We see high visibility on Strawbear’s secular rev growth, backed by its platform business model, strong content pipeline, and greater Made-to-Order (MtO) contribution. We forecast Strawbear to deliver 46%/49% rev/earnings CAGR during FY20-23E, with To-B business as primary contributor while To-C to be long-term driver. Initiate with BUY with DCF-based TP HK$17.0.
- A content production boutique backed by iQIYI. Strawbear is China’s Top 4 drama series producer and distributor in FY19, according to Frost Sullivan. With its investment and distribution capabilities, Strawbear broadcasted 12 drama series (3 MtO and 3 self-produced) in 2020. We forecast Strawbear to deliver 46% rev CAGR in FY20-23E, by leveraging its improving production quality, diverse IP reserves, and resource integration capabilities.
- Strong visibility in MtO content pipeline. Strawbear has ramped up its MtO production since 2020, which we believe can better cater to diverse, evolving audience preferences, and alleviate capital pressure. As Strawbear launched its well-acclaimed Spirit Realm <灵域> and Breath of Destiny <一起深呼吸> in 1Q21, we see high visibility in its MtO rev growth, coupled with at least five MtO series in the pipeline. We anticipate MtO to be Strawbear’s primary driver, with 95% rev CAGR in FY20-23E (70.2% rev mix in FY23E vs. 29.4% in 2020). Backed by Strawbear’s production and content selection capabilities, we expect its self-produced/ outright-purchased rev to grow at 6%/ 23% CAGR in FY2020-23E (20.9%/ 6.8% rev mix in FY23E).
- To-C model to unlock long-term upside. While To-B business serves as the primary contributor in the short run, we anticipate initial fruits from To-C initiatives with shootings for two series to start this year. If executed well, To-C business can become its second growth curve, as rev-sharing mode combine producer and online channel’s interest to co-launch better content. Strawbear’s future exploration in digital music and idol economy may also unlock long-term TAM. For conservative estimate (only factoring in To-B business), we forecast its adj. net income to grow at 49% CAGR in 2020-23E, with adj. net margin at 14.8% in FY23E.
Initiate with BUY. We set our DCF-based TP at HK$17.0 (implying 35x/28x FY21/22 P/E), in line with industry average. Further catalysts may come from solid earnings result, faster-than-expected content launch, and development of new business initiatives.
