Maintain the buy rating and lower the target price to HK $2.1, a potential increase of 30.4%.
Revenue fell short of expectations: China praised revenue growth of 12 per cent year-on-year to 417 million in the first quarter of 2021, which was lower than we expected and slowed (49 per cent year-on-year growth in 1Q20 and 39 per cent in 4Q20). In terms of segment business, subscription solutions business grew 21% year-on-year to 257 million, while merchant solutions were basically flat at 157 million. The company posted an operating loss of 195 million in the quarter and an operating profit margin of-47 per cent, compared with-39 per cent in the same period last year.
Affected by last year's high base and Kuaishou Technology's business adjustment, GMV growth slowed down: the company's GMV in the first quarter was 23.6 billion, up 13% from the same period last year. In addition to the high base impact of live e-commerce in the first quarter of last year, Kuaishou Technology's platform accelerated the construction of commercial closed loops, causing GMV from Kuaishou Technology to fall by about 40 per cent year-on-year. The impact is likely to continue in the second and third quarters of this year, with Kuaishou Technology accounting for 20 per cent of GMV in this quarter (compared with 40 per cent in the same period last year), and the company expects it to fall to 10 per cent by the end of the year. Non-Kuaishou Technology GMV rose about 40 per cent this quarter from a year earlier. In terms of the number of merchants, the number of paid merchants in stock was 95700, up 5% from the same period last year, which was also mainly affected by the loss of anchorman Kuaishou Technology's customers. Due to the high base last year, the number of new paid merchants decreased by 43% compared with the same period last year, to 7961. The structure of new paid merchants is constantly optimized, with professional and flagship versions accounting for nearly 50%.
The annual growth rate is expected to be low first and then high, but there is some pressure on the annual GMV50% growth target:
Despite lower-than-expected first-quarter results, the company maintained its target of 50 per cent GMV growth in 2021, mainly driven by attracting big customers, expanding new retail business, launching Wechat video accounts and overseas promotion. We expect the company's year-on-year growth rate to be low and then high for the whole year, but there is still some pressure on the 50% growth target for the whole year.
Maintain the buy rating and lower the target price to HK $2.10: we are still bullish on the ecommerce SaaS track and decentralization trend and maintain the buy rating. But taking into account the business impact of Kuaishou Technology's platform, we cut the company's revenue by 17 per cent and 16 per cent respectively in 2021-2022, below Bloomberg's consensus expectations of 8 per cent and 9 per cent, respectively. At the same time, the recent sector correction led to a correction in the valuation of the SaaS industry, and we lowered our target price to HK $2.10, corresponding to 12.3x and 8.5x in 2021 and 2022.
Investment risk: over-reliance on traffic platform; customer retention rate is lower than expected; fierce competition may lead to challenges in price increases.
