CICC released a research report stating that considering the better-than-expected growth in innovative businesses, the firm has raised NEWBORNTOWN's (09911) revenue forecasts for 2025/2026 by 2%/2% to RMB 6.9/8.5 billion respectively. Taking into account that increased marketing spending offsets gross margin optimization, the firm maintains its adjusted net profit forecasts for 2025/2026. CICC maintains its "Outperform" rating and, considering the upward shift in industry valuation levels, applies a 15x 2025 Non-IFRS P/E multiple, raising the target price by 20% to HK$13.5, representing 10% upside potential from the current share price. The current share price trades at 13x/11x 2025 and 2026 Non-IFRS P/E respectively.

CICC's main views are as follows:

**1H25 Revenue Largely in Line with Expectations**

The company announced 1H25 results: 1H25 revenue increased 40% year-over-year to RMB 3.18 billion, meeting the firm's expectations. Adjusted EBITDA rose 44% year-over-year to RMB 650 million, while net profit attributable to shareholders increased 118% year-over-year to RMB 490 million, aligning with previous profit forecast midpoints.

**Revenue Pillars Continue to Strengthen, Matrix Expansion Expected to Consolidate Growth Momentum**

1H25 social business revenue increased 37% year-over-year to RMB 2.83 billion, driven by dual growth in users and ARPU. Innovation business surged 71% year-over-year to RMB 347 million. The company expects premium games to enter the profit recovery phase, with long-term user ARPU and retention performing well, and this business segment beginning to contribute high-margin revenue sharing.

1) **SUGO and TopTop**: Both achieved triple-digit year-over-year revenue growth, together contributing nearly 50% of pan-demographic social revenue. Enhanced by Boomiix algorithms, SUGO's average online time per user increased 17% year-over-year in 1H25, with ARPU rising 20% and operational leverage showing optimization. Additionally, the legacy product YoHo also achieved breakthrough growth following changes in user acquisition strategies.

2) **New Product Incubation**: 5-6 new flagship products continue to show growing transaction volumes, collectively accounting for over 20% of pan-demographic social revenue. The company expects several of these products to potentially reach monthly transaction volumes of tens of millions of dollars in the future. The To-C code content creation community Aippy is currently in testing phase, with the company prioritizing the consolidation of content and user base at this stage, potentially exploring various monetization models including subscriptions, in-app purchases, and advertising later.

3) **Geographic Expansion**: In 1H25, the high-ARPU Middle East and North Africa market accounted for over 60% of revenue, with core products in this market achieving over 60% year-over-year revenue growth. The Southeast Asian market maintained steady revenue, while the company actively explores Latin American, European, American, and Japanese markets.

The firm is optimistic about the rapid growth and global replication capabilities of new products, expecting user scale to continue robust growth in 2025, potentially supporting 34% year-over-year growth in social business revenue for 2025.

**Structural Gross Margin Optimization, Traffic Investment Remains High**

1H25 gross margin reached 56%, up 6 percentage points year-over-year, attributable to decreased revenue sharing ratios in social business and increased proportion of high-margin innovative business structure. The firm expects the group's gross margin to improve significantly year-over-year in 2025.

In the short term, the company expects marketing costs for new products to remain elevated, but will strengthen the centralized integration and AI empowerment of three core capabilities: product development, growth, and operations, to support product and geographic replication. Therefore, the firm expects R&D and administrative expenses to gradually benefit from operational leverage.