Meitu is a comprehensive solution service provider in the field of image production and beautification. The Meitu product matrix layout is complete, and the focus tool attributes provide two core services: 1) The imaging products cover images, video, and design. The core products in terms of images are Meitu Xiuxiu and beauty cameras. The video aspect mainly includes WHEE and Meitu Design Office; 2) Aesthetic solutions mainly include Meitu and Meitu Design Office; 2) Beauty industry solutions mainly include Meitu and Meitu Skin, which are still in the early stages of market expansion. The company has experienced a transformation in its business model, and subscription payments have become the core driving force for revenue growth, and profitability has gradually increased.
Imaging and design products: With AI, the ToB+ToC business is making concerted efforts, and there is still room for improvement in subscription payment rates. 1) The company continues to maintain its leading position in the photo editing circuit. According to QuestMobile data, the company's Meitu Xiuxiu and Beauty Camera ranked in the TOP1 and TOP3 of the monthly active photography and beautification app industry for 23 and a half years; in January 2024, Meitu Xiuxiu's MAU market share reached 54%. 2) Meitu launched a subscription model in 2020, and there is plenty of room to increase the subscription payment rate in the future: the number of paying users of Meitu's full product matrix increased from 5.62 million in December '22 to 9.11 million in December '23, and the corresponding subscription rate increased from 2.3% to 3.7%. C-end products mainly convert users into subscription members through functional innovation and effect iteration, such as material library updates during the holidays. AIGC functions such as AI image expansion also drive up subscription payment rates. The underlying support for Meitu's productivity products is the MiracleVision visual model. On December 5, '23, Meitu's self-developed AI visual model, the 4.0 version, was officially unveiled, focusing on AI design and AI video. B-side product applications extend from lifestyle retouching to work efficiency, focusing on communicators and users, focusing on workflow integration in the five industries of e-commerce, advertising, gaming, film and animation; the core product Meitu Design Office focuses on commercial design and provides solutions for user design workflows around “AI e-commerce design and AI graphic design”. Official website data shows that as of November 28, '23, AI marketing had served 1.755 million e-commerce merchants, generating a total of 104 million yuan in product maps; the revenue of Meitu Design Office reached 100 million yuan for the full year of '23.
Aesthetic industry solutions: Rapid revenue growth, helping the digital upgrading of the industry. The company's SaaS business mainly includes two major segments: “Meidade” and “Meitu Skin”. 1) In 2021, the company acquired Meide, a leader in ERP SaaS in the beauty retail sector. Medtech includes cosmetic ERP systems and supply chain management SaaS. As of June 23, ERP SaaS served more than 10,000 stores, and supply chain SaaS served 1,339 customers. 2) Meitu Skin mainly provides skin analysis and AR virtual functions for cosmetics brands and beauty salons. As of July '23, it has provided services to 3,941 stores in 290 cities.
Profit forecasting, valuation and ratings: Meitu is a leader in video production that “understands aesthetics”. Diversification of product features and gameplay has helped increase subscription rates. AIGC has brought all new revenue to Meitu in the medium to long term, and the acquisition site Cool forms business collaboration. We expect the company to achieve operating income of 35.9/44.4/5.16 billion yuan (yoy +33%/+23%/+16%) and adjusted net profit of 5.9/8.0/ 980 million yuan (yoy +60%/+35%/+23%) in 24-26. The 2024 5xPS valuation was given to Meitu, with a target price of HK$4.42; the first coverage gave the company a “buy” rating.
Risk warning: the company's AIGC progress falls short of expectations, industry competition intensifies, subscriber growth falls short of expectations, new business risks