Despite continued industry ads headwinds, we keep positive on Duiba’s interactive ads trend. We expect its ads to accelerate in 2H19E, benefiting from upcoming “11.11” Ecommerce Festival. Maintain our TP of HK$6.35. Valuation at 11x FY19E P/E is attractive.
- Focus more on traffic quality. Based on our cross-check, we expect Duiba to be more conservative on MAU expansion in 2H19E, for traffic quality control. We forecast its MAU to reach 420mn in 3Q19E. As advertisers prioritize ROI-driven marketing strategy, we think Duiba will put more efforts on efficiency improvement and algorithm optimization, rather than user expansion.
- Ads to accelerate in 2H19E, benefiting from “11.11” Festival. We forecast its ads revenue to accelerate to 70% YoY in 3Q19E, mainly driven by strong ecommerce and rising game ads demand after game approvals resumption. We expect its ads CTR to be stable in 3Q19E, while CPC to see sequential growth. 4Q19E would be strong season for Duiba, for large ads contribution from ecommerce advertisers. We expect it to benefit from upcoming “11.11” Ecommerce Festival, as ecommerce platforms still invested aggressively on low-tier cities penetration. Industrial ads headwinds were not yet over, but we think Duiba’s interactive ads will be more macro-defensive, and expect ads revenue to accelerate and GPM to pick up in 2H19E.
- SaaS trend on track. We forecast 3Q19E SaaS revenue of RMB18mn, with net adds of 300 paying clients. Incremental clients might come from finance sector and Tencent & Xiaomi ecosystem. We restated our revenue estimate of ~RMB50mn in FY19E. We keep positive on its long-term growth potential, but revenue contribution could be minimal in short term.
- Maintain BUY. We keep our financial estimates barely changed, and maintain our TP of HK$6.35. Our TP is equivalent to 16.0x FY19E P/E. The stock is trading at 11x FY19E P/E, which is attractive in our view.
