Incidents:
The company announced the 202H1 financial report, achieving revenue of 4,087 million yuan (-5.9% YoY, -5.5% YoY), operating profit of 251 million yuan (-80.4% YoY, -71.7% YoY), net profit of 232 million yuan (-78.5% YoY, -69.5% YoY), and net profit of 229 million yuan (-78.9% YoY, -70.1% YoY), and non-IFRS net profit of 666 million yuan (+0.2% YoY, +17.9% YoY).
Our point of view:
1. Operational data: The overall MAU of the 2022H1 platform was 265 million (+13.8% YoY, +4.5% YoY), the average DAU of free reading channels was 14 million (+7.7% YoY, -6.7% YoY), and the number of paying users was 8.1 million (-12.9% YoY, -6.9% YoY). As free-to-read content attracted more light users in the second half of 2021 and the reduction in spending by companies on user growth in 2022 H1, the payment ratio fell to 3.1% year over year (-0.9 pct year over year, -0.4 pct month on month). However, due to improvements in content operation, community functions, and recommendation efficiency, the demand for high-quality content among paying users has improved, and the average monthly revenue per paying user has increased +7% year over year to 38.8 yuan.
2. Overall performance: The macroeconomic economy and the epidemic in the first half of the year brought repeated uncertainty, and online business and copyright operations were under pressure year on year; the company implemented cost reduction and efficiency strategies, sales and administrative expenses rates improved markedly, and the net profit of non-IFRS returned to the mother was basically the same year over year. In the second half of the year, we will continue to implement cost reduction and efficiency strategies, focusing on high-quality development and improving operational efficiency.
3. Online business: 2022H1's online business revenue fell 9.2% year on year. The absolute number of paid reading users fell but remained flat compared to 2021H2. The company's content supply-side advantage was stable, the number of writers and works continued to grow, and the number of writers and works continued to explore new creative tracks such as science fiction; the DAU for free reading increased to 14 million over the same period last year, but due to the influence of the macro environment and the pandemic, advertiser demand shrank, and the overall revenue contribution was limited.
4. Copyright operation and other businesses: 2022H1 achieved revenue of 1.78 billion yuan from copyright operations and other businesses, which is basically the same as the previous year. Many movies and TV dramas received high reviews, and animated works rank among the highest in Tencent's video views. In the future, the company will continue to build an industrial production capacity with the core strategy of building content production capabilities to continuously strengthen the moat of the industrial chain.
Profit forecasts and investment ratings Taking into account the adverse effects of the macroeconomy and the epidemic, we lowered our revenue forecast for 2022. We expect the company's FY2022-2024 revenue to be 84.02/100.37/105.43 billion yuan respectively, and net profit to the mother is 1,029/18.07/2.099 billion yuan respectively (NON-IFRS caliber is 1,483/18.45/2,091 billion yuan), the corresponding EPS is 1.02/1.79/2.07 yuan, and the corresponding adjusted PE is 18/14/ respectively 12X, according to the SOTP valuation method, we have given the target market value of 124,21.2 billion yuan for the online business and copyright business in 2022, respectively, with a total target market value of RMB 33.6 billion, corresponding to the target price of RMB 33 per HK$38. The company has a stable advantage in online reading of leading content and IP operations to maintain “buying”
ratings.
Risks indicate the risk of a slowdown in the growth rate of active users, the risk of rapid increase in channel costs, the risk of market competition, anti-monopoly risk, industry valuation adjustment risk, series approval risk, content regulation risk, etc.