2023H1 grows significantly after adjustment for EBITDA, maintaining its "buy" rating

2023H1, the company's operating income was $506 million, an increase of 11.0% over the same period last year, mainly due to a 13.9% year-on-year increase in revenue from the Mintegral platform to $468 million; a net profit of $10.16 million, down 58.8% from the same period last year; mainly due to an one-time income of $48.8 million from the 2022Q1 divestiture business, which pushed up the 2022H1 profit base. The adjusted EBITDA was US $51.8 million, an increase of 789.5% over the same period last year, mainly due to the release of Mintegral economies of scale and the strong performance of Nativex. Based on the company's advertising business forecast, we downgrade the 2023-2024 profit forecast and the new 2025 profit forecast. It is estimated that the company's 2023-2025 net return profit will be 0.19x0.44max 0.79 million (prior to 2023-2024: 0.98 pm 167m), corresponding to EPS 0.01max 0.03pm, and the current share price corresponding to PE is 41.1175pm 9.8 times respectively. We are optimistic that Advertising recommendation algorithm optimization and AIGC enabling to drive the growth of the company's advertising business and maintain the "buy" rating.

Mintegral enterprise customers increased significantly compared with the same period last year, and the proportion of moderate and heavy games increased significantly.

In the 12 months to the end of 2023H1, the number of enterprise customers (revenue contribution of more than US $100000) was 462, an increase of 44.4% over the same period last year. Enterprise customers have strong payment ability, stability and platform stickiness, which promotes the expansion of platform scale and revenue growth. In terms of category, the proportion of moderate and heavy games in Mintegral revenue increased from 19.2% of 2022H1 to 29.7% of 2023H1. On the basis of maintaining the leading position of light games, the company further grabs the medium and heavy games with a higher proportion of internal purchase, which conforms to the trend of mixed realization. In the future, the company is expected to achieve high-speed development driven by the flywheel effect by continuously increasing the number of enterprise customers and developing moderate and heavy games at the same time.

Advertising recommendation algorithm is further optimized, AIGC enables advertising technology business to reduce cost and increase efficiency

Mintegral launched Target ROAS, a smart bid product, in May 2023, and differentiated pricing drove Mintegral revenue growth. The company actively embraces the general trend of AI, introducing large model technology into the existing cloud native platform MaxCloud, building a DevOps Copilot system to help the engineering team deliver products efficiently, and algorithm optimization to promote the company's 2023H1 gross profit margin to 20.3% higher than the same period last year. In the future, the company will use AI tool enabling algorithm to drive the gross profit margin of advertising and marketing technology business to further increase, and continue to strengthen the competitive advantage of Mintegral in the field of Ad-tech, give full play to scale effect to drive down rates, and open up the space for future commercialization.

Risk tips: policy changes in the advertising industry, increased competition in the industry, AI application progress is not as expected.