3Q17 earnings came in nearly 100% higher than both MQ and consensus dueto the strength in job revenue and lower than expected S&M expenses. Jobrevenue growth accelerated from 50% in 1H17 to 60 % yoy in 3Q17, whilehousing revenue grew 20 % yoy amid a housing market cool-down. We retainour long-term bullish view of 58’s local ecosystem and expect 58 to continueto show operating leverage in 2018-19. We maintain our FY17-19 revenueforecast but raise our 2018-19 earnings estimates due to non-operating items.We maintain our Outperform rating and US$90 TP based on 35x 2018 PE.
3Q results and 4Q guidance strong beat. 3Q17 revenue increased 33%YoY to Rmb2.7bn, beating our/consensus by 3%/7%, on the back of strongerjob category revenue growth. The number of paying accounts increased 26%yoy to 2.6m in 3Q17. Non-GAAP OPM improved 11ppts yoy to 24%, primarilyattributable to the control over S&M expenses. Non-GAAP net incomereached Rmb479bn, 98% higher than consensus estimate of Rmb241m. Thecompany guides 4Q17 revenue to increase 25-30% YoY to Rmb2.63-2.73bn,3-7% above consensus estimate of Rmb2.56bn.
Job growth accelerated and housing was better than expected. Jobrevenue growth accelerated to 60 % YoY in 3Q17 from c.50% YoY in 1Q17.We expect an expansion of job revenue by c.50% in 2018. 58 in the samecounty achieved 1m DAU and now covers 3,000 counties. The company istargeting an increase of coverage by 10 times to 30k counties in 2018.Despite the high base in 3Q16 and soft transaction volume in the housingmarket, the housing vertical generated better-than-expected 20 % yoyrevenue growth in 3Q17. Looking to 2018, we expect revenue to grow 27% toRmb12.7bn.
Margin expansion should continue. 3Q17 non-GAAP OPM improved11ppts yoy to 24% as the advertising expense was prudently controlled andthe synergies of the merger with Ganji kicked in. In addition, 58’s customerare becoming more online self-served and customer services becoming mo……[麦格理资本]