Guotai Junan Securities: Reiterates "Buy" rating on BILIBILI-W (09626) with a target price of HK$201

Guosheng Securities released a research report stating, reiterating a "hold" rating for BILIBILI-W (09626) and giving the company (BILI.O) / (09626) a target price of $26 / 201 Hong Kong dollars. Bilibili achieved profitability in GAAP and non-GAAP terms in 2024Q4, based on the company's profit improvement, with revised revenue forecasts for 2025-2027 of 30.1/33.7/37.6 billion yuan, yoy + 12% / 12% / 12%; non-GAAP net profit attributable to the mother of 16.1/28.4/40.1 billion yuan. Guosheng Securities main points are as follows: Bilibili achieved profitability in GAAP and non-GAAP terms in 2024Q4 Bilibili's revenue for 2024Q4 was 7.7 billion yuan, a year-on-year increase of 22%. Value-added services, advertising, games, IP derivatives, and others were 3.1/2.4/1.8/0.46 billion yuan respectively, yoy + 8% / + 24% / + 79% / -16%. In 2024Q4, the company achieved a gross profit margin of 36.1%, a year-on-year improvement of about 10 percentage points, mainly due to a decrease in operating related costs as revenue increased. Sales expense ratio / administrative expense ratio / research and development expense ratio were 16.0% / 6.5% / 11.9%. The company achieved an adjusted operating profit in this quarter of 4.6 billion yuan, with an adjusted OPM of about 6.0%; GAAP net profit attributable to the mother was 90 million yuan, non-GAAP net profit attributable to the mother was 4.5 billion yuan, and the non-GAAP net profit margin was about 5.9%. It is expected that the company will continue to improve its profit capabilities in the future. Eternal games grow steadily, "Three Kingdoms Strategy" performs well In 2024Q4, the company's game revenue increased by 79% year-on-year to 1.8 billion yuan, mainly due to the strong performance of the exclusive licensed game "Three Kingdoms: Strategy". At the same time, revenue from the two eternal games "FGO" and "Azur Lane" continues to grow. Significant growth in advertising revenue, "horizontal and vertical" strategy effective In 2024Q4, the company's advertising revenue increased by 24% year-on-year to 2.4 billion yuan, mainly due to Bilibili's segmentation of young people and the improvement in advertising efficiency. Firstly, Bilibili has a high-value young user group and high-quality content, making it a favored platform for advertisers. Secondly, the company continues to promote the "horizontal and vertical" advertising strategy: 1) horizontal: referring to the infrastructure construction of advertising products, such as the iteration of advertising products (Fireworks Plan, Takeoff Plan, etc.), AI advertising material optimization, etc. 2) vertical: referring to solutions for multiple vertical industries, such as games, e-commerce, and exploring more advertising demands. Grasping quality content, grasping the ticket to the AI era The company stated that quality content is the ticket for Bilibili to enter the AI era: 1) AI models and applications iteration require high-quality corpora, 2) Bilibili has multiple high-quality content such as PUGC, self-made IP, comments, and barrage. The bank believes that after achieving comprehensive profitability, Bilibili has the potential to make better investments and exploration in high-quality content, seizing the opportunities for content and monetization in the AI era. Risk warning: User growth is lower than expected, monetization efficiency is lower than expected, macroeconomic changes exceed expectations.