20170119-招商证券_香港_-美图公司-01357.HK-The_beauty_social_ecosystem_creator__Initiate_with_BUY__revised__50页_5mb_5mb

Meitu, Inc. (1357 HK) Summary

Core Content Overview

Meitu, Inc. is a leading creator of a beauty social ecosystem with a significant user base and strong monetization potential. The company has evolved from a single photo retouching app to a comprehensive platform offering photo editing, social video, and e-commerce services. With 456 million monthly active users (MAUs) as of October 2016, Meitu has positioned itself to capitalize on its large user base through a three-stage monetization strategy.

Main Points

• User Base and Ecosystem:
  Meitu has grown to become a dominant player in the beauty-related social app market. Its core apps, including Meitu (美图秀秀) and BeautyCam, are among the top in China. The company also has a strong international presence, with BeautyPlus and AirBrush available in multiple languages and serving users in over 100 countries.

• Monetization Roadmap:
  Meitu's monetization strategy includes three stages:

  1. Smart Hardware and Online Advertising:
     Monetization is expected to begin in 2016, with revenue from advertising and hardware growing significantly.
  2. Internet Value Added Services (IVAS):
     Through Meipai (美拍), Meitu is monetizing via virtual gifts and live streaming, which are expected to contribute 8% of total revenue in 2018E.
  3. E-commerce Platform:
     A B2C e-commerce platform is planned for 2017, aiming to convert users into buyers and drive offline sales through its online community.

• Revenue Projections:
  Meitu is projected to generate RMB8,950 million in revenue by 2018E, representing a 129% CAGR from 2015 to 2018. This growth is driven by the expansion of its user base and monetization initiatives.

• Investment Recommendation:
  The report initiates with a BUY rating and a DCF-based target price of HK$10.1, implying a 3.8x EV/sales multiple for FY18E. This valuation is 3% below the average of China internet peers, suggesting potential upside.

Key Financial Highlights

Monetization Stage Details

Stage 1: Smart Hardware and Online Advertising

• Smartphone Revenue: Expected to reach RMB5,716 million in 2018E, with a 105% CAGR.
• Smartphone Shipments: Projected to be 2.8 million units by 2018E.
• Advertising Revenue: Estimated to grow to RMB1,436 million in 2018E, up 19.8 times from 2015.
• Advertising Revenue/MAU: Expected to rise from RMB0.20 in 2015 to RMB2.30 in 2018E.

Stage 2: Internet Value Added Services (IVAS)

• Meipai Virtual Gifts Revenue: Projected to reach RMB755 million in 2018E.
• Meipai MAUs: Expected to grow from 145 million in 2016 to 185 million in 2018E.
• Monthly Paying Users: Projected to increase from 143 thousand in 2016 to 740 thousand in 2018E.
• Live Streaming Revenue/MAU: Expected to rise from RMB0.1 in 2016 to RMB4.1 in 2018E.

Stage 3: E-commerce Platform

• E-commerce Revenue: Expected to reach RMB959 million in 2018E.
• Monthly Active Buyers: Projected to be 1 million by 2018E.
• Revenue per Monthly Active Buyer: Expected to be RMB959 in 2018E.

Key Risks

• Weaker monetization than expected.
• Slower MAU growth than projected.
• Intense competition in the e-commerce and advertising sectors.

MAU Growth and User Engagement

• MAU Growth (2015-2018E): Expected to grow at a 21% CAGR, reaching 663 million by 2018E.
• User Engagement: Meitu apps are used 3.4 times a day on average in October 2016, with users spending 33.8 minutes daily on Meipai.
• User Base: Meitu has over 456 million MAUs in China and 430 million overseas, with a strong focus on female users.

Competitive Landscape

• Meitu is ranked 5th among China's iOS non-game app developers in terms of downloads.
• Its MAUs are comparable to global platforms like Instagram and similar to Weibo, Momo, and YY.
• The company's user base and engagement are strong, with a clear path to monetization through its ecosystem.

Conclusion

Meitu has a solid foundation with a massive user base and a clear monetization roadmap. The company is expected to significantly increase its revenue and market value through its three stages of monetization, focusing on smart hardware, online advertising, and e-commerce. The report recommends a BUY rating with a target price of HK$10.1, indicating a potential 22% upside from the current price of HK$8.28.