KEEP(03650) 华泰证券·2024-07-31 02:03Investment Rating and Target Price - The report initiates coverage on Keep with a "Buy" rating and a target price of HKD 9.35, based on a 2024 target PS of 2.0x, which is discounted compared to the industry average of 3.0x [2][6] Core Investment Thesis - Keep is positioned as a leading fitness content platform in China, leveraging the synergy between online content and fitness products to drive healthy growth in membership and product revenues [2] - The company is expected to achieve revenue of RMB 2.26 billion, RMB 2.37 billion, and RMB 2.46 billion in 2024, 2025, and 2026, respectively, with a CAGR of 4.8% [2] - Non-IFRS net profit is projected to improve from a loss of RMB 240 million in 2024 to a profit of RMB 160 million in 2026, driven by improved gross margins in consumer goods and recovery in high-margin membership business [2] Industry Overview - China's fitness market is experiencing steady growth, supported by government policies, increasing fitness participation, and rising willingness to pay for fitness services [3][11] - The online fitness market penetration reached 50.4% in 2023, surpassing offline for the first time, with further growth expected due to technological advancements and digitalization trends [3][11] - Keep holds a leading position in the online fitness platform market, with a 30.8% market share in 2022, significantly ahead of competitors [11] Business Model and Growth Drivers - Keep operates a "content + hardware" business model, integrating online fitness content with smart fitness devices and complementary products to create a closed-loop ecosystem [2][5] - The company has expanded its outdoor fitness services, including running, walking, and cycling courses, and launched new products such as running gear and small ball sports equipment to meet diverse consumer needs [4] - Keep's competitive pricing strategy, with products priced at 20%-30% of comparable Lululemon and Nike items, positions it well to capture cost-conscious consumers [12] Financial Performance and Outlook - Keep's revenue grew from RMB 660 million in 2019 to RMB 2.21 billion in 2022, with a CAGR of 49.4%, although 2023 revenue slightly declined by 3.3% to RMB 2.14 billion [16][20] - Membership and online paid content revenue increased by 11.4% in 2023, becoming the largest revenue contributor at 46.6% of total revenue [20] - The company's gross margin improved to 45.0% in 2023, driven by higher-margin membership and online content business, with further upside potential from operational efficiencies [21][23] Competitive Advantages - Keep has built a deep moat through its cross-dimensional ecosystem, combining online fitness content with smart hardware and complementary products, creating a differentiated positioning compared to platforms like Bilibili and Douyin [5][12] - The company's ability to integrate offline exercise data with online platforms provides users with personalized feedback and training plans, enhancing user stickiness [5][43] - Keep's focus on professional and high-quality fitness content, along with its community-driven approach, strengthens its competitive edge in the online fitness market [37][38] Future Growth Opportunities - Keep is expected to benefit from the continued expansion of China's fitness market, driven by increasing fitness participation and willingness to pay [5][11] - The company's ongoing investment in AI and IoT technologies, such as the Keep Station smart fitness device, positions it to capitalize on the growing demand for smart fitness solutions [46][47] - Keep's ability to leverage its ecosystem to drive user growth and retention will be critical for sustainable commercialization and long-term value creation [48][49]