Intelligent Finance and Economics APP learned that CICC released a research report stating that Meitu Subscriptions still have room for expansion in production and overseas, maintaining an 'outperforming industry' rating. Considering that Meitu's subscription ARPPU performed slightly better than expected, 2024 and 2025 revenues were raised by 3% to 3.71 billion/4.7 billion yuan. However, considering the recent decline in the valuation center of the sector, the target price was lowered by 26% to HK$3.2. The company expects the net profit attributable to shareholders for 1H24 under IFRS to increase by no less than 30% year-on-year (i.e. more than RMB 2.96 billion), and expects the adjusted net profit attributable to shareholders to increase by no less than 80% year-on-year (i.e. more than 2.72 billion yuan), better than the bank's expected 0.246 billion yuan, mainly due to the subscription revenue growth of high gross profit being better than expected.

CICC's main points are as follows:

The growth of subscriber subscriptions continues to be rapid.

In the forecast, the company stated that the revenue from member subscriptions in 1H24 continued to grow rapidly, mainly due to:

1) Generative AI continues to drive user payment. Meitu stated at the 2024 Film Festival that during the period from January 2022 to May 2024, the highest MAU of Meitu Design Studio reached 17.73 million, and the highest monthly payment user reached 0.93 million, serving nearly 2 million e-commerce merchants; AI live broadcast video tools went online and achieved double growth in users and revenue within a year, with MAU reaching 0.694 million and monthly gross profit breaking through one million. At the same time, the company has also launched a number of new products to cover the needs of fine-grained classification, including the design service platform 'Zcool Design Service', the game advertising production and delivery platform 'Qimi', the AI short film creation tool 'MOKI', etc. The bank believes that by integrating with more industry workflows, it may open up new revenue growth space for the company.

2) Rapid global development. Since 2024, the company's products have achieved good results overseas. Meitu's video editing product Wink has successively ranked first in the App Store total list in countries such as Indonesia, Kenya, and Thailand. The bank believes that the company has initially shown the potential to transplant successful experiences from China overseas. According to Meitu's 2024 Film Festival, as of June 11th, Meitu's global paid users had reached 10.63 million (9.11 million at the end of 2023), and the bank estimates that the company's payment rate by the end of 1H24 is expected to increase by 0.4ppt to 4.1%, and subscription revenue may increase by 56.2% to 0.94 billion yuan.

Operating leverage continues to be released, and research and development expenses may increase significantly.

The bank believes that under the background of sustained high growth in the higher gross profit subscription business, the trend of operating leverage may continue. The bank expects the gross profit margin to increase by 3.6ppt year-on-year to 63.4% in 1H24; in terms of operating expenses, considering that the company is increasing investment in models and AI applications, the bank expects research and development expenses to continue to increase by 1.2ppt year-on-year to 24.5%. In addition, due to the overall increase in the value of cryptocurrencies in 1H24, the bank expects the company to confirm part of the impairment of cryptocurrencies and increase the net profit under IFRS. Overall, the bank expects the company's attributable net profit to increase by 31.6% year-on-year to 0.3 billion yuan in 1H24, and non-IFRS attributable net profit to increase by 82.5% year-on-year to 0.28 billion yuan, corresponding to a net profit margin of 16.0%, which is a year-on-year increase of 4.0ppt/0.9ppt.

Risk

Factors that may affect performance include: AI technology and innovation progress is lower than expected; penetration of paid users is lower than expected; market competition intensifies; volatility and regulatory risks of cryptocurrencies; macroeconomic fluctuations affecting user consumption willingness; shareholder shareholding reduction.