In 2023Q3, the company's performance was in line with expectations, achieving revenue of US$270 million (yoy +26%), core business Mintegral achieving revenue of US$255 million (yoy +28%); and realized adjusted net profit of US$4.07 million, and adjusted net interest rate of 1.5%. The 2023Q3 and Target ROAS smart bidding functions have been initially verified by the market, driving both Mintegral's revenue and profit. We recommend focusing on the growth momentum brought to the company by Target ROAS in 2023Q4 and 2024. At the same time, the rapid development of AI has also further opened up room for company efficiency optimization and market expansion. We believe that in the long term, the company is expected to benefit from the growth in performance brought about by the domestic Internet overseas market trend and category expansion, and maintain the “buy” rating.
Performance Overview: Performance is in line with expectations, and profitability is steadily improving. 2023Q3, the company achieved revenue of US$270 million, up 25.9% year on year, of which AD-tech/Mar-Tech accounted for 98.5%/1.5% of revenue, respectively; achieved net revenue of US$73.32 million, up 34.8% year on year, with a net revenue ratio of about 27.2% (yoy-0.3 pct); and achieved gross profit of US$55.5 million and gross margin of 20.6% (yoy-0.8pct). On the cost side, 2023Q3, the company's sales/development/development/management expenses were 125/2871/10.33 million US dollars, respectively, and the cost rate was 4.7%/10.7%/3.8%, respectively, compared to -1.6/-2.1/-1.8 pcts. On the profit side, in 2023Q3, the company achieved net profit of 3.26 million US dollars, net interest rate of 1.2%; realized adjusted net profit of 4.07 million US dollars, adjusted net interest rate of 1.5%, turning a loss into a profit over the previous year.
Advertising technology business: Steady growth in turnover, and ROAS drives both revenue and profit growth. In 2023Q3, the company's advertising technology business achieved revenue of US$265 million, up 25.8% year on year. Among them, Mintegral/Nativex achieved revenue of 255 million million/9.99 million US dollars respectively, +28.2%/-14.3% over the same period last year. The Ad-Tech segment achieved gross profit of US$52.31 million, with a gross margin of 19.7% (yoy+1.1 pcts). In terms of customer composition, the company's customer stickiness remained at a high level. 2023Q3, the retention rate of the company's major customers (which contributed more than 100,000 US dollars in revenue over the past 12 months) reached 94.7%, and the net expansion rate based on the US dollar reached 111.0%. In terms of categories, the revenue share of heavy gaming/light gaming/non-game categories in 2023Q3 Mintegral was 31.8%/46.9%/21.3%, respectively, compared to +10.7/-4.3/-6.4pcts. The 2023Q3 and Target ROAS smart bidding functions have been initially verified by the market, driving both Mintegral's revenue and profit to rise. It is expected that advertisers will continue to optimize their advertising effectiveness in the future, and promote the company's breakthroughs in medium and heavy gaming and non-game categories.
Marketing technology business: AI empowers marketing efficiency and is expected to open up high-potential markets. 2023Q3, the company's marketing technology business achieved revenue of US$3.96 million, a year-on-year increase of 33.1%; achieved gross profit of US$3.19 million, with a gross margin of 80.5% (yoy+16.6pcts). The company actively uses AI technology, uses LLM, CV, AIGC, etc. to assist in advertising creative generation, drastically reduces advertising content production costs, and continues to acquire customers through higher marketing efficiency, which is expected to drive revenue growth in marketing technology business.
Risk factors: the risk of revenue falling short of expectations in the new category; the risk of increasing market competition and continuing to decline in gross profit levels; risk of loss of important customers; risk of loss of goodwill; risk of user privacy data supervision; risk of iterative technology research and development, etc.
Profit forecast, valuation and rating: Considering that the current macroeconomic environment at home and abroad has certain uncertainties that may affect advertisers' budgets, we lowered our 2023-2025 revenue forecast to US$10.6/12.4/US$1.43 billion (previous value: US$11.2/13.8/1.64 billion), an increase of 18%/17%/15% year on year; maintaining 2023-2024 and adjusting the adjusted net profit forecast for 2025 to 0.24/0.48/0.69 billion US dollars (forecast before 2025 million US dollars) , a year-on-year increase of 143%/105%/42%. Referring to the valuation of comparable companies such as Applovin and Unity (according to the unanimous expectations of Reuters, the current price corresponds to the 2024 average of about 35x PE valuation), and considering the differences in growth rate and profitability between companies, we gave the company a 2024 30x PE (adjusted) valuation, corresponding to the target price of HK$5 in 2024, maintaining a “buy” rating.