20210827-招银国际-Tantan_transition_on_track_4页_883kb

Hello Group (MOMO US) Company Update Summary

Core Content

CMB International Securities has released an updated equity research report on Hello Group (MOMO US), formerly Momo. The report outlines the company's financial performance, strategic direction, and revised earnings guidance for FY21-23, with a target price of US$14.0 and a HOLD rating. The company is undergoing a strategic transformation, rebranding to reflect its multi-app ecosystem strategy, with a focus on Tantan and the broader Hello Group platform.

Main Points

• Financial Performance:

  • 2Q21 Revenue: $-5%$ YoY, $1%$ above consensus.
  • 2Q21 Adj. Net Profit: $-18%$ YoY, $16%$ above consensus.
  • 3Q21E Revenue Guidance: $-3.1%$ to $-0.4%$ YoY, midpoint $1%$ below consensus.
  • User Metrics: MAU increased $4%$ YoY, but paying users for Tantan dropped $21%$ YoY to 3.1 million.
  • Live Streaming: Revenue dropped $22%$ YoY but improved $10%$ QoQ, attributed to ecosystem improvements and long-tail user engagement.
  • VAS (Value-Added Services): Expected to contribute more in 3Q21 and 4Q21, with a $+5%$ YoY growth forecast for core revenue in 3Q21.

• Strategic Shift:

  • The company has rebranded as Hello Group to reflect its multi-app strategy.
  • Tantan is the largest driver of revenue and is undergoing a transition, including the termination of short-sighted products, a focus on women users, and improved marketing efficiency.
  • New apps are being developed to support growth in lower-tier cities and overseas markets.

• Earnings Guidance:

  • FY21E Net Loss: RMB350mn–450mn, with sequential improvement expected since July 2021.
  • 2H21E Growth: Positive YoY growth is expected.
  • Revised Revenue Forecasts: CMBIS adjusted FY21-23E revenue by $1%–21%$, reflecting conservative monetization.
  • Target Price: Trimmed to US$14.0 (11x FY21E P/E), from US$15.0.

• Financial Highlights (FY19A–FY23E):

  • Revenue: RMB17,142 (FY19A) to RMB18,544 (FY23E), with YoY growth of $-4.0%$ in FY21E and $+15.1%$ in FY23E.
  • Net Profit: RMB4,304 (FY19A) to RMB3,382 (FY23E), with a $-45.1%$ YoY drop in FY21E and a $+40.7%$ increase in FY23E.
  • EPS: RMB18.9 (FY19A) to RMB14.3 (FY23E), with a $-16.7%$ YoY drop in FY21E.
  • P/E Ratio: 4.4 (FY19A) to 5.7 (FY23E), showing a decline in valuation multiples.
  • P/S Ratio: 1.1 (FY19A) to 1.0 (FY23E), indicating a slight improvement in revenue-to-price ratio.

• Margin Performance:

  • Gross Margin: Improved to 45.2% in FY21E from 44.4% in FY19A.
  • Operating Margin: Decreased to 10.5% in FY21E from 20.9% in FY19A.
  • Net Margin: Reduced to 14.1% in FY21E from 25.3% in FY19A, showing a shift in profitability.

• Cash Flow and Balance Sheet:

  • Cash Position: Maintained net cash position in FY21E, with a slight decrease in cash ending at RMB3,240 million.
  • Operating Cash Flow: RMB3,868 million in FY21E, indicating operational stability.
  • Investing Cash Flow: Negative in FY21E (RMB-925 million), suggesting investment activity.
  • Financing Cash Flow: Negative (RMB-2,801 million), indicating debt reduction or share buybacks.

Key Information

• Analyst Comments: The report suggests that investors should wait for clearer signs of Tantan's reform before making decisions.
• Analyst Certifications: The report is certified to reflect the personal views of the analyst and includes disclosures about potential conflicts of interest.
• CMBIS Ratings: The stock is rated as HOLD, indicating a potential return of $+15%$ to $-10%$ over the next 12 months.
• Market Position: The company is part of the broader China internet sector, which has seen mixed performance with a 12-month price decline of $-27.1%$.
• Shareholding Structure: Major shareholders include Renaissance Tech (7.1%), Investco (5.6%), and BlackRock (4.4%).

Financial Summary

Conclusion

The report suggests that while the company delivered better-than-expected results in 2Q21, the outlook for 3Q21E remains cautious. The multi-app strategy and Tantan's transition are key factors, but the company's performance is still under pressure. Investors are advised to maintain a HOLD position and wait for further positive signs from Tantan's reform.