20230329-西牛证券-赤子城科技-09911.HK-Short_-term_headwind_doesn_t_change_the_long-term_story_5页_208kb

Newborn Town (09911.HK) Summary

Core Content Overview

Newborn Town (09911.HK) is a company with a diversified business model, focusing on social networking and gaming. The report highlights both the challenges and opportunities facing the company, particularly in the context of its long-term growth potential and short-term headwinds.

Main Points

Financial Performance (Year Ended 31 Dec, 2022)

• Total Revenue: RMB 2,799.7 million
• Gross Margin: 37.8%
• Net Margin: 10.3%
• Net Profit: RMB 287.3 million
• EPS (Earnings Per Share): 0.114
• Current Price: HK$1.60
• Target Price (TP): HK$3.59
• 52-Week Range: HK$1.05 – HK$3.64
• Market Cap.: HK$1.9 billion

The company has seen a revenue growth of ~40% in paying users for YoHo and an improved gross margin for Yumy, which contributed to a net profit of RMB 287.3 million in 2022, surpassing expectations.

Business Highlights

• Social Networking Business: Generates RMB 2,557.4 million of the total revenue, showing strong performance.
• Global Footprint: Mico and YoHo are ranked among the top 15 social networking apps in regions like the US, Japan, and Europe.
• BlueCity Acquisition: The Group has acquired 1.0 million shares of Chizicheng Strategy Investment from Spriver, increasing its holding interest in BlueCity to approximately 78.9%, and will consolidate the financial statements after approval.
• BlueCity's Market Position: Gained a decent market share in China through its main product, Blued, and other related products like 翻咔 and 荷爾健康.
• Product Portfolio Expansion: Introduced TopTop to enter the game networking market and launched games like Mengeland – Alice’s Adventure to explore innovative business opportunities.
• R&D Investment: The Group increased R&D investment and the number of R&D staff by 62% and 55% respectively in 2022.

Strategic Moves

• Product Diversification: The Group has a comprehensive product portfolio, including Mico, YoHo, Yumy, and TopTop, enabling it to participate in both the video and audio social networking markets.
• LGBTQ Market Entry: Acquiring BlueCity allows the Group to enter the LGBTQ market and leverage its expertise in the overseas market.

Risk Factors

• Overseas Expansion of BlueCity: May not meet expectations.
• New Games Commercialization: Could lead to operating losses.
• Replicating Success Abroad: Potential challenges in new markets.
• Decreased Willingness to Pay: May impact user engagement and revenue.

Key Information

Stock Rating

• Stock Rating: BUY
• Target Price (HK$): 3.59
• Absolute Upside: >10% over the next 12 months

Financial Projections

Financial Ratios

Cash Flow

• CFO (Cash Flow from Operations): RMB 312.6 million (2022)
• CFI (Cash Flow from Investing): RMB -356.6 million (2022)
• CFF (Cash Flow from Financing): RMB -139.6 million (2022)
• FCFE (Free Cash Flow to Equity): RMB -85.7 million (2022)
• FCFF (Free Cash Flow to Firm): RMB -85.7 million (2022)

Analyst Notes

• Short-term Headwinds: The Group is more conservative in short-term performance due to higher expenses and challenges in the innovative business.
• Long-term Outlook: The company remains positive about its long-term potential.

Conclusion

Despite short-term challenges, Newborn Town (09911.HK) is viewed as a BUY by West Bull Securities, with a target price of HK$3.59. The company has made strategic moves to diversify its product portfolio and expand into new markets, particularly through the acquisition of BlueCity. While the financial performance for 2022 was strong, the Group is expected to face some operational and market-related risks in the near term.