On February 3, '24, Meitu announced the acquisition of the domestic designer community website for 280 million yuan, and the AIGC ecosystem was perfected. On February 3, '24, Meitu announced the acquisition of the designer platform website Cool Network for US$39.64 million (contract RMB 280 million). Of this, 157 million yuan was paid in cash, and the remaining $138 million was distributed as shares (price of HK$2.6 per share). Zhanku.com's revenue in 2022 is 171 million yuan, and the acquisition is about 1.7 times the valuation according to PS. As a landmark for scarce AI commercial applications in China, we maintained the company's 23-25 revenue of 27.2/37.3/4.82 billion, adjusted net profit of 3.7/6.5/1.02 billion yuan in 23-25, and YOY +231.7%/77.0%/56.9%. According to the closing price on February 5, the 23-25 PE is 25.7/14.2/9.2x, respectively. The exchange rate (RMB to HKD) assumes 1.09, considering that the company will usher in rapid growth driven by the AIGC productivity scenario. Based on the PE valuation target price of HK$5.10, the “buy” rating is maintained.

Creative production and creative communication scenarios have been opened, and tool production to community sharing forms a closed-loop platform for domestic designers, covering 13 subcategories including graphic design, industrial design, and film and television production. It helps designers build a platform for sharing works, exchanging experiences, and learning skills through strong community traffic and professional certification. Referring to Adobe's acquisition of the design community Behance for 150 million US dollars in 2012 and integrated it into Creative Cloud to build the world's leading creative design ecosystem, we think this acquisition is significant: 1) Meitu's focus on creative production and Zhanku's focus on creative communication to form complementary advantages. Meitu's traffic advantage of about 250 million MAU combined with Zhanku's perfect design community construction to achieve a closed loop of creative content from tool production to community sharing to communication and monetization; 2) Zanku is the leading overseas material library Shutterstock's exclusive agent in China, from January to November 2023, sold “poster templates” as one of Meitu designers' main revenue sources. Buyout Station Cool has perfected its marketing and production material library, which helps improve subscription conversion for Meitu's core products; 3) Zhanku Co-creates business focusing on brand marketing. Through high-quality designer resources, Meitu can provide customers with more professional marketing solutions for FMCG, e-commerce, food and beverage brands to promote the improvement of advertising business.

The productivity scenario continues to be refined, and the AIGC ecosystem continues to improve

In 2023, Meitu focused on the layout of AI productivity scenarios. Buying Site Cool is important for Meitu to polish products in productivity scenarios and improve the visual AIGC ecosystem: 1) Zhanku has commercial copyrights for massive image materials. According to the company's official website, it currently has about 450 million images and 24 million video resources. High-quality training data helps Meitu Visual AI models expand the training scale, improve training quality, and eliminate AI-generated copyright disputes when commercialized; 2) Obtain more vertical ones through Meitu's AI productivity products on the website of the website Promotion channels promote the use of Meitu's AI products by more designers. Zhanku currently has about 17 million registered users, helping to further increase the number of Meitu users; 3) Buying Zhanku helps more designers participate in the Meitu Visual Big Model ecosystem. On the one hand, Meitu can promote AI design tools through Zhanku's learning platform and cultivate users' usage habits. On the other hand, in the process of designers using AI products, Meitu can obtain designers' usage evaluations through motivational feedback mechanisms, so as to better train models and deeply integrate them into the design workflow.

Risk warning: Cooperation with Zhanku is not progressing smoothly; large-scale image models are not progressing as well as expected; competition within the industry is intensifying.