On October 19, China Merchants Securities International released a research report covering and giving Chizicheng Technology a “buy” rating for the first time. It is optimistic that it “merges with the Blue City Brothers”, “the innovative game business opens a second growth curve”, “the profit margin expansion is impressive”, and “the profit prospects are bright”. It remains optimistic about the continued implementation of the company's growth logic in the future, and set its target price at HK$4.4.
Social business: merging new business lines and starting again with Blue City
According to China Merchants Securities International, the company's sharp increase in revenue and profit is mainly due to the rapid development of social networking business. Currently, Chizicheng Technology has the open social networking application MICO, the voice social app YoHo, the game social networking app TopTop, and the companion social app SuGo, forming a differentiated product matrix. Furthermore, the company successfully completed the acquisition of Blue City Brothers. It owns Blued, an LGBTQ+ social networking software popular in Asia, and has been merged since August '23.
According to information, at the level of the pan-population social networking business, the company completed adjustments to the content ecosystem in the first half of the year, and the platform's content quality, community stickiness, and interactive experience were all improved. At the same time, the “product replication” strategy has been validated once again, and new products have begun to contribute more commercial value to the business.
Among them, SUGO, which the company launched last year, showed outstanding performance. Through actions such as optimizing matching and recommendation efficiency and promoting refined operations, SUGO's revenue in the first half of the year increased more than fivefold year-on-year, and its revenue growth rate steadily ranked among the highest overseas products of the same type.
In terms of social networking services for diverse people, with the Blue City Brothers merger in August, the company's product matrix was further improved. Akashi City said at the mid-term results conference that the Blue City Brothers have been profitable since August last year, and that the company will continue to help Blued fully enhance its overseas operating capabilities by optimizing the customer acquisition model, enriching and changing scenarios, and strengthening local operations.
Innovative business: Premium games drive both scale and revenue explosion
In addition to the continued growth of social networking services, Chizicheng Technology is also actively building a “second growth curve” represented by boutique games.
Since 2023, “Mergeland-Alice's Adventure”, a new synthetic mobile game under Chizicheng Technology, has shown strong growth, with monthly turnover exceeding 2 million US dollars, and has entered the “August 2023 China Mobile Game Overseas Revenue Growth Ranking” and “August 2023 China Mobile Game Download Top 30 | Overseas App Store+ Google Play” lists published by the mobile data analysis platform Sensor Tower for the first time, ranking 17th in the revenue growth rankings. Download Ranked 30th in the volume ranking.
China Merchants Securities International said that the company also plans to release several games for some time to come. As innovative businesses continue to explode, the company expects to usher in a collaborative development situation between social networking and gaming.
Furthermore, China Merchants Securities International also believes that thanks to the implementation of the “double growth engine” strategy, Chizicheng Technology has initially constructed a differentiated product matrix, which is expected to rely on its advantages to move into a moderate gaming track and gradually achieve diversification.
Overall, China Merchants Securities International said that the current valuation of Chizicheng Technology Company is 5.9 times the price-earnings ratio for FY24. It believes that the company's social business (including Blue City Brothers) should have a valuation multiple equivalent to the average value of peers (9.8 times). Therefore, for the first time, it was covered and given a “buy” rating, and the target price was set at HK$4.4.