HONG KONG, May 9, 2025 /PRNewswire/ -- CITIC Securities' research department has recently released its inaugural investment value analysis report on Newborn Town (09911.HK), initiating coverage with a "buy" rating and a target price of HK$11. The report underscores Newborn Town's leading position in the global social entertainment industry.
The report highlights Newborn Town's extensive operational experience overseas, particularly in the MENA region, and its successful strategy of replicating its product operations and market expansion experiences. The company's app portfolio is now entering a "harvesting phase," with promising growth potential ahead.
CITIC Securities noted that Newborn Town, a global leader in social entertainment, has achieved robust growth in recent years. " Leveraging extensive experience in international markets, the company has effectively implemented its 'replication' strategy and efficiently executed its 'app portfolio' tactic. As a typical product-driven company, Newborn Town is now entering its 'harvesting phase, " the report states.
The research report emphasizes that Newborn Town has a clear and synergistic business structure spanning three key segments..
Leveraging its middle platform system, a high proportion of local employees, the growth path combining investment and R&D efforts, and the rapid iteration of AI technology, Newborn Town is able to implement its 'replication' strategy swiftly. This enables the company's new products to accurately meet market demands, quickly establish a presence, and capture the first-mover advantage in the social networking markets at a relatively low cost.
According to the report, Newborn Town's pan-audience social business has developed a healthy product hierarchy. The company currently boasts four flagship products. Its established products, MICO and YoHo contribute stable cash flow, while newer offerings, TopTop and SUGO delivered explosive growth in 2024, with revenues increasing by over 100% and 200% year-on-year respectively.
CITIC Securities forecasts that, in the short term, TopTop and SUGO are expected to achieve around 50% year-on-year revenue growth in 2025. The company is well-positioned to develop blockbuster products in the medium to long term, leveraging its proven replicability to sustain its business growth.
Newborn Town's diverse-audience social business is rapidly expanding in global markets. According to Frost & Sullivan, the global LGBTQ+ population is projected to reach 660 million by 2026, characterized by high income, significant consumption power, and a strong demand for online social interaction. With a high barrier to entry, Newborn Town has secured a significant first-mover advantage by establishing a large and engaged user base.
CITIC Securities believes that the company's LGBTQ+ social platform, HeeSay shows significant growth potential. With its expansion into markets such as Southeast Asia, Japan, and South Korea, coupled with its live streaming feature, HeeSay is expected to achieve even greater market penetration. CITIC Securities projects a compound annual growth rate (CAGR) of approximately 25% in revenue from 2025 to 2027.
As Newborn Town's social business continues to strengthen, the company has successfully developed a second growth curve by expanding into innovative areas such as mobile gaming and social e-commerce. CITIC Securities believes that by strategically targeting the casual gaming sector—an untapped market with significant potential—and leveraging its innovative product designs and flexible operational strategies, Newborn Town's merge game Alice's Dream: Merge Games has outperformed expectations and is now generating revenue for the listed company.
Looking ahead, CITIC Securities projects that, with the accumulation of successful experience, Newborn Town will be able to launch new quality games with shorter recovery cycles, thereby creating another growth curve for the company.
CITIC Securities also pointed out the impressive performance of Newborn Town's social e-commerce business. "There's a growing demand for online purchases of HIV medications and sexual wellness products in China. Heer Health, an e-commerce platform focused on the 'Internet + AIDS prevention' scenario, has become the leading online distributor of certain HIV medications, with roughly 50% of the domestic market share. The platform drives growth through its large user base, extensive distribution channels, and rapid delivery capabilities."
Target Price Raised to HK$11, Driven by Strong Growth Potential in the Global Emotional Value Sector
CITIC Securities sees substantial room for growth in the global social media market. According to Grand View Research, the global social networking market is projected to reach US$310.37 billion by 2030. Notably, regions such as the Middle East and Southeast Asia are recognized as high-potential markets, with low penetration rates yet strong user engagement, making them key areas for future growth.
The research report highlights that, driven by the growth of industries like oil, countries in the MENA region enjoy high per capita GDP. However, factors such as the natural environment, religious customs, and cultural norms limit offline social entertainment options, creating a significant demand for online alternatives.
With a user base that enjoys both wealth and leisure time, the market for social applications in the MENA region presents substantial growth potential. According to Verified Market Research, the Middle East media and entertainment market is projected to reach US$82 billion by 2032. Meanwhile, Southeast Asia, with its youthful, internet-savvy population and fast-improving digital infrastructure, is expected to see the GMV of digital entertainment reach US$3.4 billion by 2025.
CITIC Securities observes that Newborn Town is strategically targeting the social networking segment for strangers, a space currently lacking dominant competitors. As Generation Z becomes the dominant user group, the demand for personalized social networking experiences continues to rise, blurring the lines between social networking and entertainment.
Consequently, social products that cater to individual user preferences are likely to see higher user retention. Newborn Town has already established flagship products in live streaming, gaming, and voice chat, and is anticipated to expand further into other sub-segments in the future.
The research report highlights Newborn Town's strong financial performance, characterized by sustained growth and robust cash flow. From 2020 to 2024, the company's revenue increased from RMB1.18 billion to RMB 5.09 billion, representing a CAGR of 44.1%.
At the same time, the company's profitability has significantly improved, with gross margins for its social business continuing to rise. Operating cash flow remains healthy, and the company's cash reserves are substantial, ensuring ample resources for future expansion.
CITIC Securities has highlighted Newborn Town's promising long-term growth, forecasting net profits of RMB 949 million, RMB1.215 billion, and RMB 1.519 billion for 2025-2027. The current price corresponds to price-to-earnings (PE) ratios of 11x, 8x, and 7x, respectively. By using both comparable valuation and discounted cash flow (DCF) methods, CITIC Securities has set a target price of HK$11 per share.
Looking ahead, with continued advancements in AI technology, expansion into emerging markets, and the growing momentum of the emotional value sector, Newborn Town well-positioned to reinforce its leadership in the global social entertainment industry. For long-term investors, the current valuation presents an attractive opportunity.
