Guotai Junan Securities Initiated Coverage on Newborn Town with a "Buy" Rating and HK$4.75 Target Price

HONG KONG, July 22, 2024 /PRNewswire/ — In a report released on July 15th, Guotai Junan Securities gave Newborn Town a “buy” rating and set a target price of HK$4.75. The firm assigned a 9.5x P/E ratio to Newborn Town, estimating a market capitalization of around HK$6.7 billion, based on the company’s success with new social products, notable progress in the MENA region, and steady growth in its diverse social networking business.

The report states that Newborn Town has been solidifying its leading position in the MENA region with the help of its diversified audio and video social products. The company’s social products primarily contribute to its revenue, and its localization strategy has enabled it to secure a significant market share in this region.

Newborn Town has been focusing on the MENA region since 2017, aiming to create online interactive experiences and quality content that meet local users’ social and entertainment needs. Newborn Town’s flagship social products, MICO, YoHo, TopTop, and SUGO, have seen significant growth in the region. The company’s latest annual results for 2023 indicated a 30% year-to-year growth in its main social products in the MENA region.

The report highlights Newborn Town’s core competitiveness in its data analytics, in-depth adaptation of localization strategy, and thorough understanding of global markets. The company has crafted unique social business landscapes worldwide by delving into various cultural backgrounds. In Southeast Asia, for instance, their products incorporate themed events and reward systems that resonate with local culture, significantly enhancing user engagement and loyalty.

Despite focusing on social businesses in emerging markets like the MENA region, Newborn Town has also been actively expanding the social networking business for diverse genders.

According to the research report, the company is expected to unlock new profitability opportunities in the “diverse-audience social networking business” following the consolidation of BlueCity. Additionally, HeeSay’s launch has marked a significant milestone in Newborn Town’s global expansion and commercialization efforts. It is predicted that BlueCity will continue to optimize its revenue structure and increase its profit margin, supporting Newborn Town’s growth.

The diverse-audience social networking segment generated RMB 353 million in revenue and RMB 102 million in profit for Newborn Town. The report highlighted that BlueCity’s challenges in overseas customer acquisition, operations, and monetization could be addressed by Newborn Town’s core strengths, thereby driving growth in Newborn Town’s diverse-audience social businesses globally.

Recently, Newborn Town also announced an agreement with BGFG, JJQJ, JZZT, and NBT Social Networking to acquire approximately 77.83 million shares of NBT Social Networking for around HK$1.983 billion.

Regarding this acquisition, Guotai Junan Securities suggested that fully owning and consolidating NBT Social Networking will enhance decision-making efficiency and benefit future operational development. It is estimated that, without additional acquisition plans, Newborn Town’s operations will generate more than RMB 600 million in positive cash flow annually starting in 2025, with potential for further improvement.

Source : Guotai Junan Securities Initiated Coverage on Newborn Town with a "Buy" Rating and HK$4.75 Target Price

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