Core views:

Incident: On the evening of July 24, 2024, Meitu issued an announcement. Among them, the company expects the adjusted net profit growth rate of 2024H1 to be no less than 80% year on year, and net profit to mother will increase by no less than 30% year on year.

Increased subscription rates and outstanding overseas performance are the core drivers of the company's performance. According to the Yingxi announcement, the core driver of the company's performance is due to the continuous increase in subscription revenue for the company's video design products. On the one hand, generative AI technology has driven a continuous increase in user payments, and the user paid subscription rate continues to grow. On the other hand, the company's globalization strategy has paid off, and the Group's apps are at the top in many overseas markets, driving the growth of both users and subscribers.

Actively cooperate with end-side AI vendors to enhance the scope of application of tools. According to Meitu's official WeChat account, on July 17, the company and Samsung will deepen cooperation. The Meitu Whimsical Big Model will provide Samsung Galaxy ZFold6 and Z Flip6 series users with “Wenshengtu Wallpaper” and “Graffiti” features.

Previously, the two parties collaborated to create end-side features such as “AI chart” and “generative editing” of the Galaxy S24 series. We believe that end-side AI also requires tools with insight into scenarios to improve application effectiveness. With cooperation with end-side AI, Meitu's user coverage is expected to continue to increase.

Profit forecast and investment advice: The company's mid-term performance was outstanding, and we raised the company's revenue and profit forecasts. The company's estimated revenue for 24-26 was 3.77/4.732/5.673 billion yuan (previous value was 3.663/4.707/5.646 billion yuan); estimated net profit to mother was 0.585/0.789/0.978 billion yuan, respectively (previous value was 0.508/0.7/0.92 billion yuan). For reference, the comparable company gave the company an overall reasonable valuation of 14.636 billion yuan based on 25X PE, corresponding to HK$16.042 billion (RMB exchange rate of 0.91:1 to HKD), corresponding to the reasonable value of the company at HK$3.54 per share. Maintain a “buy” rating.

Risk warning: User willingness to subscribe falls short of expectations, risk of improving AI terminal image editing capabilities, risk of e-commerce platforms participating in design competition, risk of AI models falling short of expectations.