Ten years of going overseas to sharpen one sword and create a “social +” product matrix
Chizicheng Technology is the main Internet company in China, focusing on the three major businesses of pan-crowd social networking, multi-person social networking, and innovation. Currently, its business covers more than 150 countries and regions in Southeast Asia, Middle East and North Africa, East Asia, North America, etc., and has set up more than 20 operation centers around the world, serving a total of 1 billion+ users worldwide. The company has implemented the development path of “product replication” and “national replication”. Pan-crowd social networking is the company's cornerstone business. It has established a foothold in the Middle East, North Africa, and Southeast Asia, and is trying to develop markets in Europe, America, Japan, and South Korea; its diverse social networking provides a social platform for LGBTQ+ people, and the company has seized opportunities on this track and is currently continuing to make profits; in addition, the company vigorously lays out the boutique casual game industry, focusing on synthetic games. Get top positions on multiple lists.
Social business is actively developed, and innovative business is expected to be realized
The company's FY2023 revenue continued to grow steadily. The company completed the acquisition of MICO and Blue City Brothers in 2020 and 2023, leading to a sharp increase in its performance, excluding the impact of the merger. The company's original business has maintained steady growth in recent years, mainly due to the company's steady and steady social networking business, actively laying out a social circuit for diverse groups, and at the same time re-coordinating innovative businesses, and making steady progress in game development. In terms of gross profit, the gross margin of the FY2023 social networking business and innovative business has increased, indicating that the company's performance is gradually being realized, and we expect gross margin to remain high. The company is confident in its own performance and has completed multiple share incentives and share repurchases. We believe that the company has sufficient working capital and high growth potential at this stage, and is expected to achieve better results through continuous innovation in the future.
Emerging markets have unlimited potential, social networking and gaming ushered in spring
The user penetration rate in the global Internet market is close to saturation, but the Internet market space in developing countries and regions is relatively broad. Looking at market segments, the social media market has performed well. As emerging markets, the social media penetration rate is low in developing countries, but the population is younger and more willing to use social media, and emerging markets have great potential for development. The global mobile game market will recover in 2023, and casual games are expected to become mainstream. Europe and the US prefer casual games, and the region is expected to enjoy casual game dividends in the future to achieve a boom in the mobile game market. As a mobile internet company, Chizicheng has grasped the opportunities of overseas markets and invested heavily in mobile social networking and boutique games. Its mass social networking products have taken a leading position in some regions, building a moat for corporate products; in addition, its diverse social networking has opened up new fields of development for the company; boutique games seize the opportunities of the times and shine brightly in the European and American markets. In addition, the company's localized operation has enabled the company's products to better integrate into overseas local culture and have achieved strong user stickiness.
Profit forecasting and valuation
Considering the company's diversified product matrix, as well as its excellent operating ability and forward-looking layout ability, the company's future performance is expected to grow steadily. We forecast that FY2024-FY2026's revenue will be RMB 41.2/48.1/5.53 billion, respectively; net profit to mother will be RMB 5.1/52/53 billion, respectively. Considering the company's business attributes, we selected YALA, Tencent Holdings, NetEase, Baidu Group, and Zhiwen Group as comparable companies. According to Wind's unanimous expectations, the average PE of FY2024 comparable companies was 11.19. Considering the Hong Kong stock liquidity discount, we gave them 11 times PE in 2024, corresponding to a market capitalization of 5.61 billion yuan, and a target share price of HK$5.09. Give it an “gain” rating.
Risk warning: Overseas market regulatory policy risk, exchange rate fluctuation risk, R&D falling short of expectations, risk of losing core talent, falling short of expectations in market expansion, risk of cross-market valuation