iHuman is a leading childhood edutainment company in terms of paying users and MAUs. Its online APPs adopt 3D, AI, gamification and interacting features that would differentiate them from competitors. We forecast the Company to post 92% revenue CAGR in FY20-22E, greater than peers’ average of 57%. We initiate coverage of iHuman with Buy rating and TP of US$26.08.
- Leading childhood edutainment player. iHuman provides self-directed learning APPs and learning materials to children aged between 3 and 8. It is one of the most reputable brands in childhood education sector. Its brand recognition can be traced back to 1996 when it introduced Genesis ("开天辟地"), one of the earliest computer-focused educational software in China. The Company was No.1 player in terms of paying users and MAUs among online childhood edutainment providers in China in 1H20 according to F&S.
- Proven and differentiated innovation capabilities. The Company has in-depth know-how in content development and application of technologies. It can create products with 3D, AI, gamification and interacting features, which could help it to stand out among peers which mainly offer AI-cartoon based online products. The studio model, a content development team comprised gamification designers and teachers, can share content, technology, design and know-how from the central platform. This allows the Company to replicate its success at product level at scale with consistent high quality.
- Fast-growing childhood edutainment sector. Edutainment products provide interactive entertainment features to drive children’s learning interests. COVID-19 pandemic accelerated student migration to online. The sector is estimated to grow at a CAGR of 28.7% from 2019 to 2024. Online childhood edutainment sector is highly fragmented (CR5: 7.6% market share in 2019), which provides room for the Company to gain market share.
- Visionary and dedicated management. Mr. Yunfeng Chi, founder of iHuman and Perfect World (002624CH), is a pioneer and business veteran with 25 years of education experience. He has strong track record of entrepreneurial success in innovation, education and gaming industry.
- Initiate at Buy. We forecast revenue to grow at 92% CAGR in FY20-22E led by growth of online APP and launch of online courses. Such growth rate is stronger than online education peers’ average of 57%. We set our TP at US$26.08, based on 8.5x FY21E P/S, at 30% premium on peers’ weighted average of 6.5x. Key risks: (1) paying users below expectation; (2) ramp-up of new business behind expectation; (3) fierce competition.
