Deutsche Bank Downgrades SouFun on Take-Rate Drops and NP Impact from Discounting

In a report published Thursday, Deutsche Bank analyst Vivian Hao downgraded

from Buy to Hold and lowered the price target to $11.00. The company announced a 40 percent discount on nationwide subscription fee to secondary listing customers, making up approximately 25 percent of revenues. Deutsche Bank sees this as a "major downside surprise for the market". The analyst sees a magnified de-leveraging impact to its NP due to the higher margin nature of the segment. Hao wrote, "We believe SouFun is facing deteriorating economics around its SouFun card business such that take-rate with developers will continue to decline. We attribute this to: 1) aggressive effective take-rate offered by competitor in tier-1 cities, and 2) land grabbing strategy in lower-tier cities along with deepening geographical penetration." The analyst expects continued drops in take-rate. Deutsche Bank lowered t FY14/15/16E revenue forecast by 8%/12%/15%. Shares of SouFun closed at $10.64 on Wednesday and are currently trading at $9.50, down 10.71 percent.