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港股公司研究-赤子城科技Valueadded Services refuels the “Traffic+” direction
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港股公司研究-西牛证券-赤子城科技09911.HKValueadded Services refuels the “Traffic+” direction
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Newborn Town | 09911.HK
Value-added Services refuels the “Traffic+” direction
STOCK RATING
STRONG BUY
TARGET PRICE
HK$ 8.39
Newborn Town (09911.HK) primarily engages in the development of i) social networking
platforms and ii) games under the direction of “Traffic+”, it has a wide range of products like
Yumy, MICO, YoHo and Yiyo under the social networking segment and Merge Island and
Solitaire Chapters under its games portfolio. The Group also has a strong global coverage
as it gradually taps into the Middle East, North America, Southeast Asia, South Asia and some
other developed countries.
Convincing performance from social networking Apps: Newborn Town (09911.HK)
commenced its business in the social networking segment since 2016 via an investment of
MICO, and the Group defined social networking as its core business together with an
announcement of “Traffic+” in 2020. The Group currently has a comprehensive portfolio of
stranger social networking Apps, including Yumy, MICO, YoHo, Yiyo. MICO is the most
successful App in the product portfolio of the Group, and we believe that the Group is
capable to replicate the business model to other social networking Apps. In 2021, the Group
released a new social networking App, Yumy, with 10mn accumulated installation worldwide.
Value-added services pick up after a potential deceleration of traffic monetization: The
growth momentum of traffic monetization of games is majorly driven by i) the number of
MAU, and ii) the usage time, iii) the number of ads displayed in a given session, iv) pricing
strategies and v) the advertisers. Although we are surprised and positive to all means
adopted by Newborn Town (09911.HK) to maximize the MAU, the growth still decelerates
after booming for years. Newborn Town (09911.HK) enlarged its investment in the mid-core
games in 2020, and it primarily monetizes the games via i) in-App purchase and ii) ads
placement, we believe that is a new driver bringing the Group growth momentum.
Valuation: We use the DCF valuation methodology for valuation and take the P/S valuation
methodology as a reference to derive the fair value. We initiate our first coverage on
Newborn Town (09911.HK) with a “STRONG BUY” rating and a HKD 8.39/share target price,
implying 3.3x/2.3x/1.8x forward P/S of 2021/2022/2023.
Risk factors: Fail to develop the mid-core games, Accuracy of the ads placed falls, Total
spending on the ads drops, Keen competition
| RESEARCH
23 Aug, 2021
INITIATION
H F NGO, Brian, CFA
SENIOR ANALYST
+852 3896 2965
2701 – 2703, 27/F, Infinitus Plaza, 199 Des Voeux Rd Central,
Sheung Wan, HK
Newborn Town (09911.HK)
Stock Rating
STRONG BUY
Target Price
8.39
Current Price
HK$ 4.43
52-Week Range
HKD 1.40 – 10.54
Market cap. (HKD, bn)
HK$ 4.4
RMB, mn
20(A)
21(E)
22(E)
23(E)
Revenue
1,181.6
2,287.7
3,207.4
4,146.9
Gross Profit
752.5
1,152.8
1,858.3
2,589.2
Gross Margin
63.7%
50.4%
57.9%
62.4%
Net Profit
114.3
335.6
443.6
567.7
Attr. EPS
0.040
0.171
0.269
0.385
P/S
3.3
1.7
1.2
0.9
P/E
99.2
23.0
14.6
10.2
ROE
16.1%
35.1%
33.0%
30.7%
Performance
1 mth
3 mth
6 mth
1 year
Absolute
-16.1%
-25.2%
-35.1%
153.1%
Relative to HSI
-8.1%
-13.4%
-17.1%
153.2%
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2020-08-21
2020-09-21
2020-10-21
2020-11-21
2020-12-21
2021-01-21
2021-02-21
2021-03-21
2021-04-21
2021-05-21
2021-06-21
2021-07-21
2021-08-21
2
| RESEARCH
Table of Contents
BUSINESS OVERVIEW 3
BUSINESS MODEL 3
“Traffic+” Social Networking 3
“Traffic+” Games 9
COMPANY BACKGROUND 12
INDUSTRY OVERVIEW 14
GLOBAL DATING SERVICES MARKET 14
ONLINE DATING SOFTWARE 15
GLOBAL GAMES MARKET 16
CHINESE MOBILE GAMES IN THE OVERSEAS MARKET 18
REMOVAL OF IDFA BY APPLE (AAPL.US) 19
Impact on advertisements of removal of IDFA 19
Impacts on game developers from the removal of IDFA 19
INVESTMENT THESIS 20
CONVINCING PERFORMANCE FROM SOCIAL NETWORKING APPS 20
Comprehensive coverage on the stranger social networking Apps portfolio 20
Rapid penetration across the world 20
Growing monetization means 21
VALUE-ADDED SERVICES PICK UP AFTER A POTENTIAL DECELERATION OF TRAFFIC MONETIZATION 22
A mild deceleration on traffic monetization of games 22
Picking up monetization from value-added services 23
A REMOVAL OF IFDA MAY NOT BE DETRIMENTAL 25
FORECAST & VALUATION 26
FORECAST 26
VALUATION 27
PEERS COMPARISON 28
RISK FACTORS 28
FINANCIAL STATEMENT 29
3
| RESEARCH
Business Overview
Newborn Town (09911.HK) primarily engages in the development of i) social networking platforms
and ii) games under the direction of “Traffic+”, it has a wide range of products like Yumy, MICO,
YoHo and Yiyo under the social networking segment and Merge Island and Solitaire Chapters under
its games portfolio. The Group also has a strong global coverage as it gradually taps into the Middle
East, North America, Southeast Asia, South Asia and some other developed countries.
Business model
Newborn Town (09911.HK) launched the “Traffic+” strategy in social networking and game segments,
and the booming traffic brought the Group a YoY 203.2% increment in total revenue in 2020, in
which 43.3% and 55.6% of total revenue was derived from traffic monetization and value-added
services respectively.
Exhibit: Revenue breakdown by segments
Source: Company data, West Bull Securities
◼ “Traffic+” Social Networking
Newborn Town (09911.HK) explores the social networking segment and expands globally
through a diverse portfolio of Apps, in which Yumy, MICO, YoHo and Yiyo are the core products
covering both video and audio social networking. The Group primarily monetizes the social
networking Apps via live broadcast rewards, chat duration purchase, member subscription,
advanced functions. Benefited from a consolidation of MICO since 2020 2H, Newborn Town
(09911.HK) achieved a YoY 55.5x increase in the revenue of value-added services segment in
2020 to RMB 657.5mn, and it, according to the unaudited numbers, also reported a >50x
growth in the segment revenue of 2021 1H.
90.5
378.0
524.1
2.4
11.6
657.5
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
2018 2019 2020
Traffic monetisation Value-added services Media buying
4
| RESEARCH
The Group commenced its business in the social networking segment since 2016, it started in
the Middle East and Southeast Asia via an investment of MICO. It stepped into India in 2018
and tried to explore the developed regions since 2019. As of the end of Jun 2021, Newborn
Town (09911.HK) has tapped in several developed regions, including America, Europe, Japan
and Korea, and it achieved approximately 18.2mn MAU in 2021 Q2.
Exhibit: MAU of social networking Apps
Source: Company data, West Bull Securities
MICO: MICO is a social networking App featuring Live Streaming, Matching, Private Games,
Moments, Chatting and Party functions.
o Live Streaming
MICO live videos are hosted by broadcasters from more than 100 different countries, and
those live videos are typically classified by country.
o Match
Users are able to like and match with strangers by swiping left or right.
o Moment
It is an area allowing the users to interact with people by sharing stories or posts.
o Chats and Group Chats
The Chat functions enable the users to chat with each other privately or publicly in a
group, users can join the group live chat room or create a multi-guest room by inviting
at most 8 people to join the room.
o Real-time Translation
The translation function allows the users from various countries to chat with no language
barrier.
o Games with Versus Mode
o Gifts with localized features
9.6
12.0
13.2
16.6
18.2
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
2020 1H 2020 Q3 2020 Q4 2021 Q1 2021 Q2
MAU of social networking Apps
5
| RESEARCH
Newborn Town (09911.HK) invested in Beijing Duanji in May 2016 which merged with MICO in
May 2017, it was the first step for the Group to participate in the social networking segment.
The Group further acquired the interest of MICO in 2019 and 2020, and it holds approximately
48.9% of MICO currently.
Exhibit: Different function pages of MICO
MICO was a social networking platform operating in the Middle East and South East Asia before
investment from Newborn Town (09911.HK), and it extended its business to the developed
regions such as America, Europe, Japan as well as Korea. A rapid horizontal expansion of MICO
brought the Group a decent growth via a provision of membership, gifts and other premium
functions, making MICO the single largest contributor to the Group in the social networking
segment.
Newborn Town (09911.HK) generally shares 50% - 70% of the total spending on the gifts
redeemed, according to the contracts signed by the Group with the streamers. Nevertheless,
given the fact that the streamers would send gifts to each other as “marketing” or “re-
investment”, the streamers typically share 25% - 40% of total spending on the gifts redeemed
eventually.
Discover
Source: Company data
Live Streaming
Moments
Party
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