Meitu Inc_ AI Monetization Continues to Deliver; Raise PT

Summary of Meitu Inc. Conference Call Company Overview - Company: Meitu Inc (1357.HK) - Industry: Greater China IT Services and Software Key Financial Highlights - 2024 Preliminary Results: - Normalized net profit range: Rmb575 million, exceeding company guidance (Rmb550 million), Morgan Stanley estimate (Rmb547 million), and Factset consensus (Rmb567 million) [3] - Strong earnings growth driven by AI-led subscription revenue growth and improving operating leverage [2] - Revenue Growth: - Expected subscription revenue growth of 43% YoY in 2024, with paying users projected at 11.9 million (+31% YoY) and ARPU at Rmb180 [4] - Total consolidated revenue forecast for 2024: Rmb3,357 million, with a projected increase to Rmb4,675 million by 2026 [25] - Profitability Metrics: - Normalized net profit forecast for 2024 raised by 30.6% to Rmb780 million [45] - Expected normalized net profit CAGR of 19% from 2026 to 2029, primarily driven by overseas expansion [5] Strategic Insights - AI Monetization: - Meitu has been generating profit from GenAI since 2022, with lower AI model inference costs expected to enhance subscription revenue gross margins [4] - Overseas Expansion: - The launch of productivity apps and the X-design platform is anticipated to drive long-term growth [5] - Increased normalized net profit forecast for 2026 to Rmb1.08 billion, aligning with Meitu's target of Rmb1.1 billion [5] Valuation and Price Target - Price Target: - Raised by 20% to HK$5.40, reflecting a 16x 2026e P/E, which is considered undervalued compared to the expected 19$4.33 as of February 7, 2025 [7] Risks and Considerations - Investment Risks: - Potential risks include slower-than-expected growth in paying users, higher R&D expenses, and intensified competition from larger internet companies [44] - Upside Potential: - Faster adoption of AI and increased market share overseas could enhance growth prospects [42] Conclusion - Meitu Inc. is positioned for significant growth driven by its transition to a subscription-based model, effective AI monetization strategies, and overseas expansion initiatives. The company's financial performance is expected to improve, with a favorable outlook on profitability and revenue growth. The stock is currently viewed as undervalued relative to its peers, presenting a potential investment opportunity.