Joy Spreader’s (JS) 2020 rev/ adj. NP missed consensus by 9%/3%
Co.’s mutually reinforced network is further strengthening
Maintain BUY; with TP revised from HKD3.9 to HKD4.0
eC product marketing became Co.’s growth driver in 2020
JS received below-expectation results in 2020, with total rev missed consensus estimates by 9%, while adj. net profit missed by 3%. In 2020, total rev grew rapidly by 72% yoy and reached HKD924mn, mainly driven by: 1) Stellar growth from marketing rev from eC products at 354% yoy as Co. has established an early biz layout in eC marketing biz on short video platforms amid the rapidly growing industry trend. For the full year, Co. has provided 183 eC products, and accumulated HKD594mn of eC product GMV (354% yoy) in 2020; and 2) Strong growth from marketing rev from interactive entertainment and other digital products at 58% yoy amid the post-pandemic recovery period, especially from online recreational industry such as games, online literature and live broadcasting.
As a result, Co. has increased its number of marketers to 276 (36% yoy), number of interactive entertainment and other digital products to 1,320 (82% yoy), as well as its ARPU to HKD1.61 (121% yoy). Going forward, we expect total rev to grow by 55% yoy in 2021E given Co.’s further improved customer coverage and technology/data capability.
SaaS service further improves Co.’s marketing efficiency/accuracy
On supply side, JS also provides marketing SaaS services to We-media publishers to help them monetize their traffics by allowing them to access Co.’s product library through SaaS-alike interface, and recommends abundant product portfolios to these publishers. As of Dec 2020, Co.’s SaaS has served customers consist of 40,890 Weixin official accounts, 21,771 Douyin accounts, and 8,763 Weixin Video Accounts. Although Co. does not directly monetize through its SaaS service at the current stage, but Co. could still obtain more data on contents, We- media publishers and user behaviour through this channel to improve its algorithm, further reinforcing its marketing efficiency and effectiveness.
Maintain BUY; TP revised from HKD3.9 to HK4.0
In profitability, GPM improved 7.9pp yoy to 32.6%, mainly due to: 1) Increased rev mix from marketing from eC products, which has a higher GPM at 80.0% given the net rev recognition; 2) Overall margin improvement in Co.’s performance-based marketing; and 3) Increased rev mix from game products with higher GPM.
Moreover, admin exp ratio worsened 1.4pp yoy and reached 4.5%, mainly due to increase in professional service fees. R&D exp ratio worsened 1.5pp yoy and reached 3.0%, mainly due to increased R&D spending on data collection, data sorting and algorithm modelling for newly developed video-related biz. Adj. NP grew by 121% yoy and reached HKD221mn in 2020, with adj. NPM at 23.9%.
Going forward, we revised our total rev and adj. NP in FY21E/FY22E by -11%/- 11% and -1%/-1% respectively, reflecting: 1) More conservative stance on rev growth; and 2) More positive stance on margin improvement. We also updated our forecast based on HKD financials, according to Co.’s recent release. We maintain BUY, with TP revised from HKD3.9 to HKD4.0, implying a FY21E P/E at 24x.