Matters:
The board of directors of the company announced on June 12 that because they are confident in the long-term prospects of the company's main business and in order to improve shareholder returns, a potential repurchase plan has now been launched to take the opportunity to exercise repurchase rights in accordance with the general authorization issued on April 17. The maximum number of shares to be repurchased this time can reach 111 million shares, equivalent to 10% of the company's total share capital after issuing shares when it was first listed.
Commentary:
The launch of a potential buyback plan shows management's optimistic expectations for the long-term development of the main business. The company initially used free SaaS services for users to divert customers, and is now the largest operator of interactive advertising in China. SaaS services operated by domestic users are still in the early stages of low penetration, and there is huge room for future market development. According to iResearch's data, the SaaS market operated by domestic users has a CAGR = 78.1% in the past 5 years and will reach 56.8% in the next 5 years. It is expected that under the awakening demand of small and micro enterprises and catalyzed by new retail concepts, the market penetration rate of online enterprises is expected to increase from 0.1% in 2013 to 1.1% in 2018 and continue to increase to 18.7% in 2023; offline companies are expected to increase from 0.3% in 2013 to 3.4% in 2018, and will continue to increase to 19.3% in 2023.
The interactive effects advertising market is expected to maintain a high level of prosperity, and the overall performance of the company's CPC model billing is a “steady increase in volume and price” trend. The domestic interactive effects advertising market has fizzled out in recent years, and future growth is expected to be significantly greater than cyclical; the market size in 2018 was 2.1 billion yuan, and is expected to increase to 13.5 billion yuan in 2023, CAGR = 44.5%; the company's advertising revenue was stable under the bidding system, and the average revenue per click per billing in 2017-2018 was 0.36/0.35 yuan.
In view of the broad prospects and good synergies of the development of the two main businesses of user-operated SaaS services and interactive effect advertising, the company's management announced the launch of a potential repurchase plan, highlighting the company's firm long-term confidence in the future development trend, market position, and monetization capacity of its main business.
The company focuses on technology-driven advertising revenue growth and optimization of user operation results. Future development targets Adtech giant Trade Desk and is committed to building a leading domestic performance advertising SaaS service. The company is positioned as a technology-driven SaaS service and advertising agency operator, with more than half of the R&D staff. Currently, the operating business has essential differences between the operating model and target customers of SaaS service providers such as WeiLeague and Youzan, and the development path of the technology advertising business is expected to be on par with Trade Desk.
Profit forecasts, valuations, and investment ratings. We maintain our forecast that the company's adjusted net profit for 2019 to 2021 was 425/710/990 million yuan respectively; using the segmented valuation method, we expect the company's users to operate the SaaS service business to achieve revenue of 100/340/600 million yuan respectively in 2019-2021, giving the company seven times the market sales rate of this business in 2019; the interactive effects advertising business achieved adjusted net profit of 440/715/999 million yuan respectively in 2019-2021, giving 2019 20 The price-earnings ratio corresponds to the company's target market value of HK$10.830 billion in 2019, maintaining the target price of HK$9.76 and maintaining the “strong push” rating.
Risk warning: macroeconomic fluctuations, empirical biases in predicting future performance, excessive price increases in media supplier resources, shocks in the diversion of new media channels, increased competition in the industry, payment conversion for SaaS platforms operated by users fell short of expectations, and management share repurchase plans fell short of expectations.