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mid-cap

Speculative Bet on This Mid-Cap Communication Stock – ATHM

Nov 25, 2021 | Team Kalkine
Speculative Bet on This Mid-Cap Communication Stock – ATHM

Autohome Inc.

ATHM Details

Autohome Inc. (NYSE: ATHM) is an automotive internet platform that offers interactive content and tools to automobile buyers, manufacturers, and dealers in China. Its operating segments are 1) Media Services, offering targeted-marketing solutions for brand and sales promotion, 2) Leads Generation Services, enabling dealers in creating their online stores, listing pricing and promotional information, placing advertisements, and managing customer relationships, and 3) Online Marketplace & Others, providing facilitation services and other platform-based services for new and used car transactions. As of November 24, 2021, ATHM's market capitalization stood at USD 4.72 billion, with 127.35 million American Depositary Shares (ADS) listed and outstanding (each ADS representing four Class A ordinary shares). 

Latest News:

  • Share Repurchase Program: ATHM launched a share repurchase program on November 18, 2021, under which the firm may buy up to USD 200 million in American depositary shares (ADS) over the next twelve months. The company's proposed repurchases may be made on the open market at current market prices from time to time. It intends to use its existing cash balance to support repurchases.
  • Key Recruitment: On October 08, 2021, ATHM appointed Mr. Bibo Xiang as its new Chief Technology Officer, effective immediately. Mr. Xiang will be in charge of the company's overall technology framework and development roadmap in this role. Mr. Xiao Wang previously held the position.

Q3FY21 Results:

  • Decline in Topline: ATHM reported a YoY decrease of 23.83% in total revenue to RMB 1.76 billion in Q3FY21 (ended September 30, 2021) compared to RMB 32 billion in Q3FY20, attributable to a 53.19% YoY reduction in revenue from the Media services segment.
  • Reduction in Profitability: Net income (attributable to common shareholders) for Q3FY21 was RMB 511.04 million vs. RMB 846.67 million in Q3FY20.
  • Strong Balance Sheet: As of September 30, 2021, the company had cash & cash equivalents (including short-term investments) of RMB 19.18 billion and no outstanding debt.

Risks:

  • Voting Concentration Risk: As of December 31, 2020, Yun Chen Capital Caymen, a subsidiary of Ping An Group, controlled 49.0% of ATHM's common stock, giving it significant control over its operations, which constrains the ability 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 NTM 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's stock price has declined 70.45% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 33.02 to USD 147.67. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 35.77. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 45.41.

Considering the significant correction in the stock price in the past nine months, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 35.91, down 0.80% as of November 24, 2021.