Key points of investment

Acquire subsidiaries to increase net profit to mother:

In June, the company announced the conclusion of a share purchase agreement to acquire shares in the target company. Beijing Mi can go through the restructuring and overseas counterpart at a total cost of approximately HK$1.983 billion. After delivery, the target company will become a wholly-owned subsidiary of Akazicheng, and all financial results will be incorporated into the consolidated statement. According to the plan, the acquisition price consists of two parts, which are HK$0.994 billion in cash and HK$4.50 per share (with a total value of approximately HK$0.96 billion) for issuing shares to the seller. According to our estimates, the acquisition is valued at about 6 to 7 times. Compared with the company's current valuation, it is a transaction with a reasonable valuation.

Blue City Brothers' profits continue to increase, and the LGBTQ product matrix has been further enriched:

The company continued to improve the profitability of the business after merging with Blue City in fiscal year 2024. In addition to Blue City, at the beginning of this year, the company also launched HeeSay, a social networking product for diverse people overseas. The product matrix was further enriched, opening up new revenue streams for the company. Prior to Blue City's merger and acquisition, the LGBTQ social networking business faced challenges such as customer acquisition efficiency, operation, and monetization efficiency in overseas markets.

However, as the advantages of Chizicheng Technology in terms of technology, market insight, and user understanding were incorporated into the Blue City management system, it effectively made up for the shortcomings. And this strategic “fit” has made it possible for diverse social networking businesses to grow in overseas markets. I believe Blue City Brothers can continue to optimize the revenue structure and increase profit margins, and achieve significant performance improvements over the next 1 to 2 fiscal years.

The leading position in overseas social networking is stable, and the differentiated product matrix has begun to take shape:

The company is currently the main Internet overseas enterprise in China, and its track space is vast. In the social networking business, the company has now formed four differentiated social networking products to enter the Middle East, Southeast Asia, etc., namely products such as the open social networking platform MICO, the voice social networking platform YoHo, the companion social networking platform SUGO, and the gaming social networking platform TopTop. We expect the company to achieve steady revenue growth in 2024 under the premise of a global macroeconomic slowdown. As a leading social enterprise, the company's market position will continue to improve, giving the company 17 times PE for net profit to mother in 2024, corresponding to a target price of HK$4.59, and maintaining a purchase rating.