Summary. Duiba delivered solid 1H19 results, with revenue/adj. net profit +64%/78% YoY. We keep positive on its strong growth despite ads headwinds. Expecting better 2H19E for strong seasonality of core advertisers (e.g. ecommerce, financials, and games). Maintain our TP of HK$6.35 unchanged. Valuation at 12x FY19E P/E is attractive.
- Solid 1H19 despite ads headwind. 2Q19 revenue grew 64% YoY, in line with our estimates. Adj. net profit surged 78% YoY, mainly on operating leverage and other income. Mgmt. guided 1H19 revenue to account for 40% of full-year revenue. We are impressed by this strong growth under existing ads industry headwinds, and keep positive on 2H19E growth momentum.
- Interactive ads strong momentum to continue. Although ads industry faces challenges like macro headwinds, increasing ads inventory and regulation uncertainty, Duiba’s ads recorded 67% YoY growth, largely higher than industry average. Such strong momentum was mainly driven by 1) strong demand from e-commerce (e.g. PDD, JD Pingou); and 2) games ads demand to recover after approvals relaunched. We think Duiba’s interactive ads will be more macro-defensive, and expect 2H19E ads to accelerate, mainly on: 1) stronger seasonality for ecommerce and games; and 2) low base of financial segment ads demand in 2H18. Market concern might lie on its ads gross margin decline (higher sharing ratio with top media), but mgmt. expects its GPM to pick up in 2H19E for stronger seasonality and limited incentives to top media.
- SaaS monetization still at early stage. 2Q19 SaaS revenue grew 225% YoY, accounting for 1% of total revenue. We are positive on its long-term growth potential, but revenue contribution could be minimal in short term. Mgmt guided SaaS revenue to reach about RMB50mn in FY19E, which is slightly lower than our previous estimate.
- Maintain BUY. Given its solid results, we keep our financial estimates barely unchanged, and maintain our TP of HK$6.35. Our TP is equivalent to 16.0x FY19E P/E. The stock is trading at 12x FY19E P/E, with attractive valuation.
