Incident: The company announced on the Hong Kong Stock Exchange on March 15 that it achieved operating income of 2.7 billion yuan in 2023, an increase of 29% over the previous year, and achieved adjusted net profit of 368 million yuan, an increase of 233% over the previous year, close to the upper limit of the previous performance forecast range (333-370 million yuan).
Adjusted net profit increased dramatically, and commercialization space continues to increase with AI. The company announced on March 15 on the Hong Kong Stock Exchange that in 2023, it achieved operating income of 2.7 billion yuan, a year-on-year increase of 29%, and achieved an adjusted net profit of 368 million yuan, a year-on-year increase of 233%, close to the upper limit of the previous performance forecast range (33-370 million yuan). After excluding the effects of adjustments to non-operating items (cryptocurrency impairment loss rebates, long-term investment fair value changes, etc.), the net profit still achieved a significant year-on-year increase. The gross margin reached 61.4%, an increase of 4.5 pct year-on-year, mainly in high-margin businesses such as imaging and design products, and Driven by a recovery in advertising business. In terms of costs, the R&D cost rate reached 23.6%, and the increase in AI-related investment has led to a certain increase in R&D personnel and computing power related expenses. The company announced a dividend of HK$0.036 per share, totaling RMB 146 million, with a dividend payment ratio of 40.2%.
Revenue from core business imaging and design products continued to rise, and the conversion of paid subscriptions to productivity products exceeded expectations. Looking at the business segments:
1) The imaging and design products business achieved revenue of 1,327 billion yuan, an increase of 53% over the previous year, accounting for 49.2% of revenue, which is the core driving factor for the impressive growth in the company's performance in 2023. In terms of the number of users, MAU reached 250 million as of December 31, 2023, up 2.6% year on year, the number of users from productivity application products reached 17.7 million, up 74.3% year on year, the number of paid subscription users reached 91.1 million, up 62.3% year on year, and the payment rate reached 3.7%. Compared with the end of 2022, up 0.8 pct from the end of June 23, AIGC technology driven the logic of increasing the payment rate continues to be implemented. Productivity products such as Meitu Design Office and Open Auction are growing and paying for users The performance in terms of cost conversion exceeded expectations. Among them, Meitu Design's revenue in 2023 exceeded 100 million yuan, an increase of 229.8% over the previous year.
2) The beauty solutions business achieved revenue of 569 million yuan, an increase of 29% over the previous year. The increase was mainly due to an increase in cosmetics supply chain management services. The company provides ERP services to more than 10,000 offline cosmetics stores. As the number of partner brands continues to increase, the proportion of low-margin products selected will decrease, which is expected to drive continuous improvement in gross margin.
3) The advertising business achieved revenue of 759 million yuan, an increase of 21% over the previous year. The company continues to explore various creative marketing solutions to bring high conversion to advertisers.
Focusing on productivity and globalization, product strength continues to improve. In January 2024, the company officially launched MiracleVision, a large self-developed AI vision model. Furthermore, in order to further improve the construction of the productivity ecosystem, the company announced in February 2024 the acquisition of the leading domestic designer community website cool, enhance the penetration of the designer community, and enable continuous iteration of large models and productivity products to enhance product power. At the same time, the company has deployed video products in 195 countries and regions, accounting for more than 30% of overseas users, contributing more than 50% of video revenue. As the company's globalization strategy gradually becomes clear, it is expected that it will give full play to its diverse aesthetic advantages and further expand its overseas market share through localized marketing methods.
Maintain a “Highly Recommended” investment rating. Since the company released various AI products in June 2023, the increase in payment rates has continued to accelerate. With the release of various productivity tool products, the company's application scenarios have gradually expanded from lifestyle and entertainment to productivity scenarios. Currently, the awareness of domestic and foreign users of payment for tool applications continues to increase, and target users of productivity tools are more willing to pay. At the same time, the company has been deeply involved in the retouching application market for many years, has high user stickiness, and pioneered the launch of large-scale models in the visual field to enable users to improve efficiency. We believe that the company is expected to open up more commercial space under the power of AIGC technology. We expect the company to achieve revenue of 37.0, 47.0, and 5.71 billion yuan in 24-26, adjusted net profit of 5.9, 8.3 billion yuan, and 9.3 billion yuan, maintaining a “highly recommended” investment rating.
Risk warning: AI product launch results fall short of expectations, VIP subscriber growth falls short of expectations, and industry competition intensifies.