The pan-crowd social business product matrix continues to expand, and profitability has increased dramatically. The company's broad social networking product matrix is quite rich. Among them, mature products such as MICO and YoHo contribute to a stable basic market, and products such as SUGO and TopTop show strong growth potential. Based on the “product replication” and “national replication” strategy, the company accumulates and reuses comprehensive capabilities such as product development, marketing, local operation, and commercialization through the China-Taiwan R&D system SoloCells, which greatly reduces the cost of new product development and promotion, thus giving the company a “marginal cost advantage”. In addition, the company also continues to optimize the products already launched to continuously improve the efficiency of product commercialization. Driven by this, the profitability of the company's social networking business increased dramatically, achieving a gross profit margin of 48.09% in 2023, an increase of 14.58pct over the previous year.
Launched HeeSay, an LGBTQ+ overseas social networking platform, and officially entered the social circuit for diverse groups. According to Frost & Sullivan, the LGBTQ community will grow from 538 million in 2021 to 660 million in 2026, and the LGBTQ+ community has strong user stickiness and spending power. Chizicheng Technology completed the merger of Blue City Brothers in 2023H2, and officially launched the multi-population community HeeSay in early 2024. Unlike Grindr, Blued and HeeSay have broken the traditional multi-person social networking product single dating model, and introduced rich features such as Post, Live Streaming, and Voice Room, which can promote user stickiness and ARPU in social networking services for diverse groups. We believe that the current market has not fully valued the company's social networking business for diverse groups. In the future, this business is expected to bring room for improvement in the company's stock price from the two dimensions of performance+valuation.
Flagship games are showing strong performance, and the innovative business is expected to turn a loss into a profit in 2024. The share of casual games in the world continues to rise, and the company launched the first boutique “3 in 1” mobile game “Alice's Dream” in 2022:
“Merge Island”. Through the addition of innovative elements, the average monthly turnover of this product exceeded 8 million US dollars in 23Q4. We expect “Alice's Dream” to be profitable and increase company profits in 2024; innovative business (IAA game+traffic monetization) is expected to achieve break-even; in addition, boutique games are expected to achieve synergy with social services to further promote high-quality growth in the company's revenue and profit.
Investment advice: We expect the company to achieve revenue of 43.9/50.5/5.70 billion yuan in 2024-2026; net profit to mother of 4.49/58/ 665 million yuan; corresponding PE of 11.0/8.9/7.5 times, respectively. The company is a leader in the social outing circuit, contributing growth potential to a diverse product matrix. The flagship game maintained outstanding performance, covered for the first time, and gave it a “buy” rating.
Risk warning: Global macroeconomic downturn; game traffic falls short of expectations; social products fall short of expectations; overseas competition intensifies.