Xiniu Securities believes that Chizicheng Technology (09911) will submit an ideal annual performance while providing bright guidance for its innovative business.
The Zhitong Finance App learned that Xiniu Securities released a research report stating that maintaining the “buy” rating of Chizicheng Technology (09911), it is believed that it will submit an ideal annual performance and at the same time give bright guidance to its innovative business. Whether future innovative businesses and new social apps can achieve a balance of income and expenditure is the bank's main focus. The target price is HK$3.78.
Incident: The company announced the latest operating figures up to the end of December 2023. The Group's revenue from the social networking business is expected to be about RMB 2.95 billion — RMB 3.05 billion, an increase of about 15.4% to 19.3% over the same period in 2022, while revenue from the innovative business is expected to grow 32.2% to 48.8% year on year to RMB 320 million to RMB 360 million.
The main views of Xiniu Securities are as follows:
The bank's expectations for the social business:
In the first half of fiscal year 2023, Chizicheng Technology achieved an ideal profit margin after proposing a series of optimizations, but the adjustment period had a negative impact on the revenue of the social networking business. The Group has now basically completed adjustments to live broadcasters. The bank expects the Group's gross margin to remain stable in the second half of fiscal year 2023, while the slight increase in revenue from the social networking business (after deducting the influence of the Blue City Brothers) is mainly due to strong growth in SUGO and TopTop.
The bank's expectations for innovative businesses:
The bank expects revenue from Alice's Dream to achieve the desired quarterly growth over the past two quarters. Meanwhile, the Group launched a total of two new games in 2023, and is expected to launch two more games in the coming year, which is expected to drive the revenue of the innovative business to a higher level. The bank expects the Group's innovative business to grow close to FY2023 in FY2024, while its main product, Alice's Dream, is expected to be profitable.
The outlook is likely to be attractive:
The bank believes that i) the replacement of live broadcasters, ii) the increase in TopTop's revenue share, and iii) the increase in external payment ratios will help improve the profitability of Chizicheng Technology in the current fiscal year and the future, offsetting the Group's slower revenue growth rate than expected by the bank. However, due to the influence of Blue City Brothers, the bank expects the Group's net profit margin to still record a decline in fiscal year 2023 and fiscal year 2024, but this decline is one-off and unrelated to the deterioration of the Group's operations.