Brief Equities Bottom-Up: 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside and more

In this briefing:

1. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside
2. JKN: 4Q18 Earnings Grew Both YoY and QoQ
3. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

1. 58.com (WUBA): Weak Membership Growth Suggests More Volatile Performance, 17% Downside

* We believe that the stagnancy in membership was due to the new competitor Ke.com and will make total revenues more volatile in the future.

* We assume total revenues will slow down, but the operating margin will be stable in 2019.

* We compare WUBA’s expected P/E for 2019 with other vertical platforms in China and conclude 17% downside.

2. JKN: 4Q18 Earnings Grew Both YoY and QoQ

The company’s 4Q18 net profit was at Bt46m (+298%YoY and +8%QoQ). The result was in line with our 2018 forecast and accounted for 97% of our full-year forecast.

• A YoY surge in earnings was due to a 30% increase in revenue to Bt360m, mainly from export revenue (50% revenue contribution in 3Q18 from 0% in 4Q17). A QoQ gain was caused a reduction in extra expenses for holding an annual event ‘JKN mega showcase’ in early August.
• 2019 earnings outlook is still decent on the back of 1.) higher revenue contribution from export market especially South East Asia (26% of revenue in 2018), 2.) CNBC studio commencement in 2Q19, and, 3.) revenue recognition from new channel subscribers (No.5, Thairath, Spring news, True4U, Nation and MONO)

We maintain our forecast and BUY rating for JKN with a target price of Bt8.80 based on 14.8xPE’19E mean of the Asia ex-Japan Consumer Discretionary Sector.

3. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

• 7-Eleven partners up with Future Retail in an effort to enter the growing Indian Market
• Indian E-Commerce giants pose a significant threat to 7-Eleven’s plans
• 7-Eleven’s recent shift focuses more on developing markets.
• Lack of profitability in India could require changes to the standard franchise agreement in order to attract franchisees

On 28th February 2019, Seven & I Holdings (3382 JP), the operator of the world’s largest convenience store chain 7-Eleven, announced that the company has signed a master franchise agreement with Kishore Biyani’s Future Retail, the operator of the Indian large format store chain Big Bazaar, to expand the 7-Eleven convenience stores into India. Future Retail and Seven & I Holdings expect the first 7-Eleven convenience store in India to be opened in Mumbai in 2019.