A leading domestic retail and e-commerce SaaS provider, Tencent's core advertising service provider, was given an “increase in weight” rating
Weimeng is a leading retail e-commerce SaaS leader and precision marketing service provider in China. On the revenue side, the SaaS business was affected by the macro environment in 2023, but smart retail demand was highly deterministic, there were few competitors at the same level, and future release was delayed due to macroeconomic recovery; video channels in the advertising business started rapidly, and the company enjoyed structural dividends as an important service provider of Tencent. On the profit side, along with organizational optimization and labor efficiency improvements, we expect the company's 2024-2026 revenue to be 25.1/29.5/3.39 billion yuan, corresponding to a year-on-year growth rate of 12.8%/17.2%/15.0%; adjusted net profit of 0.5/2.0/ 360 million yuan, corresponding to diluted EPS of 0.02/0.07/0.13 yuan, turning a loss into profit in 2024, and a year-on-year growth rate of 302%/81% in 2025-2026. The current stock price is 1.6HKD corresponding to 2024-2026 PE 92.2/22.9/12.7 times, PS1.8/1.6/1.3 times. First coverage, giving a “gain” rating.
Large-scale SaaS drives revenue growth, and future profits are expected to be achieved with organizational optimization and human efficiency improvements
From an industry perspective, small WeChat stores are crowding out the market, and e-commerce SaaS products tend to be homogenous; the retail SaaS market space is vast, and product development and entry points are varied. Looking at the business model, the key to increasing revenue in the SaaS business is to change the brand/small to medium business structure and product AOV to boost ARPU value. Colleagues drive the growth of paying merchants by increasing the penetration rate of new customers and the repurchase rate of old customers; the core of profit is to make customer acquisition costs covered by subscription fees and rapidly improve labor efficiency as soon as possible. Weimeng's core SaaS strategy, smart retail, drives definite growth in ARPU, expands the supply-side product matrix to attract users to repurchase and buy more, and the demand side shifts from leading customers to lower back customers to explore greater market growth. With first-mover and capital advantages, product strength is stabilized, and the customer acquisition mechanism of “super customers - KA customers - waist customers” is realized through Tencent channels and BD direct sales.
The advertising business benefited from macroeconomic recovery and video number growth, forming a synergy effect with the SaaS business Weimeng is Tencent's core social advertising agency. Benefiting from macroeconomic recovery and video number growth, the company's gross commercial solution revenue increased 44.5% year-on-year in 2023. Revenue increased 60.5% year over year, and the company is expected to continue to benefit from video account dividends in the future. Precision marketing and some customers in the SaaS business have a synergy effect. At the same time, the company is actively expanding channels such as Kuaishou and Xiaohongshu.
Risk warning: Macroeconomic growth has slowed, competition has intensified, and SaaS business losses have fallen short of expectations.