinese Online Auto Play - ATHM



Autohome Inc.

ATHM Details

Autohome Inc. (NYSE: ATHM) operates as an online automobile destination in China and offers comprehensive, independent, and interactive tools to automobile consumers, automakers, and dealers. The company generates revenue from 3 segments, namely 1) Media Services, offering targeted-marketing solutions for brand and sales promotion; 2) Leads Generation Services, which provides dealers with used car listing services, and enables them to create their own stores, list pricing, and place advertisements; and 3) Online Marketplace & Others, providing facilitation services for new and used car transactions and other platform-based services. As of June 03, 2021, ATHM’s market capitalization stood at USD 19.32 billion, with 127.35 million American Depositary Shares (ADS) listed and outstanding (each ADS representing four ordinary shares).

Global Offering of Ordinary Shares: On March 15, 2021, the company closed a global offering of 24.74 million ordinary shares at an offer price of HKD 176.30 per share (USD 90.83 per ADS, based on an exchange rate of USD 1.00 / HKD 7.7642), for total gross proceeds of HKD 4.36 billion. ATHM intends to use these proceeds for funding its technology and product development, incubation of new business, and general corporate purposes.

Q1FY21 Results: The company reported an uptick of 19.07% in total revenue to RMB 1.84 billion in Q1FY21 (ending March 31, 2021) compared to RMB 1.55 billion in Q1FY20, driven by a 73.99% increase in revenue from the Online Marketplace segment. Net income for Q1FY21 was RMB 631.11 million for Q1FY21, as compared to RMB 587.26 million reported in Q1FY20.

Key Risks: In FY20, the company’s top five automaker customers contributed 22.7% of its media services revenue. As a result, the loss of even one of these customers can adversely affect ATHM’s results of operations. Further, prolonged frictions between the US and China, and the recent passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case the US authorities are unable to satisfactorily audit the company for three consecutive years) expose the stock to significant political and regulatory risks. Though a solution to the standoff could be negotiated in the medium term (before the earliest possible delistings begin in 2024), the companies that might not be able to fulfill the revised standards are at risk.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ATHM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ATHM has declined by 33.12% in the past 3 months and is currently trading close to the lower end of the 52-week range of USD 73.00 to USD 147.67. The stock is currently trading below its 200 DMA level. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 87.03. Considering the correction in the stock price in the past 3 months, the demand for online automobile service platform, strong financial performance, and significant growth potential, we recommend a “Buy” rating on the stock at the closing price of USD 73.63, down by 1.89% as of June 04, 2021.

* The reference data in this report has been partly sourced from REFINITIV.