We deem Co. will continue to execute their high-quality user strategy, enhance core social edges in terms of hot trend and content marketing and improve operational efficiency amid cautious marketing activities under macro uncertainties. We expect divergent performances of key advertisers in the following quarters including FMCG, 3C, eCommerce, auto and game closely related to policies (trade-in and stimulus), new product launch cycles, national/ global national events and operations. Maintain HOLD but raise our TP to US$10.0/HK$79.0.
Key Factors for Rating
Strengthening core edges amid cautious advertising activities. We deem Co. will continue to prioritise engagement and acquisition of high-quality users, reinforce competitive edges in hot trend and content marketing especially new product launch, and sustain high operating efficiency with stringent cost control amid subdued marketing activities under macro uncertainties. Among key verticals, we expect divergent 4Q24 performances with i) solid handsets and 3C benefitted by new products launch, trade-in and stimulus subsidy policies; ii) strong eC due to promotion festivals; while iii) soft game on high base in 3Q24. Therefore, we slightly nudge down our FY2025/26E online ad revenue estimates by 2%/1% to mainly reflect cautious activities by key advertisers and less national/ global events. Meanwhile, we revise up our VAS revenue forecasts factoring in SVIP member packs contribution. We largely maintain our GPM and opex estimates unchanged.
3Q24: beat quarter due to Olympics. Total revenue of US$464m (up +5% YoY/ +3% YoY on constant currency) strongly beat consensus by 7%, due to Olympic and strong momentum of VAS. Core online ad revenue grew by +2% YoY or flattish on constant currency, with non-Alibaba and Alibaba ad revenue logging +3% YoY and -1% YoY, respectively. MAUs/DAUs were 587m/257m respectively. Adj. NPM was 30.0%, beating consensus.
Key Risks for Rating
Upsides: (i) macro and ad recovery; (ii) supportive policies; (iii) key advertisers' brand ad rebound; (iv) new ad products; and (v) novel monetisation models
Downsides: (i) marketing behaviors change of key advertisers; (ii) slower-than- expected macro and ad rebound; (iii) competition; and (iv) ADR delisting.
Valuation
We roll over our TP to use 2025 estimates. Maintain HOLD but raise our TP to US$10.0/HK$79.0 on 5.5x 2025E adj. EPADS (estimated 5.5% 2024-2026E adj. net profit CAGR).
