Incident: Meitu announced its 2023 results. In 2023, the company achieved operating income of 2.7 billion yuan, a year-on-year increase of 29.3%; achieved adjusted net profit of 368 million yuan, an increase of 233.2% over the previous year; and realized net profit to mother of 366 million yuan, an increase of 1839.6% over the previous year.
Comment:
Imaging and design products contributed the most to performance growth, and profitability improved significantly. During the reporting period, the company's imaging and design products achieved revenue of 1,327 billion yuan, an increase of 52.8% over the previous year. The main reason for this business growth was that, driven by generative AI, the penetration rate of paying users in the imaging product portfolio rose rapidly to 3.7%, an increase of 0.8 pct over 1H23. The company's beauty solutions achieved revenue of 569 million yuan, an increase of 29.1% over the previous year, mainly due to the expansion of the company's cosmetics supply chain management service business and the increase in the number of cooperative brands. The company's overall gross margin was 61.4%, an increase of 4.5 pct over the previous year. The main reasons were: 1) the share of high-margin imaging and design products business increased; 2) supply chain management services reduced the proportion of low-margin products. The company's sales/R&D/management expenses rate declined sharply along with the increase in revenue scale, to 15.88%/23.57%/11.16% respectively, a year-on-year decrease of 3.45/4.54/1.87pct, and overall profitability increased significantly.
AI helps Meitu expand productivity scenarios. By the end of 2023, the company's MAU reached 250 million, an increase of 2.6% year over year. Among them, the MAU for the productivity scenario reached 17.66 million, an increase of 74.3% over the previous year.
The company actively expanded the 2B business in 2023, increased product penetration in e-commerce, marketing, and design fields, and added a wide range of AI functions to Meitu Design Studio, launch of products, etc., and has achieved remarkable results so far. Meitu Design's products generated more than 100 million yuan in revenue in 2023, an increase of 229.8% over the previous year. As of December, MAU reached 15.63 million, and the subscription penetration rate reached 6%. Among them, the AI product map function effectively reduced the cost of e-commerce merchants to produce marketing materials. By the end of February 2024, the function had generated more than 130 million AI product maps. It is expected that the company will launch more AI tools around e-commerce and marketing scenarios to increase the B-side influence of the company's products. Furthermore, the company expects to strengthen the overseas promotion of Meitu Design Office in 2024, which is conducive to continuing to broaden the customer base.
Buying stations improve the designer ecosystem. The company announced the acquisition of Zhanku in February 2024. This acquisition cooperation will strengthen the company's layout in the community ecosystem: 1) its “Zhanku Hailuo” is the largest copyright image and video trading platform in China. After the acquisition, it is expected to provide the company with high-quality, commercially available materials for visual large-scale model training; 2) The Zhanku community has 17 million registered users. Meitu can later use Zhanku as a promotion platform for its big models to enhance feedback and iteration of the model, and use Zhanku's education section to cultivate users' habits of using Meitu AI design tools.
Investment advice: First coverage, with an “increase in weight” rating. The company is expected to achieve revenue of 35.7/45.6/5.82 billion yuan in 2024-2026, a year-on-year increase of 32.5%/27.7%/27.6%; adjusted net profit to mother of 5.72/8.51/1,227 billion yuan, an increase of 55.45%/48.58%/44.21% year-on-year.
Risk warning: Visual large-scale model iteration, global expansion falls short of expectations, virtual currency risks.