CICC: Raises target price of FRIENDTIMES (06820) to 1.06 Hong Kong dollars, rated "outperform industry"

CICC released a research report stating that it maintains the forecast of FRIENDTIMES (06820) net profit attributable to the parent company, with the current stock price corresponding to P/E ratios of 13/11 times for 2025/2026. Considering the potential of the company's high DAU products and the upward shift in industry valuation, the target price has been raised by 71% to 1.06 Hong Kong dollars, corresponding to target P/E ratios of 15/12.5 times for 2025/2026, with an upside potential of 13%, maintaining an "outperform industry" rating. The company is expected to achieve revenue of 600-650 million yuan in 1H25, a year-on-year growth of 14%-24%; and a profit of 38-44 million yuan in the period, turning losses into profits. The performance forecast is in line with the bank's expectations. CICC's main points are as follows: 1H25 revenue is expected to grow by double digits year-on-year, with a relatively stable quarter-on-quarter performance, and multiple products achieving revenue growth. Small games driving product innovation: The company has seized the opportunity of small games channel to attract new users, and has achieved incremental revenue through the launch of small program versions of original APP products such as "Dulala's Promotion Diary" and "Lingyun Nuo". Among them, "Dulala" has seen a rise in monthly revenue since the second half of 2024, and has been ranked in the top 100 on the WeChat small game bestseller list for almost half a year (highest ranking in the top 50), and in the top 80 on the Douyin small game bestseller list (highest ranking in the top 30). Stable performance of old products: The bank estimates that the revenue of basic products such as "Xifei Biography" and "Floating Life" series has also remained stable at the level of tens of millions of yuan, contributing to a high-profit margin base. Slight increase in revenue contribution from new games: "Noisy Chef" started public testing on May 28, belonging to the category of large DAU casual competitive products, with a relatively light early payment depth. The bank estimates that the first month's revenue will exceed 10 million yuan. Year-on-year profit turnaround in 1H25, channel adjustments drive gross margin improvement, and cost control is good. In terms of gross profit margin, the company stated that the proportion of high-margin channel revenue in 1H25 has increased, driving a growth in gross profit margin of about 5 percentage points. In terms of expenses, the company stated that both R&D expense ratio and sales expense ratio have decreased in 1H25. The bank judges that this is mainly due to the promotion of AI applications to improve efficiency and reduce costs, achieving better ROI on labor, and promoting overall cost optimization. "Chef" new season opens, diverse reserve products In terms of new games for the year, the second season of "Noisy Chef" "Enchanted Forest" started on July 14, introducing new season levels and casual gameplay. The bank suggests paying attention to: 1) performance of new brand collaborations; 2) accumulation of user base and commercialization level; 3) progress in multi-platform layout. In terms of reserve games, the company is currently developing and testing multiple products such as "Code: Lover", "Code: Flower", "Code: Ruins", "Code: MX", etc., some of which have already obtained version numbers. In addition, the company's chairman has pledged not to sell the shares held by the company through the public market within the next 12 months from the date of the performance forecast release, which the bank believes also demonstrates confidence in the current business and products.