Revenue is expected to increase 48% year over year for the first half of 2022
We expect Huiliang Technology's revenue for the first half of 2022 to increase 48% year over year to US$450 million; we expect adjusted net loss to reach US$22.788 million (adjusted net loss for the same period last year was US$6.772 million).
Key points of interest
The core business is being carefully expanded, and it will take time to refine marketing technology. We expect ad tech business revenue to grow 46% year over year to $450 million in the first half of 2022. Among them, programmatic advertising platform Mintegral's revenue is expected to be US$4.1 billion, an increase of 83% over the previous year. According to the company's announcement, Mintegral's revenue for the second quarter was 210 million US dollars, up 64% year on year and 5% month on month. Against the backdrop of declining overseas macroeconomic conditions and slowing down actual sales revenue growth in the overseas market for games developed by China, we believe the Mintegral platform's traffic procurement and category expansion will tend to be cautious, and the revenue growth rate will decline somewhat; despite this, compared with leading overseas advertising technology companies, the growth rate of the Mintegral platform is still in the middle and upper reaches, showing the company's leading position and market influence in the field of light and ultra-light games. Affected by the divestment of the big media business and fluctuations in customer budgets, we expect Nativex platform revenue to fall 24% year over year to $37.11 million in the first half of the year. In the marketing technology business sector, according to the company's announcement, by the end of June 2022, Huiliang Technology's shareholding ratio in Reyun Data had reached 64%. The company plans to integrate products such as GameAnalytics and Reyun Data into a comprehensive solution called “Thermal Engine,” but it will take time to polish and integrate the products. Combined with the impact of regulatory policies since last year on the Reyun Data business, we believe that the growth of the marketing technology business will be relatively moderate in the short term. It is estimated that the revenue of the three businesses in the first half of the year will be 466,000 US dollars, 5.714 million US dollars, and 258,000 US dollars, respectively.
Gross margin is expected to improve, and net interest rates are under pressure in the short term. Thanks to more prudent traffic purchasing strategies, continuous optimization of algorithms, and increased computing power usage capacity, we expect the gross margin of the advertising technology business to increase by 5 percentage points to 19% year-on-year in the first half of 2022, and drive the company's overall gross margin to 20%. At the same time, the amortization of intangible assets brought about by the Reyun acquisition, the increase in channel expenses of the aggregation platform, and the increase in personnel remuneration will put pressure on the company's profit level. We expect the adjusted net loss ratio to increase by 2.8 percentage points to 5.0% year-on-year in the first half of the year.
Profit forecasting and valuation
Considering the slowdown in Mintegral's expansion and the increase in the company's fees, we lowered the company's revenue forecasts for 2022 and 2023 by 17.1% and 22.2% to US$950 million and US$1.26 billion, respectively, and lowered the adjusted net profit forecasts for 2022 and 2023 by 279.0% and 82.8%, respectively, to -304.36 million dollars and 11.836 million US dollars. Maintaining the outperforming industry rating, the target price was lowered by 30.0% to HK$5.6 (based on the 2022 segment plus total valuation method, corresponding to 1.2 times the market sales rate in 2022).
The company is currently trading at 1.1 times the 2022 market sales rate, and our target price has 18.1% upside from the current stock price.
risks
Changes in the international environment; risk of impairment of goodwill; uncertainty of entering new vertical industries; regulatory risks.