20230224-招银国际-Stronger_momentum_ahead_9页_1mb

iQIYI (IQ US) Company Update Summary

Core Content Overview

iQIYI reported a strong 4Q22 performance, with revenue increasing by +2.8% YoY (1% above consensus) and adjusted net profit reaching RMB856mn (176% above consensus). The company is viewed as a top pick in the online entertainment segment due to its strong content pipeline, healthy revenue growth, margin improvement, and relaxation of LFV content regulation.

The report forecasts stronger momentum in 1Q23E, with revenue expected to grow +10% YoY. This is attributed to the popularity of the blockbuster drama "The Knockout" (狂飙), which achieved >50% viewership market share and Top 1 ranking based on Enlightent data. The company also anticipates subscribers to reach 123mn in 1Q23E, with net adds of 11mn.

Key Financial Highlights

• Revenue:
  • FY21A: RMB30,554mn
  • FY22A: RMB28,998mn
  • FY23E: RMB31,841mn
  • FY24E: RMB33,799mn
  • FY25E: RMB35,152mn
• Revenue Growth:
  • FY21A: +2.9%
  • FY22A: -5.1%
  • FY23E: +9.8%
  • FY24E: +6.1%
  • FY25E: +4.0%
• Adjusted Net Profit:
  • FY21A: -RMB4,549mn
  • FY22A: RMB1,266mn
  • FY23E: RMB2,289mn
  • FY24E: RMB3,234mn
  • FY25E: RMB3,696mn
• Adjusted EPS:
  • FY21A: -RMB5.6
  • FY22A: RMB1.5
  • FY23E: RMB2.4
  • FY24E: RMB3.4
  • FY25E: RMB3.9
• P/E Ratio:
  • FY22A: 33.6
  • FY23E: 20.9
  • FY24E: 14.8
  • FY25E: 13.1
• P/S Ratio:
  • FY22A: 1.6
  • FY23E: 1.5
  • FY24E: 1.4
  • FY25E: 1.4

Key Drivers and Catalysts

• Content Performance:
  • Strong performance of premium dramas such as "Wild Bloom" (风吹半夏), "New Life Begins" (卿卿日常), and "The Knockout" (狂飙) has driven subscriber growth and advertising recovery.
• Subscriber Growth:
  • Subscribers reached 111.6mn in 4Q22, with a +10% YoY increase. Management expects 123mn subscribers in 1Q23E.
• Advertising Recovery:
  • Ads revenue increased +25% QoQ in 4Q22 and is expected to remain stable in 1Q23E, with a forecast of +11% YoY in FY23E.
• Margin Expansion:
  • The company is focusing on "quality growth", which is expected to improve margins. Non-GAAP OPM is forecasted to reach 10% in 1Q23E and 14% in FY25E, with GPM expected to increase to 30%.
• Target Price:
  • Raised to US$8.6 (up from US$4.1), implying a 24.5x/17.4x P/E multiple for FY23E and FY24E.

Investment Recommendation

• Maintain BUY rating.
• Target Price: US$8.6 (up 17.8% from current price of US$7.3).
• Valuation Comps:
  • Netflix: 27.4x/22.1x/18.6x P/E
  • Mango: 30.1x/25.1x/21.7x P/E
  • Average P/E: 19.0x/16.1x/15.0x
  • Average P/S: 2.7x/2.5x/2.2x

Key Investment Risks

• Content Delays: Potential delays in the release of key content could impact performance.
• Regulation Uncertainty: Continued regulatory scrutiny may affect content availability and business operations.
• Ads Recovery: Slower-than-expected recovery in advertising revenue due to macroeconomic uncertainties.
• Competition: Intense competition from SFV (Streaming, Gaming, and Video) platforms.

Strategic Outlook

• Content Pipeline: iQIYI has a robust content pipeline for FY23E, including "Fox Spirit Matchmaker" (狐妖小红娘), "Story of Kunning Palace" (宁安如梦), and others.
• Monetization: The company is expected to benefit from stronger monetization, rising TV members, and higher pricing.
• Long-Term Growth: The company is on a growth trajectory with improved operating leverage, cost control, and content cost optimization.

Market Data

• Market Cap: US$6,587mn
• Average 3 Months Trading Volume: US$105.99mn
• 52-Week High/Low: US$7.99/US$1.65
• Total Issued Shares: 513mn

Shareholding Structure

• Goldman Sachs: 4.93%
• Oasis Management: 4.58%
• Bank of America: 4.51%

Share Performance

• 1-Month: +22.1% (Relative: +15.4%)
• 3-Months: +150.0% (Relative: +136.4%)
• 6-Months: +93.6% (Relative: +108.7%)

Valuation Analysis

• DCF Valuation: Equity Value is estimated at RMB55,790mn, with a Target Price of US$8.6.
• FCF Growth:
  • 2023E: 5,699mn
  • 2024E: 3,040mn
  • 2025E: 3,417mn
• Terminal Value: RMB92,183mn
• FCF Growth Rate: Expected to stabilize at ~9% by FY25E.

Summary of Key Points

• iQIYI delivered a strong 4Q22 performance, exceeding expectations in both revenue and adjusted net profit.
• The company is forecasted to see accelerated revenue growth in 1Q23E due to the success of "The Knockout" (狂飙) and other premium dramas.
• Subscriber growth is expected to continue, with a 11mn net addition forecasted in 1Q23E.
• The company is on a margin improvement trajectory, with non-GAAP OPM expected to reach 10% in 1Q23E and 14% in FY25E.
• The BUY rating is maintained, with a raised target price of US$8.6.
• The valuation is slightly above the industry average but in line with Netflix and Mango.
• Key risks include content delays, regulation uncertainty, slower ads recovery, and intense competition.

Conclusion

iQIYI is well-positioned for continued growth in the coming quarters, driven by a strong content pipeline, improved margins, and better subscriber performance. The BUY rating is maintained, with a higher target price reflecting the company's improved fundamentals and growth prospects.