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We take a look at the quarterly results of Autohome (ATHM) listed on the New York Stock Exchange (NYSE) for the period ending September 2018. They are the leading online destination for automobile consumers in China.
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About Autohome (ATHM)
Autohome Inc. (NYSE: ATHM) is the leading online destination for automobile consumers in China. Its mission is to enhance the car-buying and ownership experience for auto consumers in China. Autohome provides professionally produced and user-generated content, a comprehensive automobile library, and extensive automobile listing information to automobile consumers, covering the entire car purchase and ownership cycle. The ability to reach a large and engaged user base of automobile consumers has made Autohome a preferred platform for automakers and dealers to conduct their advertising campaigns. Further, the Company’s dealer subscription and advertising services allow dealers to market their inventory and services through Autohome’s platform, extending the reach of their physical showrooms to potentially millions of internet users in China and generating sales leads for them. The Company offers sales leads, data analysis, and marketing services to assist automakers and dealers with improving their efficiency and facilitating transactions. As a transaction-centric company, Autohome operates its “Autohome Mall,” a full-service online transaction platform, to facilitate transactions for automakers and dealers. Further, through its website and mobile applications, it also provides other value-added services, including auto financing, auto insurance, used car transactions, and aftermarket services.
So to the numbers we go
- Net revenue: $274 million
- Gross profit: $243.6 million
- Operating profit: $101.7 million
- Net income: $99 million
- Net profit margin: 36.1%
- Diluted earnings per share for the quarter: $0.83 (together with their guidance for the 4th quarter places them on a expensive PE ratio of 18.9)
- No dividend declared for the quarter
- Cash per share on the balance sheet: $0.59
So any comments or guidance from management on the results?
The group released the following comments as well as guidance on their expected 4th quarter earnings
Mr. Min Lu, Chairman of the Board of directors and Chief Executive Officer of Autohome, stated, "We had another great quarter with revenue again exceeding our original guidance. With the successful implementation of our "4+1" strategy driving all of our business pillars, we have initiated strategic upgrade in building next generation auto ecosystem with AI, big data and cloud. We plan to continue to deepen our user engagement across our media platform, offer innovative intelligent marketing solutions driven by data technology, expand auto-financing options and partnerships, and accelerate our transaction platform. Given our consistent and repeated success in the past, as well as our leading position in the automotive industry, we remain committed to further strengthen our leadership, enrich our ecosystem, advance our cutting-edge technology, and enhance our competitiveness." Mr. Jun Zou, Chief Financial Officer, added, "We are pleased with our progress so far in 2018 as we delivered resilient revenue growth and an even greater increase in net profit despite the softening macro environment for automobile sales in China. This performance was primarily driven by our core business share gains, continued focus on cost control, while ensuring the success of our new initiatives. We look forward to the opportunities ahead for Autohome as we further solidify our position as the automotive industry's most trusted marketing and technology partner.
Mr. Min Lu, Chairman of the Board of directors and Chief Executive Officer of Autohome, stated, "We had another great quarter with revenue again exceeding our original guidance. With the successful implementation of our "4+1" strategy driving all of our business pillars, we have initiated strategic upgrade in building next generation auto ecosystem with AI, big data and cloud. We plan to continue to deepen our user engagement across our media platform, offer innovative intelligent marketing solutions driven by data technology, expand auto-financing options and partnerships, and accelerate our transaction platform. Given our consistent and repeated success in the past, as well as our leading position in the automotive industry, we remain committed to further strengthen our leadership, enrich our ecosystem, advance our cutting-edge technology, and enhance our competitiveness." Mr. Jun Zou, Chief Financial Officer, added, "We are pleased with our progress so far in 2018 as we delivered resilient revenue growth and an even greater increase in net profit despite the softening macro environment for automobile sales in China. This performance was primarily driven by our core business share gains, continued focus on cost control, while ensuring the success of our new initiatives. We look forward to the opportunities ahead for Autohome as we further solidify our position as the automotive industry's most trusted marketing and technology partner.
"Autohome currently expects to generate net revenues in the range of RMB2,110 million ($307.2 million) to RMB2,130 million ($310.1 million) in the fourth quarter of fiscal year 2018, representing a 31.6% to 32.8% year-over-year increase. If excluding direct vehicle sales, this represents a 32.0% to 33.3% year-over-year increase. This forecast reflects the Company's current and preliminary view on the market and its operating conditions, which are subject to change. Starting on January 1, 2018, Autohome adopted a new revenue recognition accounting standard ASC 606. Under ASC 606, the most significant impact on Autohome will be the change of presentation of value-added tax from gross basis to net basis. The above guidance reflects revenues net of value-added tax under the new revenue recognition standard. If presented on gross basis including value-added tax, the same basis as that for the year 2017, net revenues are expected to be between RMB2,310 million ($336.3 million) to RMB2,330 million ($339.3 million) in the fourth quarter of fiscal year 2018"
So should you buy their shares?
Well if you believe the good times in the Chinese car market will keep rolling then they should be on your shopping list. But Bloomberg reported the other day that new car sales will be declining in China for the first time on a year to year basis in many many years. So optimisim in the automotive sector in China is declining. So investors should be careful when looking for automotive companies operating in China in the hopes of stellar returns.
What follows comes directly from Bloomberg, "Car sales in China declined for a fifth consecutive month, bringing the world’s largest market closer to its first annual drop in at least two decades and piling pressure on carmakers that have relied on the country for growth.
The original Bloomberg article can be found here
What follows comes directly from Bloomberg, "Car sales in China declined for a fifth consecutive month, bringing the world’s largest market closer to its first annual drop in at least two decades and piling pressure on carmakers that have relied on the country for growth.
- Retail sales of sedans, multi-purpose vehicles and sport utility vehicles dropped 13.2 percent to 1.98 million units last month, the China Passenger Car Association said on Thursday. Sales in the first ten months of 2018 fell 2.5 percent to 18.4 million units.
- A slump in China -- where automakers poured in billions of dollars in the past 20 years to bulk up factories -- leaves the industry struggling to find growth anywhere on the planet. Sales in the U.S. and Europe are waning as the rising popularity of car-sharing and ride-hailing services is reducing the need for individuals to buy vehicles.
- Total vehicle sales this year will remain under 30 million units and could drop from 2017, Wu Wei, a National Development and Reform Commission official, said Wednesday. Deliveries of vehicles to dealerships amounted to 28.9 million units last year, rising 3 percent from 2016.
- To stimulate demand, China’s top economic planning body has submitted a proposal to halve the tax on purchases of vehicles with engines no bigger than 1.6 liters, people familiar with the matter said last month. No decision has been made, they said.."
The original Bloomberg article can be found here
Autohome valuation
With the market they operate in, the concerns raised about a slowing automotive in China, the full extent of the trade war between China and the USA not having been revealed yet, we recommend investors being very cautious when investing in this particular market and company. While their net profit margins are very strong, as overheads are relatively low due to the online nature of the business. If demand for the product they selling starts to decline substantially, so will their profits. Based on the financial results provided we value the group at $63.50 a share. And we therefore belief that it is currently over priced and would not recommend investors buy this share at its current price.