On The Platter

Pacific Online (543 HK)  BUY (TP: HK$2.68 (from HK$2.57)):

To ride with the strong auto sales growth

Pacific Online’s (PO) flagship portal PConline has reached its mature phase of growth, and we estimate revenue from this portal to grow annually at a single digit pace.  Going forward, we expect PO’s main growth driver to come from its PCauto portal, which we forecast revenue to grow at a CAGR of 31.4% for 2009-2012.  Auto sales in China have surpassed that of U.S. with 13.6m units sold in 2009, at a YoY growth of 45.5%.  We expect the strong auto sales to translate into higher ad spending from auto companies, which in turn will benefit PO.  PO is trading at an ex-share based compensation (ex-SBC) PER of 9.7x for FY10F, which we find undemanding compared to its internet-related peers.  We have adjusted our earnings accordingly, and reiterate our BUY rating for the stock with a target price (TP) of HK$2.68 based on a target FY10F ex-SBC PER of 12x.