CICC: Maintaining Chizicheng Technology (09911) outperforming the industry rating and raising the target price to HK$13.5

The Zhitong Finance App learned that CICC released a research report saying that considering innovative business growth was better than expected, the 25/26 revenue forecast for Chizicheng Technology (09911) was raised by 2%/2% to 69/8.5 billion yuan, and considering that marketing investment growth offsets gross profit optimization, the bank maintained an adjusted net profit forecast for 25/26; maintained a “outperforming industry” rating, considering the upward shift in the industry valuation center, 15 times 25 non-IFRS P/E, and raised the target price by 20% to HK$13.5. The current stock price has room to rise 10% from the current stock price. 13/11 Double 25 and 26 years non-IFRS P/E.

CICC's main views are as follows:

1H25 revenue is basically in line with this advance

The company announced 1H25 results: 1H25 revenue also increased 40% to 3.18 billion yuan, in line with the forecast; adjusted EBITDA also increased 44% to 650 million yuan, and net profit to mother increased 118% year-on-year to 490 million yuan, in line with the previous median profit forecast.

The revenue pillar continues to strengthen, and matrix expansion is expected to consolidate growth momentum

1H25 social business revenue also increased 37% to 2.83 billion yuan, driven by the growth of users and ARPU; innovative business increased 71% year over year to 347 million yuan. The company expects boutique games to enter a profit recovery period. Long-term users have good ARPU and retention performance, and the business has begun to contribute a high gross profit share.

1) SUGO and TopTop: Revenue both achieved a three-digit year-on-year increase. Together, the two contributed nearly 50% of the social revenue of the general public. With the support of the Boomiix algorithm, 1H25 SUGO's per capita online time increased 17%, ARPU value also increased 20%, and operating leverage was optimized; in addition, the growth rate of the old product YoHo also broke through after the purchase volume strategy changed.

2) New product incubation: The distribution scale of 5-6 new flagship products continues to grow, accounting for more than 20% of the social revenue of the general public. The company expects many of them to reach a monthly turnover of 10 million US dollars in the future; Aippy, a To C code content creation community, is in the testing phase, and the company expects to prioritize consolidating the content and user base at this stage, and follow or try various business models such as subscription, item payment, and advertising.

3) Regional deepening: 1H25 high ARPU accounts for more than 60% of revenue in the Middle East and North Africa market. The revenue of core products also increased by more than 60% in this market, revenue in the Southeast Asian market is steady, and the company is actively testing the waters of Latin America, Europe, America, and Japan. The bank is optimistic about the rapid growth of new products and the ability to replicate globally. The bank expects the number of users to continue to grow rapidly in 25 years, which is expected to support a 34% increase in social business revenue in 25 years.

Gross margin is structurally optimized, and traffic investment remains high

The gross margin of 1H25 reached 56%, an increase of 6 pcts. This is a decrease in the social networking business share ratio and an increase in the share of the high-margin structure of innovative businesses. The bank expects the Group's gross margin to be greatly optimized year-on-year in '25. In the short term, the company expects new product marketing costs to remain high, but it will strengthen the integration and AI empowerment of the three major capabilities of production, research, growth, and operation to support product and regional replication. Therefore, the bank expects R&D and administrative expenses to gradually release operating leverage.