20211231-西牛证券-辉煌明天-01351.HK-Exploration_of_new_income_stream_9页_391kb.pdf

1 Bright Future | 01351.HK Exploration of new income stream STOCK RATING NR TARGET PRICE HK$ - Bright Future (01351.HK) is a mobile advertising company offering one-stop and tailor-made advertising services to customers in China, its services range from promotion planning, advertisement production and placement to post-publication monitoring. It achieved RMB 223.5mn and RMB 565.0mn gross revenue from the intelligent marketing solutions recognized by Gross method and intelligent marketing solutions recognized by Net method respectively in 2021 1H, implying approximately YoY 42.3% and YoY 61.1% respectively. However, an increase in the traffic cost derived from the surging adoption of leading media platforms dragged the net revenue growth of the intelligent marketing solutions recognized by Net method to YoY 18.4% and slashed the gross margin by 5.7p.p. to 24.0%. Introduction of SaaS subscription solution: SaaS subscription solution is a new offer provided by Bright Future (01351.HK), covering the services like data monitoring, CRM, content production and ads distribution. The official launch of the SaaS subscription solution will be carried out in late 2021, according to the latest announcement of Bright Future (01351.HK), and the pilot version has been received by the Groups potential customers. The SaaS subscription solution helps expand the customer base and potentially generate steady cash inflow from the subscription service, and it is expected that the SaaS subscription solution will bring the Group a new revenue stream. Lower sensitivity to recent regulation changes: Bright Future (01351.HK) has built a resilient customer portfolio which helps it withstand the recent regulation changes in China, resulting in a lower sensitivity to the regulations targeting e-commerce, mobile games and education industries. Increasing video production capacity: Video advertising is gaining importance in the advertising industry in China due to the growing popularity of short video platforms, resulting in a booming budget allocation on video advertisements. Short video ads accounted for approximately 17.4% market shares of online advertising in China in 2020, making it the second-largest ads format across the market, according to iResearch. Bright Future (01351.HK) commenced to offer one-stop short-video advertising services since Apr 2018, and Bright Future (01351.HK) levelled up its production scale through its Wuhan short-video base which commenced its operations in Apr 2021. | RESEARCH 31 Dec, 2021 COMPANY NOTE H F NGO, Brian, CFA SENIOR ANALYST .hk +852 3896 2965 2701 2703, 27/F, Infinitus Plaza, 199 Des Voeux Rd Central, Sheung Wan, HK Bright Future (01351.HK) Stock Rating NR (NR) Target Price HK$ - (HK$ - ) Current Price HK$ 0.78 52-Week Range HK$ 0.75 4.60 Market cap. (HKD, bn) HK$ 0.4 RMB, mn 17(A) 18(A) 19(A) 20(A) Revenue 102.6 254.9 281.9 382.8 Gross Profit 39.5 79.9 81.4 116.2 Gross Margin 38.6% 31.3% 28.9% 30.4% Net Profit 30.9 42.4 38.4 67.3 EPS - - 0.103 0.172 ROE - 71.2% 36.3% 31.8% Performance 1 mth 3 mth 6 mth 1 year Absolute -2.5% -22.0% -43.5% -61.0% Relative to HSI -1.0% -16.0% -23.7% -46.1% 0.000.200.400.600.801.001.201.40 2 | RESEARCH Business Overview Bright Future (01351.HK) is a mobile advertising company offering one-stop and tailor-made advertising services to customers in China, its services range from promotion planning, advertisement production and placement to post-publication monitoring. It achieved RMB 223.5mn and RMB 565.0mn gross revenue from the intelligent marketing solutions recognized by Gross method and intelligent marketing solutions recognized by Net method respectively in 2021 1H, implying approximately YoY 42.3% and YoY 61.1% growth respectively when compared to 2020 1H. However, an increase in the traffic cost derived from the surging adoption of leading media platforms dragged the net revenue growth of the intelligent marketing solutions recognized by Net method to YoY 18.4% and slashed the gross margin by 5.7p.p. to 24.0%. Exhibit: Total revenue of Bright Future (01351.HK) Source: Company data, West Bull Securities Exhibit: Profit margin of intelligent marketing solutions recognized by Gross and Net method* Source: Company data, West Bull Securities * Profit margin of Gross method: (gross revenue of intelligent marketing solutions recognized by Gross method traffic cost) / gross revenue of Intelligent marketing solutions recognized by Gross method * Profit margin of Net method: (gross revenue of Intelligent marketing solutions recognized by Net method traffic cost) / gross revenue of intelligent marketing solutions recognized by Net method 81.0 210.7 236.1 302.9 157.0 223.5 21.6 44.3 45.8 79.9 31.9 37.7 - 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0 450.02017 2018 2019 2020 2020 1H 2021 1HIntelligent marketing solutions recognized by Gross method Intelligent marketing solutions recognized by Net method24.1%20.4% 20.7%16.8%13.4%15.5%10.8%8.8% 10.2%6.7%0.0%5.0%10.0%15.0%20.0%25.0%30.0%2017 2018 2019 2020 2021 1HIntelligent marketing solutions recognized by Gross methodIntelligent marketing solutions recognized by Net method 3 | RESEARCH Investment Thesis Introduction of SaaS subscription solution SaaS subscription solution is a new offer provided by Bright Future (01351.HK), covering the services like data monitoring, CRM, content production and ads distribution. The official launch of the SaaS subscription solution will be carried out in late 2021, according to the latest announcement of Bright Future (01351.HK), and the pilot version has been received by the Groups potential customers. In addition, the Group has constructed a cloud-based repository system for all stock videos and images created, the stock videos can be accessed and utilized for the automation of different advertising projects. Unlike the traditional advertising services provided to the leading companies, the SaaS subscription solution targets the SME which do not have i) a complete design and production team, ii) capital resource to develop software that consolidates all distribution channels. It helps expand the customer base and potentially generate steady cash inflow from the subscription service, and it is expected that the SaaS subscription solution will bring the Group a new revenue stream. Lower sensitivity to recent regulation changes Bright Future (01351.HK) has built a resilient customer portfolio that helps it withstand the recent regulation changes in China, resulting in a lower sensitivity to the regulations targeting e-commerce, mobile games and education industries. The majority of revenue recognized by Bright Future (01351.HK) was generated from the customers engaging in the mobile internet services sector (incl. informative and entertainment mobile utilities like music applications, video browsing and sharing applications and news applications etc.) and mobile utility industry (incl. web browsers, cleaner applications and anti-virus software etc.), customers from e-commerce, mobile games and education industries contributed less than 20% of total revenue to Bright Future (01351.HK) Exhibit: Net revenue contributed by different sectors Source: Company data, West Bull Securities Mobile internet services42%Mobile utilities31%Financial services11%Mobile games1% E-commerce15% 4 | RESEARCH Increasing video production capacity Video advertising is gaining importance in the advertising industry in China due to the growing popularity of short video platforms, resulting in a booming budget allocation on video advertisements. Short video ads accounted for approximately 17.4% market shares of online advertising in China in 2020, making it the second-largest ads format across the market, according to iResearch. Exhibit: Market shares of different forms of online advertising in China Source: iResearch, West Bull Securities Bright Future (01351.HK) commenced offering one-stop short-video advertising services since Apr 2018, covering the services like content production (incl. idea creation, scripted filming, postproduction) and precision marketing (incl. performance-based marketing strategy planning, stock footage creation, advertisement optimization, data analytics, media monitoring). Bright Future (01351.HK) levelled up its production scale through its Wuhan short-video base which commenced its operations in Apr 2021, and it targets producing 140,000 and 230,000 videos in 2021 and 2022 respectively. Exhibit: Video production forecast of Bright Future (01351.HK) Source: Company data, West Bull Securities 28.2% 32.0% 35.2% 37.8%39.9%0.0% 0.3%3.8%12.4% 17.4%27.4% 26.7%23.7%17.5%13.9%44.4% 41.0% 37.3%32.3% 28.8%0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%2016 2017 2018 2019 2020E-commerce ads Short video ads Search ads Others16,480 46,110 140,000 230,000 - 50,000 100,000 150,000 200,000 250,0002019 2020 2021 (E) 2022 (E)Number of videos produced 5 | RESEARCH Valuation Bright Future (01351.HK) recorded RMB 188.9mn and RMB 261.2mn total revenue in 2020 1H and 2021 1H respectively, an increment in traffic cost dragged the gross margin from 29.7% in 2020 1H to 24.0% in 2021 1H. Despite a flat net profit margin caused by listing expenses in 2020 1H and deferred tax assets in 2021 1H, the adjusted profit margin fell to approximately 16.0% in 2021 1H. Bright Future (01351.HK) is trading at approximately 3.7x historical PE (7.6x in 2021 on average), and it nearly hits the lowest point since its listing on the Hong Kong Stock Exchange. Exhibit: PE Band of Bright Future (01351.HK) Source: West Bull Securities 1.0 3.0 5.0 7.0 9.0 11.0 13.0 15.0 17.0 19.0 Historical PE - 1 SD - 0.5 SD Average + 0.5 SD + 1 SD 6 | RESEARCH Peers comparison Mkt. Cap. P/E Fw. P/E P/B P/S Revenue GM ROE (HKD, mn) (%) (%) (%) (%) (HKD, mn) (%) (%) 01163.HK AdTiger 560.3 - - 2.6 2.0 236.7 20.3 (5.1) 01860.HK Mobvista 11,415.9 - 48.9 4.9 2.4 4,003.3 15.9 (20.3) 02131.HK Netjoy 2,044.8 10.2 7.9 1.0 0.4 2,899.8 7.9 15.4 06988.HK Joy Spreader 4,098.7 41.6 12.7 5.2 1.5 1,329.6 63.7 11.8 09911.HK Newborn Town 5,332.1 24.6 12.5 2.3 3.7 1,039.6 32.6 14.2 Average 4,690.3 25.4 20.5 3.2 2.0 1,901.8 28.1 3.2 01351.HK Bright Future 395.0 3.8 - 1.1 0.7 430.7 30.4 31.8 Source: Bloomberg, West Bull Securities Risk factors Increasing traffic cost slashes the profit margin of Bright Future (01351.HK) Keen competition hinders the expansion progress in China The progress of new business development (e.g. SaaS service) is slower than expected Weaker demand for marketing results from tighter regulations imposed on different industries in China 7 | RESEARCH Financial Statement PnL (RMB, mn) 2017 (A) 2018 (A) 2019 (A) 2020 (A) Balance Sheet (RMB, mn) 2017 (A) 2018 (A) 2019 (A) 2020 (A) Revenue 102.6 254.9 281.9 382.8 PPE 0.8 2.4 5.6 5.0 YoY growth 148.5% 10.6% 35.8% Others 1.1 0.9 2.2 2.2 COGS (63.0) (175.1) (200.5) (266.6) Non-current assets 1.9 3.3 7.8 7.2 Gross profit 39.5 79.9 81.4 116.2 Other income - - 2.0 10.3 Inventories - - - - Operating expenses (8.6) (34.5) (38.1) (54.5) Trade receivables 56.0 162.1 223.4 335.1 Operating profit 31.0 45.4 45.3 71.9 Cash & cash equivalents 9.0 12.2 23.8 97.2 Finance expenses (0.1) (0.3) (0.5) (0.8) Others 19.7 71.0 82.6 138.3 JV & Ass. - - - - Current assets 84.7 245.2 329.7 570.5 Profit before tax 30.9 45.1 44.7 71.1 Tax - (2.7) (6.3) (3.8) Total assets 86.6 248.5 337.6 577.8 Net profit 30.9 42.4 38.4 67.3 110 YoY growth 37.3% -9.3% 75.2% LT borrowings 4.7 3.7 - - Others - 0.7 2.5 1.1 Non-current liabilities 4.7 4.4 2.5 1.1 Trade payables 31.5 110.5 115.6 130.5 ST borrowings - 5.2 30.5 82.5 Others 14.3 45.5 60.2 69.2 Current liabilities 45.7 161.2 206.2 282.2 Total liabilities 50.4 165.6 208.7 283.3 Non-controlling interests - - - - Controlling interests 36.2 82.9 128.8 294.5 Total equities 36.2 82.9 128.8 294.5 8 | RESEARCH Cash Flow (RMB, mn) 2017 (A) 2018 (A) 2019 (A) 2020 (A) Financial Ratio 2017 (A) 2018 (A) 2019 (A) 2020 (A) Profit before tax 30.9 45.1 44.7 71.1 Gross margin 31.3% 28.9% 30.4% Finance expenses 0.1 0.3 0.5 0.8 Operating margin 17.8% 16.1% 18.8% Finance income 0.0 0.0 0.0 0.1 Net profit margin 16.6% 13.6% 17.6% D&A 0.7 1.0 2.4 2.4 Adj. EBITDA profit margin 21.5% 21.3% 21.5% Others 0.1 3.5 (0.2) (0.9) Return on Equity 71.2% 36.3% 31.8% Change in working capital (28.7) (50.6) (59.7) (155.1) Return on Asset 25.3% 13.1% 14.7% CFO 3.1 (0.6) (12.2) (81.5) Current ratio 152.2% 159.9% 202.2% - - - Quick ratio 152.2% 159.9% 202.2% CAPEX (0.4) (0.2) (1.2) (1.0) Cash ratio 7.6% 11.5% 34.4% Others - - (0.2) 0.2 Debt-to-Equity ratio 10.7% 23.7% 28.0% CFI (0.4) (0.2) (1.4) (0.8) Net Debt-to-Equity ratio -4.0% 5.2% -5.0% - - - - - Shares issuance - - - 107.4 Net borrowings 3.1 3.9 21.2 51.4 Interest paid - - - - Dividend paid - - - - Others 1.9 0.2 3.9 (2.0) CFF 5.0 4.1 25.1 156.8 FCFE 92.8 514.0 488.8 635.8 FCFF 392.8 514.0 488.8 635.8 Source: Company data, West Bull Securities . 9 | RESEARCH West Bull Securities is a dedicated small/mid cap stock brokerage house. Find our research on: Bloomberg, , Capital IQ, Refinitiv, Wind, Choice and 同花順 . Ratings of West Bull Securities: STRONG BUY : absolute upside of 50% over the next 12 months BUY : absolute upside of 10% over the next 12 months HOLD : absolute return of -10% to +10% over the next 12 months SELL : absolute downside of 10% over the next 12 months STRONG SELL : absolute downside of 50% over the next 12 months Investors should assume that West Bull Securities is seeking or will seek investment banking or other related businesses with the companies in this report. Analyst certification: The views expressed in this report accurately reflect the analysts personal views of the subject securities and that the analyst has not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report. Disclaimer: This research report is not an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The securities referred to in this report may not be eligible for sale in some jurisdictions. The information contained in this report has been compiled by the Research Department of West Bull Securities Limited (West Bull Securities) from sources that it believes to be reliable but no representation, warranty or guarantee is made or given by West Bull Securities Securities or any other person as to its accuracy or completeness. All opinions and estimates expressed in this report are (unless otherwise indicated) entirely those of West Bull Securities as of the date of this report only and are subject to change without notice. Neither West Bull Securities nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Each recipient of this report shall be solely responsible for making its own independent investigation of the business, financial condition and pro