20210823-西牛证券-赤子城科技-09911.HK-Value-added_Services_refuels_the__Traffic+__direction_31页_2mb

Newborn Town (09911.HK) Summary

Core Content

Newborn Town (09911.HK) is a company that primarily focuses on the development of social networking platforms and games under the "Traffic+" strategy. The company has a diverse portfolio of social networking apps, including Yumy, MICO, YoHo, and Yiyo, and games such as Merge Island and Solitaire Chapters. It has a strong global presence, operating in the Middle East, North America, Southeast Asia, South Asia, and other developed countries.

Main Business Segments

Social Networking Platforms

• Portfolio: Yumy, MICO, YoHo, Yiyo.
• Features:
  • Video and audio chatting.
  • Live streaming, matching, moments, group chats, and real-time translation.
• Performance:
  • MICO is the most successful app, with a significant contribution to revenue.
  • Yumy, launched in 2021, has over 10 million global installations and topped Google Play's social networking apps in 66 countries.
  • MAU reached approximately 18.2 million in 2021 Q2.
  • The Group has seen strong growth in value-added services, with a >50x increase in 2021 1H revenue.

Games

• Portfolio: Casual games like Archery Go, Beetles.io, and Tank Heroes; mid-core games like Solitaire Chapters and Merge Island.
• Monetization:
  • In-app purchase and ad placement.
  • Mid-core games are now primarily monetized through value-added services such as virtual tools.
• Performance:
  • Traffic monetization revenue in games increased by 35.2% YoY in 2020.
  • MAU for games reached a record high of 15.6 million in 2021 Q2.
  • The Group has shifted focus from MAU growth to maximizing the lifetime value of paying users.

Key Financial Highlights (2020–2023E)

Investment Thesis

• Social Networking Apps: Demonstrated strong performance with a comprehensive portfolio, and significant growth in value-added services.
• Games: Transitioned from casual games to mid-core games, focusing on monetization through value-added services.
• Traffic+ Strategy: The strategy has driven substantial revenue growth, with traffic monetization and value-added services as the two main revenue streams.
• Valuation: The company is valued using DCF and P/S methodologies, with a "STRONG BUY" rating and a target price of HK$8.39/share, implying forward P/S multiples of 2.3x–1.8x.

Risk Factors

• Failure to develop mid-core games.
• Decline in ad accuracy and total ad spending.
• Intense competition in the social networking and gaming sectors.

Industry Overview

• Global Dating Services Market: Reached USD 6.6bn in 2020, expected to grow to USD 9.9bn by 2024. North America and Europe are the largest markets.
• Online Dating Software: Includes features like video/voice chats, embedded games, and dating-oriented UI. MICO and Yiyo are among the leading apps in the market.
• Global Games Market: Expected to decline slightly in 2021 but will continue to grow, with mobile games leading the market due to in-app monetization.
• Chinese Mobile Games in the Overseas Market: Market size is projected to grow significantly, reaching RMB 99.9bn by 2024, with the US, Japan, and Korea being the top contributors.

Impact of IDFA Removal by Apple

• IDFA Overview: Identifier for Advertisers, used for ad targeting and personalization.
• Impact on Advertisements:
  • Lower accuracy of ad targeting, leading to reduced CPM (2.4%–8.7% decrease).
  • Increased user acquisition costs due to lower conversion rates.
• Impact on Game Developers:
  • Casual games are less affected due to their general audience.
  • Mid-to-hard core games are more reliant on IDFA for attribution and analytics, thus facing greater challenges.

Strategic Initiatives

• Traffic+ Strategy: Launched in 2020, focusing on social networking and gaming.
• Global Expansion: MICO expanded rapidly to developed regions like America, Europe, Japan, and Korea.
• IPO in 2019: Listed in Hong Kong with a ticker of 09911.HK, and the share price peaked at HKD 11.54/share in early 2021.

Conclusion

Newborn Town (09911.HK) has successfully expanded its social networking and gaming operations globally, with a strong focus on monetization through value-added services and traffic monetization. The company's strategic shift to "Traffic+" and its emphasis on mid-core games suggest a move towards sustainable growth. Despite potential risks, the company's diversified portfolio and global reach position it well for future success.