Newborn Town Inc. Received "Buy Rating" from Sinolink Securities with
Target Price of HKD10

 

On June 16, Sinolink Securities issued an in-depth research report, which covered Newborn Town Inc. (9911.HK), a Chinese enterprise applying going-global strategy, for the first time, and gave the company a "buy rating" with a target price of HKD10.00 in 2021.

 

Newborn Town Inc. is an internet company focusing on global social networking business. Recently, it has gradually built up a product portfolio of social networking apps with distinctive video and audio labels, including MICO, YoHo and other apps. Now the company retains a leading position among the Chinese enterprises that compete in global social networking business.

 

1. "Traffic +" Strategy upgrades with the focus on global social networking

 

According to the report of Sinolink Securities, Newborn Town Inc. is one of the pioneering Chinese internet platforms specializing in overseas markets. Public information indicates that the company was founded in 2009, certified as a "top developer" by Google in 2015, embarked on social networking business in the same year, and listed on the HKEX Main Board in 2019.

 

In 2020, Newborn Town initiated the "Traffic +" Strategy to upgrade its business and thus formed a diversified operation model centered on social networking business. Focusing on the field of global open social networking and emerging ways of social networking, such as video and audio, the company has established a diversified product portfolio of video networking, voice-chat and live streaming social networking apps, so as to satisfy the various needs of global users.

 

2. Proactively expand to developed markets while reinforcing emerging markets

 

Data reveals that the global market for social networking with strangers is approaching the scale of USD100 billion with prosperous and fast development, especially for emerging markets.

 

Newborn Town Inc. first explored the emerging markets, including the Middle East, North Africa and Southeast Asia, which has become the solid foundation for its social networking business. Recently, it has gradually turned to mature markets, such as Europe, America, Japan and South Korea, and demonstrated success, creating broad space for development.

 

In Q1 of 2021, the average monthly active users (MAU) of its social networking products reached approximately 16.6 million, a quarter-on-quarter growth of roughly 26%, where both user loyalty and duration of use increased significantly.

 

3. Building "video & audio-based" social networking apps portfolio

 

With increasing usage of smartphones and wide applications of 5G technology, social media based on video and audio will be applied in more fields. In addition, such ways of social media provide users a highly interactive, immersive and delightful experience, which can integrate with different entertainment scenes of the people nowadays. For that reason, video & audio-based social networking has become the latest trend with a promising future.

 

To respond to various user needs and scenes, Newborn Town Inc. has set up a mature video and audio social product portfolio, mainly consisting of social networking apps utilizing one-to-one video chat, video matching, live streaming, and voice-chat room, thereby achieving dislocation competition.

 

This segmented strategy leveraging product portfolio is also adopted by Match Group, the industry giant, while Newborn Town Inc. have developed distinctive video and audio labels for the social networking products.

 

4. "Localization" - core competitiveness

 

According to the research report, "localization" is one of the core competencies that sets the company's social networking business apart from its competitors.

 

So far, it has built the localized teams in 12 countries and regions, following a three-layer personnel structure, which is composed of a localized operation team, local ethnic Chinese team and Chinese operation team.

 

The Chinese operation team is experienced in management, while the local ethnic Chinese team can facilitate mutual communication. The localized operation team, who knows well about local conditions, can work as partners to formulate localized operation strategies.

 

5. "Intelligentization" - boosting the efficiency of social networking business

 

In 2016, the company launched Solo Aware, a self-developed artificial intelligence engine, to improve the development and accuracy in content delivery of social networking apps. Solo Aware is evolving in terms of algorithm modelling over the years.

 

In 2018, the company built the Solo Cells middle platform system, which integrated the data, algorithms and development frameworks of the two business modules - social networking and mobile games. It greatly increased the efficiency of social application development, promotion, and operation, thereby optimizing the man-hour productivity.

 

6. Profit forecast and investment suggestions

 

The research report also estimated the earnings of Newborn Town Inc., expecting the company's revenue from value-added service/traffic monetization to reach RMB 1.27/0.91, 1.83/1.15 and 2.56/1.39 billion from 2021 to 2023 respectively, and its adjusted earnings per share is expected to be RMB 0.32/0.47/0.6 from 2021 to 2023.

 

The valuation of the company's overall business is expected to reach HKD10.3 billion in 2022, with the target price of HKD10 in 2021, and a "buy rating" was given.

 

In April 2021, Newborn Town Inc. established strategic partnership with Tencent, through which may quicken the process of traffic monetization of the company. In May, Newborn Town Inc. was added to MSCI China Small Cap Index. With the rapid development of its global social networking business and the progress of its diversified business, the company is expected to maintain a fast-growing pace in the future and further reveal its investment value.