1H22 revenue in line with our expectations; profits beat
Mobvista Inc announced its 1H22 results: Revenue grew 48% YoY to US$456mn, in line with our expectations, and adjusted attributable net profit was US$24.1mn (vs. a net loss of US$6.8mn in 1H21), beating our expectation due to gains related to restructuring and partial sale of the mobile advertising platform Nativex. On August 29, the firm announced it plans to buy back up to HK$150mn in shares. The share buyback plan took effect on August 30.
　　Trends to watch
　　Ad-tech business expands prudently; construction of SolarEngine on track. In 1H22, revenue from the advertising technology (ad-tech) business rose 46% YoY to US$449mn, in line with our expectations. Specifically, revenue from the programmatic advertising platform Mintegral climbed 83% YoY to US$411mn, but revenue from Nativex dropped 53% YoY to US$38.5mn. Since the launch of Apple’s new Identifier for Advertisers (IDFA) policy, leading media companies have seen negative spillover effects, and the competitiveness of leading third-party ad-tech platforms has been strengthened. In the trailing 12 months ended June 30, 2022, the number of Mintegral’s corporate clients reached 320 (vs. 267 in 4Q21), with a dollar-based net expansion rate of customers at 197.5% (vs. 175.2% in 4Q21). Games remain the main revenue contributor from Mintegral.
　　In 1H22, the firm’s revenue from the game business increased 90% YoY, while revenue from other verticals such as e-commerce and tools grew strongly. According to management, Mintegral reduced costs, improved efficiency, and upgraded its business structure amid economic uncertainties. It moderately reduced subsidies for businesses that reported losses and improved its algorithm and cloud computing capacity for its ad-tech business. In 1H22, the company’s revenue from Mar-tech equaled US$6.6mn. The firm plans to integrate Reyun Data and SpotMax into one product (SolarEngine) that provides one-stop intelligent marketing solutions covering ad placement, return on investment (ROI) analysis, and private traffic domain operation. Management said the firm has established a product committee and formed a preliminary integrated data system. In 1H22, its revenue from SolarEngine was around US$6mn.
　　GM significantly improved; expenses increased. In 1H22, overall gross margin (GM) rose 6ppt YoY to 19.7% due to a prudent expansion strategy for Mintegral and improved computing power. As the firm increased investment in business expansion in new verticals, marketing for its software-as-a-service (SaaS) business, and R&D, its selling, G&A, and R&D expense ratios edged up YoY. According to management, Mobvista will step up efforts in R&D and product upgrading. In our opinion, the firm’s rising position in the market may help it optimize selling expenses.
　　Financials and valuation
　　We keep our 2022 and 2023 revenue forecasts unchanged. Given gains from business restructuring, we raise our 2022 adjusted attributable net profit forecast to US$16.3mn from -US$30.4mn, and keep our 2023 adjusted attributable net profit forecast. Maintain OUTPERFORM and our SOTP-based target price of HK$5.60 (implying 1.2x 2022e P/S). The stock is trading at 1.1x 2022e P/S. Our TP implies 15.2% upside.
　　Risks
　　Changes in geopolitical environment; goodwill impairment; uncertainty over vertical expansion; policy headwinds.