FOCUS TECHNOLOGY(002315)：MADE-IN-CHINA.COM GROWS STEADILY;STRUCTURAL OPTIMIZATION OF INSURANCE BUSINESS CONTINUES

　　1H22 results in line with our expectation
　　Focus Technology announced its 1H22 results: Revenue fell 1.0% YoY to Rmb727mn; attributable net profit grew 11.4% YoY to Rmb143mn, implying EPS of Rmb0.47; recurring net profit rose 41.2% YoY to Rmb136mn, in line with our expectation.
　　Trends to watch
　　Revenue edged down YoY on declining commission income caused by structural optimization of insurance business. In 1H22, Focus Technology’s total revenue fell 1.0% YoY to Rmb727mn. Specifically, revenue from the Made-in-China.com business grew 10.5% YoY to Rmb583mn, while revenue from the xyz.cn insurance and cross-border businesses fell 44.4% and 9.9% YoY to Rmb59mn and Rmb65mn. We believe the firm’s total revenue dropped YoY mainly due to the massive decline in the revenue from its insurance business. The firm continued to optimize the structure of its insurance business by getting rid of the low-profit businesses amid tightening regulations on sales of personal insurance and weakening demand for life insurance. As a result, the firm’s insurance commission income fell significantly in 1H22.
　　Profit increased and profit margin improved in 1H22 mainly driven by optimized costs and rising revenue from Made-in China.com. In 1H22, thanks to pro-growth trade policy and the firm’s refined operations, Focus Technology’s revenue from Made-in China.com maintained steady growth, rising 10.5% to Rmb583mn, despite rising uncertainty in current international trade. Meanwhile, Made-in China.com saw its gross margin increase 2.4ppt YoY to 84.0% in 1H22 thanks to the cost optimization of its cross-border e-commerce business. As a result, its attributable net profit and attributable net profit margin rebounded 11.4% and 2.2ppt YoY in 1H22.
　　We expect the impact of weakening global demand on the firm’s operations may put its revenue and profit growth under pressure. In end-2Q22, the number of registered members of Made-in-China.com grew 1.9% YoY （vs. 5.4% YoY in end-2Q21） to 22,923. In 1H22, average revenue per user （ARPU） rose 3.5% YoY （vs. 32.9% YoY in 1H21） to Rmb26,070 per user. We believe the number of registered members and ARPU both maintained steady growth but decelerated compared to 2021. Meanwhile, the firm’s growth of contract liabilities and other current liabilities also slowed down, rising 10.3% YoY in 1H22 （vs. 22.6% YoY in 1H21）。 We believe the weakening demand from the global market is increasingly weighing on the firm’s operations amid the COVID-19 pandemic, interest rate hike, forex rate fluctuation, and mounting uncertainty in international trade, further putting a drag on its revenue and profit growth going forward.
　　Financials and valuation
　　We trim our 2022 and 2023 EPS forecasts 13.4% and 20.9% to Rmb0.72 and Rmb0.78 given weak global demand. The stock is trading at 19.0x 2022e and 17.5x 2023e P/E. We maintain OUTPERFORM and cut our TP 18% to Rmb18.5 （25.7x 2022e and 23.6x 2023e P/E）， offering 35.0% upside.
　　Risks
　　Weakening effect of import substitution; geopolitical risk weighing on international trade; COVID-19 resurgence in China.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。