We expect BILI to report 3Q23 results in end Nov. We model their 3Q23 total revenue to grow 1% YoY to RMB5.8bn with continuously solid ad and streaming while weak mobile game. We forecast online ad and VAS revenue will grow at 26% YoY and 17% YoY respectively while mobile game dip at -33% YoY. GPM will slightly expand QoQ to 23.5% and non- GAAP operating loss margin will further narrow to -16.4%. We keep our 2023E revenue forecast (RMB22.8bn) unchanged despite temporary suspension of Pretty Derby by assuming outperformed ad and streaming in 2H23. However, we deem any softer performance of core businesses will bring pressure on their committed FY2024 breakeven target. Maintain HOLD and our TP of US$15.0/ HK$119.0.
　　Key Factors for Rating
　　Solid breakeven target holds. We believe Co.’s prioritised target remains unchanged, i.e. to accomplish FY2024 non-GAAP operating breakeven at full throttle. We slightly raise our 2024/25E DAUs by 1%/2% mainly on content enrichment and advanced algorithm, leading to increased midterm D/M ratio.
　　We cut our 2H23 mobile game revenue forecast by 4% to reflect Pretty Derby temporary suspension, but we deem Co. has made corresponding adjustments on authorities’ instructions and conduct regular game operation of this game including content update and marketing. We expect exclusively licensed games with some potential exciting titles would continue to be main game growth driver in 2024. We raise our 2023-2025E online ad revenue by 1% to mainly reflect incrementals related to live or video eCommerce with deepened relations with main eC platforms, along with new ad products (light Huahuo), constant product iterations, increased ad inventory and improved ad efficiency. Thus, we keep our 2023-2025E total revenue forecasts unchanged. We believe Co. will continue to execute its GPM prioritised strategies for all key segments, cost optimisations and organizational restructures on frequent internal assessments. Thus, we also keep our 2023-25E margin estimations unchanged.
　　3Q23 preview: Solid ad and streaming while weak game. Ongoing GPM expansion and loss narrowing. We model total revenue to grow 1% YoY to RMB5.8bn, in line with consensus. Mobile game revenue continued weak at - 33% YoY to RMB1.0bn. While online ad remains solid at 26% YoY to RMB1.7bn.
　　VAS revenue accelerates at 17% YoY to RMB2.6bn supported by strong streaming and rebounded membership. We expect DAUs to surpass 100m milestone with increasing D/M ratio over 30%. GPM moderately expands QoQ to 23.5%, above consensus. Coupled with cost optimisation commitments, Op loss margin continues to narrow with forecasted Non-GAAP operating loss margin shrinking from -27% in 3Q22 and -18% in 2Q23 to -16% in 3Q23.
Key Risks for Rating
　　Upside: (i) macro recovery; (ii) successful games’ operation and launch; (iii) new products or monetisation models;
Downside: (i) slower than expected macro recovery; ii) ineffective monetisation; (iii) content creator and user engagement; (iv) content supply and quality; and (v) regulations on games, streaming, advertising, data collection, taxation, etc.
　　Valuation
　　Maintain HOLD and our PS based TP at US$15.0/ HK$119.0 on 2.0x blended 2023 PER from key business segments on latest 2023E segment revenue estimations and corresponding peers’ valuation.