1H24 adjusted net profit growth of not less than 80%

On July 24, the company issued a profit forecast. It is expected that net profit after 1H24 adjustments will increase by no less than 80% year on year (that is, the absolute value of profit will not be less than 0.27 billion yuan). The company continues to promote a productivity+globalization strategy, using generative AI as the core to enhance product power and drive continuous growth in the number of users and subscription penetration. We expect the company's 1H24 revenue to be 1.7 billion yuan, yoy +36%, adjusted net profit of 0.28 billion yuan, and yoy +85%. As the absolute number of members continues to grow in the second half of the year, profit may exceed the level of the first half of the year, but considering that the company's R&D expenses may exceed expectations under AI competition, we forecast the company's 24-26 revenue of 3.7/4.9/6 billion yuan (previous value: 3.7/4.8/5.7 billion yuan), yoy +39%/30%/23%, adjusted net profit to mother 0.58/0.87/1.13 billion yuan (previous value: 0.65/0.99/1.27 billion yuan), yoy+56 %/ 50%/31%.

According to the closing price on July 29, the 24-26 PE was 18.8/12.5/9.6x, respectively. Referring to a comparable company's average PE of 30 times in 2024, considering the long-term potential of the company's AIGC productivity scenario, a valuation premium was given to 32 times PE in 24 years, with a target price of HK$4.50 to maintain the “buy” rating.

The basic lifestyle market is stable, and the logic of increasing the payment penetration rate continues to implement the company's stable lifestyle traffic base. According to Quest Mobile, in June 2024, Meitu Xiuxiu MAU 0.103 billion; the beauty camera MAU was 45.22 million, and it topped the overall App Store list on July 8, '24. Along with the AI boom, companies continue to launch innovative features, strengthen product retention with AI, and drive growth in the number of users and payment rates. Driven by AI, Meitu's global membership reached 10.63 million as of June 11, a 48% increase from 7.19 million on June 19 last year. We believe that the lifestyle scenario is based on Meitu's stable traffic base. Empowered by AI, new features continue to be launched to reach users' pain points, and the subscription penetration rate is expected to continue to increase.

The productivity scenario deepens the AI workflow and enhances monetization capabilities based on specific scenarios Meitu held the 3rd Video Festival and released various products on June 12, '24. Meitu is working in multiple directions to advance the AI commercialization process: 1. For the first time, the design office introduced teamwork productivity tools to improve organizational efficiency; 2. Emphasize the closed loop of content generation to delivery, launch QIMI specifically target the game industry to improve marketing processes; 3. Integrate Wensheng videos into the short film production workflow and launch MOKI to improve the controllability of content and costs through a deep understanding of the needs of video creators, and create AI short films with various video scenarios. We believe that Meitu is promoting the deep integration of AI into creative workflows, which can effectively promote Meitu's scenario-based monetization capabilities and feed back model capabilities through commercial implementation as soon as possible.

Globalization is progressing steadily, and product power is replicating overseas, and Meitu has accumulated rich localization and product experience in the past, and has successfully opened up overseas markets by replicating high-quality domestic product capabilities. In '24, Meitu's product Wink has successively topped the App Store rankings in countries such as Thailand, Indonesia, and Kenya. We believe that additional productivity products will go overseas in the future, and it is expected that the growth momentum will continue.

Risk warning: AI computing power is insufficient; large image models are not progressing as expected; competition within the industry is intensifying.