Autohome IPO Is Another China Hit

Dec.11.13 | About: Autohome Inc. (ATHM)

Autohome (NYSE:ATHM), a Chinese internet resource for prospective automobile consumers, plans to raise over $110 million in its upcoming IPO. The Beijing, China-based firm will offer 7.8 million shares at an expected price range of $14 to $16 per share. If the IPO can hit the midpoint of that range at $15 per share which we expect, ATHM will command a market value of $1.6 billion.

ATHM filed for its IPO on November 4, 2013. Lead underwriters on the offering were Deutsche Bank and Goldman Sachs ((Asia)), joined by Oppenheimer and Piper Jaffray.

Summary
ATHM is the leading online destination for Chinese automobile consumers through its two websites, autohome.com.cn and che168.com. In the nine months ended September 2013, autohome.com.cn made up 46% of all time spent by Chinese internet users viewing online automotive information, and ranked first among Chinese websites in terms of average daily unique visitor and average daily page views, making the site a highly desirable advertising location for Chinese automakers and dealers.

Some 80% of China's more than 80 automakers advertised on the firm's websites in the nine months ended September 30, 2013 and each of the three previous calendar years.

Valuation
ATHM offers the following figures in its F-1 registration statement for the nine months ending September 30, 2013:

Revenue: $135,711,000
Net Income: $54,491,000
Total Assets: $426,680,000
Total Liabilities: $150,830,000
Stockholders' Equity: $275,850,000

ATHM has seen significant revenue growth while also increasing profitability in recent years. The firm posted net revenues of RMB252.9 million, RMB433.2 million, and RMB732.5 million (the latter figure eqivalent to US$119.7 million) in 2010, 2011, and 2012, respectively, representing a compound annual growth rate of 70.2%. The firm posted a net income of RMB333.5 million (US$54.5 million) for the nine months ended September 30, 2013, representing a 96.7% increase from RMB169.6 million in the same period in 2012.

Business
Though ATHM is by far the most used Chinese automotive website, it is not without competitors. It must contend with other Chinese automotive sites like pcauto.com and bitauto.com, along with the automotive channels of major internet portals like Sina (NASDAQ:SINA) and Sohu (NASDAQ:SOHU). Traditional media like television and magazines also are significant sources of competition.

Management
James Zhi Qin has served as the CEO of ATHM since 2009 and as a director since 2008. He previously served as COO of 265.com and worked for McKinsey & Company as an associate and Northern Telecom Limited as a software engineer. He holds a bachelor's degree in electrical engineering from Tsinghua University, a master's degree in computer science from the University of Iowa, and an MBA from Harvard Business School.

Conclusion
Although caution is always in order with Chinese websites given the Chinese regime's tenuous relationship with the internet, we're optimistic on this firm and rate the IPO a buy.

Autohome.com.cn is a genuinely dominant force in the Chinese online auto marketplace, which will continue to expand as China's economy continues to develop. The firm is highly profitable, with an income equal to approximately 40% of its revenue, and its ability to increase profitability during a period of expansive revenue growth is extremely impressive.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ATHM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.