Autohome Inc.

ATHM Details

Autohome Inc. (NYSE: ATHM) is an automotive internet platform based in China. It offers interactive content and tools to automobile buyers, manufactures, and dealers. Its operating segments are 1) Media Services, which offers targeted-marketing solutions for brand and sales promotion, 2) Leads Generation Services, enabling dealers to create their own online stores, list pricing and promotional information, place advertisements, and manage customer relationships; and 3) Online Marketplace & Others, providing facilitation services and other platform-based services for new and used car transactions. As of July 30, 2021, ATHM’s market capitalization stood at USD 12.33 billion, with 127.35 million American Depositary Shares (ADS) listed and outstanding (each ADS representing four ordinary shares).

Management Changes: On July 2, 2021, ATHM announced that its current Chief Financial Officer (CFO) Mr. Jun Zou would resign on July 9, 2021. A hunt for his replacement is currently underway. This follows the May 27, 2021 one relating to the resignation of Mr. Jingyu Zhang as Co-President of the company effective May 31, 2021.

Q1FY21 Results: The company reported YoY growth of 19.07% in total revenue to RMB 1.84 billion in Q1FY21 (ended March 31, 2021) compared to RMB 1.55 billion in Q1FY20, attributable to a 73.99% YoY increase in revenue from the Online Marketplace segment. Strong topline growth reflected in its operating performance, wherein it reported an upside of 8.77% YoY in its adjusted EBITDA to RMB 876.82 million in Q1FY21 compared to RMB 806.16 million in Q1FY20. Net income for Q1FY21 was RMB 631.11 million vs. RMB 587.26 million in Q1FY20.

Key Risks: ATHM’s top 5 customers accounted for 22.7% of its media services revenue in FY20. The loss of any of these key customers could hurt the company’s financials. In addition, ATHM faces direct competition from automotive websites and mobile applications such as BitAuto and Dongchedi and online automobile transaction platforms such as Uxin and Guazi, which could undermine its business interests. Furthermore, as of December 31, 2020, Yun Chen, a subsidiary of Ping An Group, owned 49% of ATHM’s common stock, thus gaining substantial control over its operations. This constrains the ability of other shareholders to influence corporate decisions.

Moreover, the Chinese authorities' recent crackdown on its US-listed businesses and the consequential possibility of stricter rules could dent the company's operations. This is after the 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 cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(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 29.17% in the past one month and is currently trading below its previous 52-week range of USD 45.42 to USD 147.67. The stock is currently trading far lower than its 50 and 200 DMA levels, and its RSI Index is 21.77. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 61.24. Considering the correction in the stock price, the demand for online vehicle service platforms, solid financial performance, tremendous growth potential, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 45.30, down 5.66% as of July 30, 2021.

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

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

USA Truck, Inc.

USAK Details

USA Truck, Inc. (NASDAQ: USAK) provides transportation and logistics services in the United States, Mexico, and Canada. Its operating segments are 1) Trucking, which offers truckload carrier services and freight services, and 2) USAT Logistics, which consists of freight, logistics, and intermodal rail services.

Improving Driver Benefits: On June 7, 2021, the company announced a USD 104,000 dedicated driver pay in specific markets with effect from June 13, 2021. The pay hike is part of USAK’s strategy of improving the drivers’ job satisfaction, increasing emoluments, and reducing the turnover rate. This follows the May 7, 2021, news of streamlining the driver pay packages based on their feedbacks. As a result, drivers will now receive a higher rate per mile without any qualifiers, bonuses, and mileage bands.

Robust Q2FY21 Results: The company reported a 37.41% rise in net revenue to a record USD 170.03 million in Q2FY21 (ended June 30, 2021) compared to USD 123.74 million in Q2FY20. Growth in the topline can be attributable to improvement in both segments. Trucking, which represented 61.97% of the total revenue in Q2FY21, increased 18.88% YoY, whereas the USAT Logistics segment reported YoY growth of 103.29%. USAK reported an adjusted EBITDA of USD 16.62 million in Q2FY21 vs. USD 15.76 million in Q2FY20, with a 296 bps reduction in adjusted EBITDA margin. Net income for Q2FY21 was USD 4.19 million in Q2FY21, in contrast to a net loss of USD 0.93 million in Q2FY20.

Q2FY21 Revenue & Adjusted EBITDA (Source: Earnings Presentation, Q2FY21)

Key Risks: Diesel fuel accounts for the majority of USAK’s operating expenses, pricing of which is highly volatile and unpredictable; any lag in the supply of requisite quantity or unfavorable pricing could distort the overall performance of the company. In addition, USAK derives a significant portion of its freight revenue from a few significant customers in the retail industry. In FY20, its largest customer accounted for over 10% of its USAT Logistics revenue. Any unfavorable changes in the economic environment that affect the company's significant customers could impair USAK’s financial performance as well.

Outlook: In FY24, USAK aims to generate USD 1 billion in consolidated revenues, with EPS ranging between USD 4.25 – 4.50. It also anticipates achieving a 90% - 92% Trucking operating ratio and USD 400 million in USAT Logistics revenue.

Valuation Methodology: EV/EBITDA 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.

USAK Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: USAK’s share price has decreased 10.49% and 6.41% in the past one and three months, respectively, and is currently trading close to the mid-point of its 52-week range of USD 8.04 to USD 21.89. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 44.08. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 16.86. Considering the correction in the stock price in the past three months, decent financials, and associated risks, we recommend a "Speculative Buy” rating on the stock at the current price of USD 14.39, down 2.94% as of July 30, 2021, at 12:02 PM ET.

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

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.