The game background establishes the technology gene, the transformation becomes the AR/VR content and the service leading provider. In our Anxinyuan universe research framework, Feitian clouds move and sit on the underlying architecture. Its essence is a technical service company, benefiting from ten years of precipitation in the game business, the company has a solid technical system, with content generation engine and AR/VR SaaS platform as the core technology products, which are provided to customers who are committed to creating AR/VR scenes and content ecology for commercial realization. According to iResearch, the company ranks first in China's AR/VR content and service market.
Benefit from the increased penetration of AR/VR scenarios and sustained high growth in performance. According to the different degree of participation in the two links of AR/VR content generation and operation, its business is divided into three sections: AR/VR marketing services, content and SaaS. Benefiting from the industry growth dividend, the company's performance is brilliant. From 2019 to 2021, the income end compound growth rate was 54.02%, and the adjusted net profit compound growth rate was 58.11%. 2022Q1 further showed an accelerated growth trend. We believe that under the background that meta-universe promotes cognitive popularization and the increase in VR hardware shipments reaches a wider range of users, the penetration of AR/VR scenarios will continue to improve, and the company's performance will continue to grow.
High customer recognition is the key driver of performance growth. Thanks to efficient and high-quality AR/VR content production tools and production capacity, the company has been recognized by many partners in the industry. The company is an important content provider for Baidu, Inc. Xiyang and one of the three core suppliers of JD.com VR cloud store products. This has also driven the continued growth of the company's business:
1) in the marketing service, the number of advertisers and the delivery amount have both increased, and the renewal rate has reached 50%. 2) in the content service, the number of service items is 95 in 2021, an increase of 132% over the same period last year. 3) in the SaaS model, the number of paid households is 2015, and the payment conversion rate is 16.43%, reflecting strong user stickiness. Higher customer recognition will give the company an advantage in the competition and is expected to further increase its market share.
Investment advice: benefiting from the growth opportunities brought about by the increased penetration of the AR/VR scenario, the company's performance is expected to continue to grow high. We expect the company to achieve a net profit of 2.16x350x526 million in 2022-2024, corresponding to an EPS of 0.12pm. The company has a high performance growth rate, and is essentially a technology company that provides AR/VR content production tools, with a valuation premium. The company was given 25 times PE in 2023, corresponding to a valuation of HK $9.831 billion and a six-month target price of HK $5.43, covering the company's "buy-A" rating for the first time.
Risk hint: the industry competition aggravates the risk, the advertiser's budget growth is less than expected, the technology update speed is too fast, and the profit forecast assumption is lower than expected.