Joy Spreader Interactive Technology. Ltd (“JS”) is one of China’s leading performance-based we-media marketing service providers
Joy Spreader’s edges are in data, software and established network
We forecast 58% revenue and 72% adj. NP CAGR in 2019-22E; initiate with BUY; TP at HKD3.9
　　JS can effectively match marketers with we-media publishers
　　China’s performance-based we-media marketing industry is a fast growing yet fragmented market. According to Frost and Sullivan, the market grew at a CAGR of 90.0% from RMB1.3bn in 2014 to RMB31.8bn in 2019, and is expected to grow at a CAGR of 28.3% to reach RMB110.7bn by 2024E. Founded in 2008, JS is one of industry’s largest performance-based we-media marketing service providers with a market share of 1.5%, connecting marketers and we-media publishers to realize their respective targets in traffic acquisition and monetization. On demand side, JS helps marketers to effectively market their products （apps, online literature, Html 5 games and mini-programs） and online promotion activities to suitable audiences on we-media platforms, and charges marketers mainly on CPC, CPA and CPS basis. On supply side, JS has cumulatively served approximately 36,612 WeChat Official Accounts through H5 products as of October 31, 2020 and helped them better monetize their traffics.
　　JS’ 3 key edges: data, software platforms, established network
　　We believe Joy Spreader has three competitive edges that could help it to largely enjoy the benefits from the up-rising industry trend in performance-based we- media marketing territory: 1） Abundant proprietary data accumulation from both marketers and we-media publishers as one of the first movers in the sector; 2） Well-established automated software platforms that are efficient, effective, and easy-to-use for operators; and 3） Mutually reinforcing two-sided network.
　　Meanwhile, although JS has also tapped into the provision of we-media marketing services on short-form video platforms, we believe Co. is still refining this business, and should still need more time to exploit meaningful economic values.
　　Initiate with BUY; TP at HKD3.9
　　We forecast JS’ revenue to grow by 58% CAGR from 2019-2022E and reach RMB834mn/1,340mn/1,871mn in 2020E/21E/22E, respectively. We estimate JS’s GPM and adj. NPM to reach 26.8%/27.1%/28.2% and 20.9%/22.5%/23.8% respectively, while forecast its adj. NP to grow at 72% CAGR from 2019-2022E and reach RMB174mn/301mn/446mn in 2020E/21E/22E respectively. We initiate coverage on Joy Spreader with TP at HKD3.9, and value the Co. at HKD8,652mn （base case） based on 6 comparable peers’ averaged FY21E P/E at 24.0x, and JS’ FY21E adj net profit. Key risks: intensifying competition given fragmented market landscape and relatively low entry barriers; concentration risk on customers and suppliers; potential insufficient cash reserve; unsustainable preferential tax treatment in the long run.