Duiba delivered strong FY19 results, with topline/ bottom line +45%/66% YoY. In the short run, Duiba's ads would bear pressure from ecommerce and finance segments in this epidemic. We cut its earnings by 25%/23% in FY20/21E, and trimmed its TP to HK$3.5 with lower multiple. We think the epidemic impact has been partly priced in its weak stock price. Wait for gradual ads & SaaS recovery. Maintain BUY with low valuation.
- Solid FY19 financials. FY19 revenue/adj.net profit grew 45%/66% YoY, in line with our estimates. MAU reached 414mn (+46% YoY), with advertisers up 37% YoY. Market concern lies in COVID-19 impact. We expect Duiba to face a challenging year in FY20E, with soft ads demand.
- Challenges from ecommerce and finance segments. 1Q was typically a soft quarter. Revenue in Jan & Feb accounted for 13% of full-year revenue in FY19. We estimate Duiba's ads revenue to decline ~30% YoY in Jan & Feb 2020, dragged by: 1) soft ads in CNY (ecommerce players typically put little ads efforts in CNY period); and 2) epidemic to hit its ecommerce and finance advertisers. By segment, ecommerce advertisers tend to face bid lower ad price with strict ROI-driven strategy, and players with cash on delivery would be hit by logistics disruption. Duiba's finance advertisers also face challenges, with weak credit card ads but resilient online banking ads. Content distribution, game and online education advertisers still put solid ads efforts on Duiba. Mgmt guided finance/ecommerce to account for 40%/27% of total ads revenue in Jan & Feb 2020 (vs. ~44%/43% in 2019).
- Expecting gradual recovery for both ads and SaaS. We expect its ads to gradually recover from Mar, mainly on: 1) ads recovery from existing ecommerce platforms with logistics resumption; and 2) rising ads from short videos (e.g. Douyin, Kuaishou). SaaS would see short-term pressure for travel limitation of S&M team, but would long-term benefit from the epidemic. We expect ads to be flat in FY20E, and SaaS revenue at RMB74mn (vs. previous RMB100mn). Given COVID-19 impact, we cut its earnings by 25%/23% in FY20/21E, with stable margin.
- Maintain BUY. We cut our TP to HK$3.5 from HK$5.0, to reflect COVID-19 impact and macro uncertainty. Our TP is equivalent to 9.8x/7.4x FY20/21E P/E. Wait for gradual ads & SaaS recovery. Maintain BUY with low valuation.
