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CLSA Initiates Coverage on Newborn Town (SEHK: 9911) with HK$17.50 Price Target; Company’s Localization Edge Surpasses Peers in the U.S and China
CLSA Initiates Coverage on Newborn Town (SEHK: 9911) with HK$17.50 Price Target; Company’s Localization Edge Surpasses Peers in the U.S and China[Hong Kong – 14 October 2025] CLSA has initiated coverage on Newborn Town Inc. (Newborn Town or the company, together with the subsidiaries as ‘the Group’, stock code: 09911.HK) , the global social entertainment company, with “Outperform” rating and a target price of HK$17.50. Compared with the closing price of HK$11.66 on 10 October, CLSA’s target price implies an upside potential of 50%. Previously, several brokers including Soochow Securities and CMB International have covered Newborn Town, issuing positive ratings of "Buy" and "Overweight".CLSA’s report highlighted that Newborn Town has been building a deep moat in the global social entertainment business sector through its unique "Happiness Machine" philosophy.The target price is primarily based on the company’s stable cash flow generation capabilities and outstanding return on equity (ROE). Newborn Town boasts a solid user base and strong market competitiveness in the global social entertainment market, particularly in high-Average Revenue Per User (ARPU) regions such as the Middle East and North Africa (MENA), demonstrating competitive advantages over peers in the U.S. and China.Newborn Town’s Strategic Expansion in MENA Unlocks Vast Potential, Outpacing U.S. and China Peers in Localization CapabilitiesNewborn Town’s competitiveness in the MENA market continues to strengthen. According to the company’s financial reports, its MENA business scale grew over 60% year-on-year in both 2024 and the first half of 2025, showcasing robust growth momentum.CLSA noted that the MENA region boasts a population of over 570 million, with a median age of just 26 years and 400 million internet users. On average, users spend more than 210 minutes per day on social apps—1.5 times that of U.S. users, 1.8 times that of China, and 2 times that of Germany. This usage far exceeds the global average of 143 minutes.“We see ample room for growth for social entertainment services in MENA. We believe Newborn Town is among the most competitive players to capture opportunities and expand its market share.”CLSA viewed that Newborn Town had constructed a deep competitive moat globally — especially in the MENA region. On one hand, the company adapts proven mature monetization models validated in the Chinese market; on the other hand, it leverages a rich foundation of internet talent to gradually establish differentiated advantages in the global social entertainment field. Its social products are supported by deep localization operations, extensive KOL networks, efficient traffic strategies, and profound user insights, effectively building barriers and raising industry entry thresholds.“We believe Newborn Town stands out among peers for its deep user insights, tailored services and diversified monetisation model, especially when compared with US-based companies; it has outperformed Chinese players in product features innovation, traffic acquisition and content operations capability thanks to its strong local presence, in our view.”The report also showed that in 2024, Newborn Town officially joined Saudi Arabia's regional headquarters program to set up a regional headquarters in Saudi Arabia, becoming the first social entertainment company to do so. It is one of a few Chinese companies which have established a strong presence in the market. CLSA Forecasts Strong CAGR Growth in Revenue and Profit Across All Newborn Town Segments Over the Next Three YearsBased on the in-depth research, CLSA provided a forecast for Newborn Town’s growth over the next three years: the company’s revenue CAGR will reach 24%, hitting RMB9.8 billion by the end of 2027, up from RMB5.1 billion in 2024.CLSA expected the pan-audience social business to achieve total revenue of RMB7.9 billion by the end of 2027, compared to RMB3.8 billion in 2024, representing a compound annual growth rate of 28%. Currently, SUGO and TopTop maintain strong growth momentum and will remain the primary contributors to revenue growth over the next two years; mature products like MICO and YoHo will focus on refined operations, expected to steadily contribute revenue and cash flow. In addition, new product incubations are progressing smoothly.According to CLSA estimates, the diverse-audience business will see revenue reaching RMB1.1 billion, up from RMB800 million in 2024, with a CAGR of 7% over three years. The growth will be driven by the international expansion of HeeSay. The company aims to enhance its leadership position in Southeast Asia and to improve profitability, while exploring opportunities in new markets. For the innovative business, CLSA expected total revenue of RMB0.9 billion by the end of 2027, up from RMB0.5 billion in 2024. An enriched casual game portfolio and rapidly growing social e-commerce business will drive significant revenue and profit growth.In terms of profits, CLSA expected Newborn Town’s core earnings before interest and taxes to grow at a compound annual growth rate of 27% to RMB1.5 billion by 2027, more than doubling from 2024, driven by scale expansion and the continuous growth drivers via the content ecosystem. Notably, there is also room for gross margin improvement. CLSA expected the gross margin to expand from 51% in 2024 to 57% in 2027, driven by a product mix shift towards higher-margin UGC products such as TopTop and game businesses. As the product portfolio matures, operating margins are expected to improve through optimization of user acquisition costs and adjustments to revenue sharing with content partners.Target Price of HK$17.50: Strong ROE and Cash Flow to Boost Shareholder ReturnsCLSA pointed out that Newborn Town exhibited excellent capital efficiency and robust financial quality, manifested in its high-return, asset-light, agile business model, and strong cash flow generation.They forecasted the company's ROE to stay over 30% over the next three years. Meanwhile, they expected the company’s free cashflow to rise sustainably with operating cash flow growth, and minimal capital expenditure needs. As of the end of 2024, net cash accounted for 57% of total assets. Its strong cash-generation capabilities and net cash position paved the way for stronger shareholder returns in the future. Based on a DCF model, CLSA initiated a target price of HK$17.50 with 50% upside (compared with the closing price on 10 October), with an “Outperform” rating. This target price implies to adjusted P/E ratios of 16.0x/13.4x for FY2026/2027. On the back of a 3-year CAGR for adjusted EPS reaching 31%, with the PEG ratio is below 1x, the current valuation was considered attractive. If the company makes further progress in core product count, regional expansion, or margin improvements, valuation could further rerate towards 15x-20x.About Newborn TownNewborn Town has grown into a leading technology company which was listed on the Main Board of the Hong Kong Stock Exchange (HKEX) in 2019 under the stock code 9911.Committed to creating positive emotional values worldwide, Newborn Town has developed a diverse portfolio of applications in the social networking and entertainment sectors. Its social apps include MICO, YoHo, TopTop, SUGO and HeeSay, together with gaming products like Alice's Dream: Merge Games. These applications have achieved widespread acclaim, reaching over one billion users in over one hundred countries and regions.Newborn Town considers the Middle East and North Africa (MENA) region a key market and has also extended its influence in Southeast Asia, Europe, the United States, Japan, and South Korea. The company aims to become the world's largest social entertainment company.For enquiries, please contactDLK Advisory pr@dlkadvisory.comFile: 9911_CLSA report_EN_FINAL14/10/2025 Dissemination of a Financial Press Release, transmitted by EQS News.The issuer is solely responsible for the content of this announcement.Media archive at www.todayir.comEQS
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