WEIMOB INC(2013.HK)GLIMPSE OF LIGHT:STRONG ADVERTISING BUSINESS RECOVERY;UPGRADE TO BUY
Weimob’s 1H23 Merchant Solution revenues grew 120% HoH, a strong beat to both BOCIe and street driven by ad. gross billings recovery and high re-bate rate. Subscription Solution business was broadly in line but we expect new drivers such as Weimob AI will increase KA customer stickiness and SaaS ARPU upside potential. We lower our TP from HK$6.0 to HK$5.2 but we upgrade the stock from HOLD to BUY upon attractive valuation in a turnaround market.
Key Factors for Rating
1H23 results overview: 1) revenues increased 34% YoY to RMB1.2bn, beating BOCIe and consensus by 11% and 12%, mainly thanks to the recovery of advertising spending; 2) GPM improved 1ppt YoY to 67.5%, beating BOCIe and consensus by 7.1ppts and 6.4ppts thanks to operation optimisation; 3) OPM improved 38.2ppts YoY to -31.9%, in line with BOCIe and consensus; 4) net loss narrowed 26% YoY to RMB452m, below consensus by 44% due to one-off charges including RMB53m financing listing costs and RMB53m fair value loss on CB; 4) adjusted net loss of RMB278m was better than consensus.
Subscription solutions: in 1H23, revenue increased 21% YoY to RMB705m with ARPU increased 26% YoY, resulting from the moving-up-market strategy.Smart Retail accounted for 44% of revenue, and branded clients contributed 88% of revenue in Smart Retail.
Merchant solutions: Revenue increased 58% YoY to RMB504m, massively beating BOCIe by 41%, thanks to the strong rebound of ad. demand in 1H23 including Video Account in-feed ads. Gross billings grew 20% HoH. GPM improved 36ppts HoH to 69% driven by better rebate rate of 7.2% (vs 3.9% in 2H22). Company expects strong spending to last in 2H23 in both domestic and overseas ad. markets. Weimob is also diversifying its ad. channel from Tencent to Kuaishou, Xiaohongshu and overseas platforms like Google, Meta and Tiktok.
Bullish guidance: 1) Mgmt. guided Subscription solutions revenue to grow 10- 15% and ad. gross billings to grow 15% in 2024 driven by moving-up strategy, market recovery and better product (incl. WOS, Weimob AI and one-stop solutions). 2) With better operating scale and further workforce optimisation in 2H23, Weimob targets to achieve adjusted net profit breakeven in 2024.
Key Risks for Rating
Weak e-commerce GMV growth recovery; over-reliance on Tencent platform; slow progress on new products including WOS and WAI.
Valuation
We increase 2023/24/25 topline forecasts by 9%/4%/1% and project RMB0.7/0.2/0.04bn net losses in 2023/24/25 to reflect an impressive adverting revenue growth and margin recovery. Our SOTP valuation is based on 5x 2024E P/S (was 7x 2023E P/S) on Subscription Solution revenues and 9x 2024E P/E on Targeted Marketing profits (was 8x 2023E P/E). Upgrade to BUY.