6988.HK is a leading self-media marketing service provider in China, which achieves accurate marketing on self-media traffic for customers' products and projects through data collection and algorithm technology. By the end of 2020, 41000 Wechat official accounts, 22000 Douyin accounts, 8763 Wechat video accounts and 470000 realizable access points had been accessed in the company's new media repository.
Summary of the report
The scale of self-media effect marketing is growing rapidly, and short video marketing has become the largest increment. Self-media publishers have become the largest content producers on the Internet and have a strong demand for cash. The size of the media market will increase from 44.6 billion yuan in 2020 to 143.9 billion yuan in 2025, with a CAGR of 26.4%, with e-commerce becoming the fastest-growing subdivision track. Since the rise of the short video industry in 2017, a large amount of user traffic has been accumulated, and the commercial realization process has been accelerating. The mobile advertising market for short video and live streaming platforms is expected to reach 465.3 billion yuan by 2025, and the live e-commerce GMV will reach 6.4172 trillion yuan by 2025.
The mutual entertainment business continues to improve, and Douyin and Mini Game bring new opportunities for development. The company has rich experience in game distribution and has expanded its business to other areas of mutual entertainment products such as applications, H5 online literature and Mini Program. In 2020, the company's ARPU of mutual entertainment products reached 1.43 yuan, an increase of 123% over the same period last year, which is the best evidence of the company's ability to issue mutual entertainment products. Douyin will start the Game Publishing Program in 2021. We believe that with the company's long-term accumulated experience in game distribution, the company will hopefully open up new business in Douyin's game distribution market.
The concept of interest in e-commerce is on the rise, and the marketing business of e-commerce products continues to break out. At the end of 2018, as soon as the Douyin "shopping cart" (Douyin ofo) function was launched, the company began to actively lay out the non-live e-commerce market based on ofo, which has begun to take shape after two years of development. In 2020, the company's non-live e-commerce GMV reached HK $594 million, an increase of 354 per cent over the same period last year. In 2021, Douyin put forward the concept of interest in e-commerce and launched three major support programs, which marked the beginning of Douyin's comprehensive e-commerce, from which we expect the company's e-commerce product marketing business to continue to benefit.
The active layout of Wechat video number is expected to win the first-mover advantage. After Wechat video number was launched, the company actively began to access Wechat video account, and began to accumulate data and develop recommendation models ahead of time. By the end of 2020, the company has cooperated with 8763 Wechat video accounts.
It is estimated that the compound growth rate of adjusted net profit will reach 34% in the next three years. We believe that a large number of self-media publishers in China have a strong demand for cash, and the continued commercialization of the head short video platform will give birth to broad business opportunities. We expect the company's 2021E-2023E adjusted net profit to be HK $300 million, HK $420 million and HK $530 million respectively, with a compound growth rate of 34 per cent over the next three years.
The first "buy" rating, with a target price of HK $4.00. We value the company on an EV/EBITDA basis. Based on 2022E EV/EBITDA 15x, we estimate the company's enterprise value to be HK $7.67 billion. After adjusting for net liabilities, we expect the company's market capitalization to be HK $8.75 billion, or HK $4.00 per share. With a "buy" rating for the first time, the target price is HK $4.00, which is 48% higher than the current price.
Risk hint: the supervision of the self-media industry is stricter; the growth rate of e-commerce marketing business is not as fast as expected; the profit margin is not as expected.