20170118-招商证券_香港_-美图公司-01357.HK-The_beauty_social_ecosystem_creator__Initiate_with_BUY_50页_2mb_2mb

Meitu, Inc. (1357 HK) Summary

Core Content

Meitu, Inc. (1357 HK) is a leading beauty ecosystem creator with a significant user base and a clear monetization roadmap. Since its inception in 2008, Meitu has grown into a comprehensive platform offering photo editing, social video, and e-commerce services. The company is positioned to monetize its massive MAUs (Monthly Active Users) through three stages: advertising and hardware, internet value-added services (IVAS), and e-commerce.

Key Information

• MAUs: As of Oct 2016, Meitu had 456 million MAUs, with 430 million in overseas markets.
• Revenue Growth: Expected to grow at a 129% CAGR from 2015 to 2018E, reaching RMB8,950 million in 2018E.
• Monetization Roadmap:
  1. Stage 1: Advertising and smart hardware.
  2. Stage 2: IVAS (virtual gifts and live streaming).
  3. Stage 3: E-commerce platform to convert users into buyers.

Main Points

• User Engagement: Meitu's apps are highly engaged, with users generating an average of 18.2 photos per MAU in Oct 2016, and Meipai users spending 33.8 minutes daily on average.
• Product Portfolio: Meitu offers six core apps (Meitu, BeautyCam, BeautyPlus, SelfieCity, MakeupPlus, Meipai) and has launched smartphones and international versions of its apps to target global markets.
• Monetization Potential:
  • Smart Hardware: Expected to generate RMB5,716 million in 2018E, with 2.8 million shipments.
  • Advertising: Projected to reach RMB1,436 million in 2018E, up 19.8 times from 2015.
  • IVAS: Virtual gifts revenue from Meipai is expected to reach RMB755 million in 2018E.
  • E-commerce: Anticipated to bring in RMB959 million in 2018E, with 1,000 monthly active buyers.

Investment Thesis

• Initiation: Buy with a DCF-based target price of HK$10.1, implying a 3.8x EV/sales multiple for FY18E.
• Valuation: Market cap/MAU of US$12.8 (based on 3Q16 MAUs of 430 million), significantly below peers like Weibo (US$34.2), Momo (US$54.6), and YY (US$15.6).
• Risks: Slower MAU growth and weaker monetization could impact valuation.

Financial Highlights

Monetization Stages

Stage 1: Smart Hardware and Online Advertising

• Smartphone Revenue: RMB5,716 million in 2018E, with 2.8 million shipments.
• Advertising Revenue: RMB1,436 million in 2018E, up 19.8 times from 2015.
• Advertising Revenue/MAU: Expected to reach RMB2.30 in 2018E, up from RMB0.20 in 2015.

Stage 2: Internet Value Added Services (IVAS)

• Virtual Gifts Revenue: RMB755 million in 2018E, contributing 8% of total revenue.
• Live Streaming Revenue: Expected to reach RMB4.1 per MAU in 2018E.
• Gaming Revenue: Projected to increase from RMB4 million in 2015 to RMB6 million in 2018E.

Stage 3: E-commerce

• E-commerce Revenue: Expected to reach RMB959 million in 2018E, with 1,000 monthly active buyers.
• GMV per Order: RMB368 in 2018E.
• Revenue per Monthly Active Buyer: RMB959 in 2018E.

Key Differentiators

• Portrait Technology: Advanced facial recognition and auto-retouching features.
• User Base: 75% of smartphone users are existing app users, with a majority being female.
• International Expansion: BeautyPlus and AirBrush have been localized for global markets, including India.

Strategic Moves

• Meipai Launch: A social video platform launched in 2014, with live streaming added in 2016.
• E-commerce Platform: Planned for 1H17E to convert users into buyers.
• Smartphone Lineup: Includes M and V series, with high megapixel cameras and unique features like LEDs and ergonomic design.

Competitive Landscape

• MAU Comparison: Meitu's MAUs are comparable to Instagram and other major platforms.
• Revenue/MAU: Meitu's revenue/MAU is expected to rise significantly, from RMB0.3 in 2015 to RMB1.12 in 2018E.
• Market Position: Ranked No. 5 in China iOS non-game app developers in 2015 by downloads.

Conclusion

Meitu has a strong foundation in portrait retouching and a rapidly growing user base. Its three-stage monetization strategy is well-defined and poised to deliver substantial revenue growth. The company's focus on beauty and its expansion into social video and e-commerce positions it well for future profitability. The DCF-based target price of HK$10.1 reflects strong potential but comes with risks related to monetization and user growth.