Revenue for 2023 fell short of our expectations, and profits were basically in line with our expectations. Huiliang Technology announced its 2023 results: revenue increased 18% year over year to US$1.05 billion, lower than our expectations, mainly due to Mintegral's slower revenue growth rate than expected; adjusted net profit to mother recorded US$22.34 million, corresponding to an adjusted net interest rate of 2.1%, which is basically in line with our previous expectations.
Development trends
Target ROAS IAA is beginning to show results, and the IAP algorithm continues to be refined. In 2023, Huiliang Technology's advertising technology revenue was US$1.04 billion, up 18% year over year; of these, Mintegral platform revenue increased 19% year over year to US$980 million, and Nativex revenue increased 3% year over year to $58.08 million (excluding the influence of leading media agency business, the year-on-year growth rate was 24%). Since 2023, due to the impact of the macro environment, careful management and stable cash flow have been the focus of game developers' concerns, and mixed monetization of “advertising+internal purchases” has become a trend. In May 2023, Mintegral officially launched the Target ROAS IAA (In-App Advertising) feature. Advertisers can set IAA ROAS return targets on the platform, which will be automatically placed by Mintegral. According to the company's announcement, smart bidding products contributed close to $1.5 million per day. Management said that the company will continue to work on the IAP (In-App Payment) ROAS marketing system to expand Mintegral's growth space in the non-casual game category. In 2023, the share of heavy games in Mintegral's revenue increased to 29.1% (20.8% in 2022).
Costs are strictly controlled, and profit levels are rising steadily. In 2023, Huiliang Technology's overall gross margin increased 0.8 percentage points to 20.6% year over year. Among them, the gross margin of the advertising technology business increased 0.6 percentage points year over year to 19.7%, mainly benefiting from the optimization of traffic acquisition costs. Management said that through multi-cloud scheduling and the introduction of more new computing power, the share of unit server costs fell to 5% at the end of 2023 (9% in early 2022); at the same time, the Mintegral platform has been able to achieve strong control over various profit margins. Benefiting from various cost control measures, the company recorded an adjusted net profit of US$19.12 million in 2023, an increase of 0.7 percentage points in the adjusted net interest rate; adjusted EBITDA recorded US$110 million, and the adjusted EBITDA profit margin increased 6.0 percentage points year on year. Looking at the split business, the adjusted EBITDA for the advertising technology business in 2023 was US$110 million, and the adjusted EBITDA for the marketing technology business was -2.44 million US dollars.
Profit forecasting and valuation
Considering that the company's IAP algorithm for medium to heavy games is still being refined, the 2024 revenue forecast was lowered by 9.4% to $1.25 billion, and the 2024 adjusted net profit forecast was lowered by 18.0% to $51.85 million. Introducing the 2025 earnings forecast: estimated revenue of $1.50 billion and estimated adjusted net profit to mother of $78.73 million. Maintaining the outperforming industry rating, the target price was lowered by 19.6% to HK$4.5 (based on the 2024 segment plus total valuation). The current stock price corresponds to 0.5 times the 2024 market sales rate, and our target price has 37.2% upside compared to the current stock price.
risks
Changes in the international environment; risk of impairment of goodwill; uncertainty about the expansion of new categories; regulatory risks.