Third party revenue challenges
? While FY21 net loss narrowed 5% yoy, third party revenue mix remains at its post 2018 IPO lows, with 4Q21 revenue mix a record low at 32.3%.
? OneConnect announced that it is looking to list in HK via a dual primary listing. It is also buying back up to 2% of its ordinary shares.
? Retain Add. We cut TP to US$3.80 on broadly lower FY22F-24F EPS.
FY21 net loss narrows yoy
OneConnect reported FY21 net profit of Rmb1.3bn, down 5% yoy, and 4% better than our forecast. FY21 revenue growth yoy was 25%, in-line with its guidance given at 1H21 results briefing. FY21 revenue growth yoy was driven by cloud (+234%), risk management (+47%) and other (+257%) (Fig 1). 4Q21 revenue growth yoy was 19% yoy (3Q21: 21%), driven by cloud (+60%), risk management (92%) and other (+230%). 4Q21 revenue from third parties remains at a record low of 32.3% of total revenue (previous
low was 32.4% in 2Q21), and well below FY24F target of over 50%.
Looking to list in HK via a dual primary listing
OneConnect announced during its analyst briefing that it is looking to list in Hong Kong (HK) by way of a dual primary listing. It emphasised that no new shares would be issued (in part due to its belief that the share price is very low) and is currently in talks with Hong Kong Exchange on its listing plans.
Announced a share buyback of up to 2% of shares outstanding
OneConnect also announced that it may repurchase up to 2% of its outstanding shares, commencing from its results date up until 30 Sep 2022. This stems from its belief that the shares are currently undervalued given the company’s confidence in its own fundamentals, business outlook and its long-term strategies.
Reiterated its medium-term targets
OneConnect reiterated it remains on track to meet its medium-term targets by the end of 2024 (Fig 2). These include becoming the top three among its China peers in terms of revenue, third-party revenue comprising most of its revenue, premium customers exceeding 1,000 (FY21: 796), premium plus customers exceeding 500 (FY21: 212), premium customer net expansion rate (NER) of 100-120% (FY21: 96%). Its FY22F target is to grow third party revenue and achieve stable recurring revenue.
Reiterate Add rating; DCF-based TP cut from US$4.40 to US$3.80
Our TP (WACC: 14.2%) is cut from US$4.4 to US$3.8, given broadly lower FY22F–24F EPS, driven by lower revenue forecasts and an assumed break-even in early FY25F (previously late FY24F). Potential re-rating catalysts: regulatory approval to sell financial cloud services to banks & stronger third-party revenues. Key downside risks: unexpected additional adverse regulations, and Ping An Group reducing its technology spending.