We initiate with a "Buy" rating and a TP of HK$4.75. We adopt relative valuation based on PE ratio. Considering the current valuation levels of companies within the TMT sector on the Hong Kong stock market, and particularly those internet companies with significant social networking aspects which exhibit higher growth potential, we integrate these industry valuation norms with the Company's particular growth opportunities. As such, we assign the Company a 2025 PE multiple of 9.5x, resulting in an estimated market capitalization of approximately HK$6,698 mn. While we acknowledge a contraction in earnings for 2024 with a high degree of certainty, we anticipate 2025 to be a defining year, reflecting the Company's true growth potential. We forecast that Newborn Town's EPS for the years 2024 to 2026 will be RMB0.32, RMB0.45, and RMB0.59, respectively.

Newborn Town is an information technology company focused on the Middle East and Africa, offering users a unique interactive experience through its innovative social networking platform. Specializing in video and voice socializing, the Company has excelled in the global market by leveraging advanced technology and deep market insights. Through its strategic focus on the "social + gaming" sector, it has diversified its offerings and reinforced its market position in these regions. The majority of its revenue comes from these innovative social internet applications, with effective localization strategies boosting its market share in the Middle Eastern and North African social networking markets.

Currently, its internet applications are available in over 150 countries and regions, supported by more than 20 operational centers worldwide and serving over a billion users. Additionally, the Company is expanding its diverse-audience social networking business by acquiring and restructuring BlueCity.

Despite market concerns about growth in established markets, Newborn Town's profitability extends beyond a single region due to its management's deep understanding of the internet industry, strategic flexibility, effective localization, continuous product innovation, and technological leadership.

Amid skepticism toward China's internet economy and concerns about Chinese firms expanding overseas, Newborn Town excels by developing a strong global internet social business, showcasing its ability to engage in diverse social interactions worldwide. This success stems from the management's profound grasp of internet fundamentals and adaptability.

Catalysts: New releases in social apps, notable advancements in the Middle East and East Africa, and progress in diverse-audience social networks.

Risk: 1) Policy uncertainties in overseas markets; 2) R&D investment uncertainties in innovative businesses; 3) Uncertainties related to acquisitions.