Co. reported a beat quarter with -4% YoY/ flattish YoY on constant currency total revenue and 27.0% adj. NPM. Handset, game and Alibaba ad spending performed well while FMCG especially cosmetics and personal care continued to be weak. We deem Co. will prioritise more on improving monetisation and cost efficiency in the near term amid relatively tepid marketing sentiments and intensified ad budget competition among platforms. N-T topline will be closely correlated with launch of domestic and global key events. Maintain HOLD and TP of US$10.0/ HK$79.0 on 6.0x 2024E adj. EPADS.
　　Key Factors for Rating
　　Committed ROI-oriented prioritisations. We see Co.’s N-T key prioritisations towards strengthening core competencies and improving monetisation/ cost efficiency remain unchanged amid relatively tepid key advertisers’ marketing sentiment and intensified competition among ad platforms. Enhancing key social attributes/ features, enriching vertical content offerings, activating usage frequency and optimising channel efficiency are core strategies. We deem Co. will focus more on high quality user organic growth. We expect Co.’s N-T topline will be closely correlated with launch of key events such as domestic eC festivals, global sports tournaments and Olympics. Thus, we slightly nudge down our 2024/25/26E ad revenue by 1%/ 3%/ 2% with conservative brand ad recovery assumptions and intensified ad budget squeeze among main platforms. Meanwhile, we raise our 2024-2026E absolute profit forecasts with more stringent opex assumptions. Our trimmed latest adj. EPADS forecasts reflect our increased share counts assumptions due to CB dilution.
　　1Q24: profit beat. Total revenue was US$395m (down -4% YoY/ flattish YoY on constant currency), 2%/ 4% beat consensus/ BOCIe. Core online ad revenue dropped by -5% YoY while flattish on C.C. basis, with Non-Alibaba and Alibaba ad revenue logging -6% YoY and +23% YoY respectively. Regarding verticals, handset and game verticals delivered double-digit YoY growth while cosmetics and personal care dropped YoY on lower budget from international brands due to consumption behaviour shift and intensified competition among ad platforms amid macro conditions. D/M ratio was relatively stable at 43.4% with MAUs/ DAUs standing at 588m/ 255mn respectively. 78.0% GPM meet streets’ expectation. Adj. NPM remains flattish YoY at 27.0%, beat consensus of 22.1%.
　　Key Risks for Rating
　　Upsides: (i) macro and ad recovery; (ii) supportive policies; (iii) key advertisers’ brand ad rebound; (iv) new ad products; and (v) novel monetisation models.
　　Downsides: (i) marketing behaviors change of key advertisers; (ii) slower-than- expected macro and ad rebound; (iii) competition; and (iv) ADR delisting.