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AdTiger (01163.HK) Summary

Core Content

AdTiger (01163.HK) reported a revenue of RMB 351.8 million for the 2021 fiscal year, marking a significant year-over-year (YoY) growth of 67.3%. The growth was attributed to three main factors: a change in the accounting policy, recovery in the overseas market, and expansion in China. However, the company experienced a weak performance in the Chinese market, with total advertising spending accounting for less than 10% of its overall revenue. This underperformance was largely due to tighter regulations on online games and education, as well as the impact of the COVID-19 pandemic.

Despite the weak performance in China, AdTiger's overseas market showed strong growth, particularly in the second half of 2021, with advertising spending increasing by over 30% YoY. This overseas success helped to offset the domestic challenges. However, the company's higher expense ratio significantly impacted its profitability, resulting in an adjusted profit of RMB 11.5 million and an operating loss of RMB 2.1 million in the second half of 2021.

Main Points

• Revenue Growth: AdTiger's FY2021 revenue reached RMB 351.8 million, up 67.3% YoY.
• Gross Margin: The gross margin for the full year was 18.7%, slightly reduced due to a larger proportion of revenue from the CPA pricing model, which had a gross margin of 8.4%.
• Overseas Performance: The overseas market was a key driver of growth, with advertising spending increasing by over 30% in 2021 2H.
• Expense Increase: The company incurred over RMB 10 million in R&D and consultancy fees, as well as RMB 35 million in staff expenses, contributing to the drag on profit margins.
• New Business Exploration: AdTiger has been exploring new business areas since 2020 Q4, including advertising in China, comprehensive marketing services, KOL business overseas, and SaaS services.
• Share Award Scheme: The company announced a share award scheme in late September 2021, with 10% of total issued shares available for grant, which has already seen 1,065,000 shares purchased in the market.

Key Financial Information

Business Development

• China Market: AdTiger entered the Chinese market through its subsidiary in 2020 Q4, collaborating with major media platforms such as ByteDance, Kuaishou, and iFeng.com. However, the business development in China has been slower than expected.
• Comprehensive Marketing Services: Launched in 2021, the Beijing Fasttouch Culture Technology provides one-stop branding services, including content creation, KOL connections, and IP management.
• KOL Business Overseas: AdTiger is actively engaging with KOLs on platforms like YouTube, Instagram, and TikTok to expand its overseas presence.
• SaaS Services: The company is investing in SaaS development as part of its broader business expansion strategy.
• Staff Expansion: AdTiger employed about 118 staff in 2021, representing a 78.8% increase YoY, primarily to support sales and business development efforts.

Risk Factors

• China Market Weakness: The Chinese market remains weak and is expected to take longer to recover.
• Declining Demand for Traditional Digital Marketing: The rise of short-video advertisements has reduced demand for traditional digital marketing services.
• Data Protection Policies: Tighter data protection policies, particularly from Apple, have led to lower ad placement accuracy and higher user acquisition costs.
• New Business Delays: The progress of new business development has been slower than expected, affecting profitability.
• Overseas Market Uncertainty: Sliding economic growth and global political tensions could impact overseas marketing demand.

Investment Recommendation

West Bull Securities maintains a "BUY" rating for AdTiger (01163.HK), with a target price of HK$1.01 per share. The company's revenue estimates have been upward adjusted by 6.6%–10.3% to reflect changes in accounting policy, but the bottom-line estimates have been cut by 55.5%–61.8%. The forward P/E ratios for 2022, 2023, and 2024 are 24.8x, 18.7x, and 16.8x, respectively. The analysts believe that AdTiger's strong overseas performance can provide stable growth, allowing investors more time to wait for potential catalysts in the Chinese market.

Peer Comparison

Analyst Notes

• Analyst: H F NGO, Brian, CFA
• Contact: brianngo@westbullsec.com.hk, +85238962965
• Investment Banking & Brokerage: West Bull Securities is a dedicated small/mid-cap investment banking and stock brokerage firm.
• Rating Definitions:
  • STRONG BUY: >50% upside over the next 12 months
  • BUY: >10% upside over the next 12 months
  • HOLD: -10% to +10% return
  • SELL: >10% downside
  • STRONG SELL: >50% downside

Disclaimer

This report is not an offer to sell or a solicitation of an offer to buy any securities. The information is compiled from reliable sources, but no guarantees of accuracy or completeness are made. All opinions and estimates are subject to change. Investors are advised to conduct their own independent research. West Bull Securities and its affiliates may have positions in the securities discussed and may have acted on the information prior to or after publication. This report is intended for professional investors and dealers only.