CICC has released a research report maintaining its revenue and Non-IFRS net profit forecasts for NEWBORNTOWN (09911) for 2025 and 2026, while newly introducing forecasts for 2027 revenue and Non-IFRS net profit of RMB 9.8 billion and RMB 1.4 billion, respectively. The firm reiterates its Outperform industry rating and maintains a target price of HK$14.5 for the Hong Kong-listed shares, implying a 26-year Non-IFRS P/E ratio of 14x and representing a potential upside of 7% from the current level. CICC's primary views are as follows: It forecasts that NEWBORNTOWN's revenue will increase 32% year-over-year in the second half of 2025. The institution projects NEWBORNTOWN's revenue will grow 32% year-over-year to RMB 3.7 billion in 2H25: social business revenue is expected to rise 30% YoY to RMB 3.3 billion, while innovative business revenue is anticipated to surge 52% YoY to RMB 400 million. It expects the company to report a Non-IFRS net profit attributable to owners of RMB 500 million for 2H25. The growth momentum for pan-demographic social networking continues. The company expects the midpoint of its FY25 social revenue guidance to correspond to RMB 6.1 billion, representing 33% year-over-year growth, which aligns with the institution's prior expectations; CICC calculates that social revenue grew 28% year-over-year in 4Q25. In 4Q25, the company's social business MAU reached 35.28 million, increasing 4% quarter-over-quarter and 11% year-over-year, while cumulative downloads of its social applications reached 970 million, growing 6% QoQ, with both sequential growth rates accelerating. According to Sensor Tower, both monthly active users and gross billing for SUGO and TopTop continued to experience strong growth in 4Q25, with SUGO showing accelerated growth in December; furthermore, the older product MICO saw its MAU and gross billing stabilize sequentially. Looking ahead to 2026, the company expects its main products to continue penetrating core markets in the Middle East while actively expanding into new regions such as Japan and South America, which is anticipated to support a 30% year-over-year growth rate for pan-demographic revenue, potentially offsetting volatility from BlueCity revenue. Gross billing from short dramas is growing rapidly, and investments in AI and short dramas are expected to increase in 2026. The company expects the midpoint of its FY25 innovative business revenue guidance to be RMB 750 million, indicating an acceleration compared to 2024, driven by the rapid growth of short drama revenue; according to Sensor Tower, the number of users and gross billing for the company's short drama apps continued to double year-over-year. For 2026, the company anticipates that innovative business revenue could grow more than 30% year-over-year, with new games potentially contributing additional flexibility. Furthermore, the company expects its investment scale for short dramas and AI to increase in 2026, and its previously launched AI-powered creative content community, Aippy, is now available on mobile. Optimization of profit margins for main products is expected to help offset investments in new businesses. The operating profit margins for main products such as SUGO and TopTop continue to improve; moreover, AI tools are comprehensively enhancing product development and content generation, with marketing ROI and overall operational efficiency being continuously optimized. The institution maintains its forecast for a 2026 Non-IFRS net profit attributable to owners of RMB 1.26 billion. Risk warnings include geopolitical and macroeconomic risks, M&A integration risks, risks associated with expanding innovative businesses, policy and regulatory compliance risks, exchange rate fluctuation risks, and risks of profit margin compression from host revenue sharing.
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