Wedge Events

Management Call

BOE Technology Group Co., Ltd.  Qiushi Xu, Board Secretary of BOE.  Wednesday January 16, 2013, at 8:00 PM Eastern.  They are a Chinese supplier focusing on display technologies, products and solutions. (BOE A Share: 000725; BOE B Share: 200725.)

Please contact your salesperson for details.

NQ Mobile (NQ)                   Jun Zhang                  303.476.5908

NQ quarterly updates

• We think NQ’s Q4 user growth is on-track.  We think NQ might report another solid quarter and guide ahead of street for Q1.
• We think overseas market growth and Feiliu’s expansion into the mobile internet segment will ease investors’ concerns on the competitive environment in China mobiles anti-virus market in 2013.
• China Mobile recently published December’s mobile virus alert and they found  12 new viruses in December among their users, mostly on the feature phone platform.

Our Q4 quarter-end updates

We believe Q4 anti-virus, other product active users and paid user growth are on-track with the company’s guidance. We think NationSky might perform stronger than expected. Feiliu’s revenue might be the reason that they slightly beat topline for Q4.

In China we think with increasing virus alerts from China Mobile that anti-virus software download volume from both feature phone and smartphone will continue to increase.  We think that the online distribution channel and reinstallation agreement with handset makers will help NQ to grow their active users and subscriber base in Q4. We think that by the end of Q4, NQ should have around 9 mln average monthly paid users, half of which comes from the local China market.

In the overseas market we think that the Southeast Asian markets including Thailand grew strong in Q4. US distribution started in late Q3, but contribution in Q4 was still small. We should be able to see some contribution starting in Q2 2013.

NationSky: We think that when the iPhone 5, and Nokia Lumia 920 launched in December, it  drove NationSky’s resell volume quickly QoQ in Q4. We think NationSky business will still remain solid growth in 2013, as we believe the feature phone-smartphone upgrade cycle among enterprise users just started.

Feiliu: We like Feiliu’s concept of being a mobile content distribution platform and we think this is one of the business models that have been proven to be profitable in the mobile internet area. Their competitor, 91 handset assistance, which was part of Hong Kong, listed NetDragon (HK0777), reported strong topline and bottom line growth for Q3.

Although Feiliu’s contribution to Q4 will only count for the December month which is around $0.5 mln USD,  NQ expects Feiliu to contribute $20-25 mln revenue in 2013, which we think it is achievable based on current 91 handset assistance business size.

Our Q4 quarter-end updates

We believe Q4 anti-virus, other product active users and paid user growth are on-track with the company’s guidance. We think NationSky might perform stronger than expected. Feiliu’s revenue might be the reason that they slightly beat topline for Q4.

In China we think with increasing virus alerts from China Mobile that anti-virus software download volume from both feature phone and smartphone will continue to increase.  We think that the online distribution channel and reinstallation agreement with handset makers will help NQ to grow their active users and subscriber base in Q4. We think that by the end of Q4, NQ should have around 9 mln average monthly paid users, half of which comes from the local China market.

In the overseas market we think that the Southeast Asian markets including Thailand grew strong in Q4. US distribution started in late Q3, but contribution in Q4 was still small. We should be able to see some contribution starting in Q2 2013.

NationSky: We think that when the iPhone 5, and Nokia Lumia 920 launched in December, it  drove NationSky’s resell volume quickly QoQ in Q4. We think NationSky business will still remain solid growth in 2013, as we believe the feature phone-smartphone upgrade cycle among enterprise users just started.

Feiliu: We like Feiliu’s concept of being a mobile content distribution platform and we think this is one of the business models that have been proven to be profitable in the mobile internet area. Their competitor, 91 handset assistance, which was part of Hong Kong, listed NetDragon (HK0777), reported strong topline and bottom line growth for Q3.

Although Feiliu’s contribution to Q4 will only count for the December month which is around $0.5 mln USD,  NQ expects Feiliu to contribute $20-25 mln revenue in 2013, which we think it is achievable based on current 91 handset assistance business size.

Our Q1 outlook

We believe that current consensus for Q1 will be flat from Q4 and EPS will be $0.17, compared $0.16; with the expectation of improving gross margins and profit margins in Q1 as NationSky’s low margin business will see a sequential drop.

We think the company might guide topline above the street with some improvement of gross margins. We have been checking Feiliu platform and we think they are aggressively adding new content on both the iOS and Android platform. We don’t think US investors are familiar these content distribution business in China, but we think this is one of the fastest growing areas along with smartphone growth in the next 3-5 years.

Although we think Share-Based Compensation will still bring pressure on GAAP-based EPS as NQ pays for the Feiliu acquisition, we think Non-GAAP EPS will still be better than current consensus with improving margins and surprising revenue from Feiliu platform.

Table see appendix

INDUSTRY ANALYSTS

Kirk Adams                           303.476.5933                       Director of Research, Software and Consumer Electronics
Brian Blair                             212.888.6601                       Consumer Electronics, Semiconductors, and Gaming

Martin Pyykkonen                303.476.5919                       Internet, Media and Entertainment

Jun Zhang                             303.476.5908                       China Telecom and IT

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