Should You Exit This Software and Computer Services Provider - ATHM

Mar 31, 2022 12:00 AM PDT | Team Kalkine
Should You Exit This Software and Computer Services Provider - ATHM


Autohome Inc.

Autohome Inc. (NYSE: ATHM) is the prominent car-buying website in China. It covers the entire car purchase and ownership cycle by providing original and AI-generated material, a large automobile library, and extensive automobile listing information. Automakers and dealers benefit from ATHM's "Autohome Mall," a full-service online transaction platform. ATHM had 127.35 million American Depositary Shares (ADS) listed and outstanding (each ADS representing four Class A ordinary shares). 

Why should Investors make an Exit?

  • Fall in Fundaments: ATHM reported a YoY decline in overall net sales to RMB 7.24 billion in FY21 (ended December 31, 2021) from RMB 8.66 billion in FY20, owing to the ongoing global chip shortage and the elevated price of raw materials, resulting in a decline of dealer's marketing spending. In addition, net income fell to RMB 2.14 billion in FY21 from RMB 3.41 billion in FY20.
  • Decline in Margins: The company's Gross, EBITDA, and Net margins fell dramatically year over year. In FY21, ATHM’s Gross, EBITDA, and Net margins were 85.5%, 24.0%, and 29.6%, respectively, compared to 88.9%, 33.2%, and 39.4% in FY20.
  • Voting Concentration Risk: Yun Chen Capital Caymen, a subsidiary of Ping An Group, owned 49.0% of ATHM's common shares as of December 31, 2020, providing it significant control over the company's activities and limiting the capacity of other shareholders to influence corporate decisions.
  • Regulatory and Political Risk: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent its operations. After the passage of a bill in the US, this could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

ATHM's stock price has been volatile throughout the year and has fallen 29.7% in the past six months, and is currently leaning towards the lower end of its 52-week range of USD 20.49 to USD 102.75. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 26.00.

Considering the current trading levels, a deterioration in margins, drop-in topline and bottom-line, current valuation, and associated risks, we recommend a "Sell" rating on the stock at the closing price of USD 31.80, down 2.4% as of March 30, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing.

1-Year Technical Price Chart (as of March 30, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

* All forecasted figures and industry information have been taken from REFINITIV.