Macquarie Equities Research analysts Jiong Shao and George Meng maintains their Outperform rating for NQ Mobile Inc (ADR) (NYSE:NQ) as the special audit is set to be completed in the coming weeks. The firm initiated its coverage on the stock in October 2013, following a decline after negative remarks from Muddy Waters.
We believe the special audit report should be completed in the coming weeks (most likely before end of Feb), lifting investors’ concern on the company’s operations and financial credibility. We continue to view NQ Mobile Inc (ADR) (NYSE:NQ) a promising mobile Internet company with a few strategically important assets and its shares are trading at an attractive valuation compared to its internet peers. We reiterate our favourable view on NQ Mobile and our TP remains $26.
Impact of NQ Mobile’s deal with sprint
We highlight several major milestones NQ Mobile Inc (ADR) (NYSE:NQ) has achieved in the last few months since the Muddy Water attack. The company announced its largest ever MDM win (Mobile Device Management) in Jan 2014 to service 50k users at the National Bureau of Statistics of China. Just last week, NQ Mobile Inc (ADR) (NYSE:NQ) also announced that Tier 1 US carrier Sprint Corporation (NYSE:S) will deliver the next generation of Sprint ID, powered by NQ live, for all handsets sold by Sprint starting later this year in 2014. We expect more NQ Live deals to come and the monetization from NQ Live (revenue sharing among app developers, NQ and the carrier) could prove substantial for NQ in the long run.
On the mobile security side, the company continues to sign deals with leading Chinese handset makers such as Huawei and Lenovo to have NQ Mobile Inc (ADR) (NYSE:NQ)’s security software embedded in some of their handsets not only for the Chinese market but also for overseas markets. Generally speaking, the company continues to move away from subscription based monetization to advertising based monetization for its mobile security products. Furthermore, we are encouraged by its recent acquisition of a mobile ad exchange start-up to accelerate this transition. We believe NQ Mobile Inc (ADR) (NYSE:NQ) is also seeing strong traction with respect to partnering with carriers and handset makers for its Music Radar (music search) product.
Furthermore, we believe the company is seeing strong trends for its mobile game publishing business (FL Mobile) and recent small incidence with iOS app store did not make any significant impact on NQ. As we learned from our recent Chinese Internet conference, while competition in the mobile game publishing industry is set to rise with several leading mobile game developers aiming to be publishers as well, demand for mobile game publishing is outstripping available capacity and publishers as a group is an invaluable link in the industry value chain.
NQ Mobile’s valuation
No change in earnings and target price revision No change.
Price catalyst
- 12-month price target: US$26.00 based on a PER methodology.
- Catalyst: 4Q13 results.
Action and recommendation
Maintain Outperform.
