Stock Analysis & Valuation Meitu, Inc. (1357.HK)

• Previous Close: HK$7.72
• Sector Valuation Confidence Level: High

Valuation method	Value, HK$	Upside, %
Artificial intelligence (AI)	36.60	374
Intrinsic value (DCF)	8.72	13
Graham-Dodd Method	1.60	-79
Graham Formula	6.10	-21

Strategic Investment Analysis

Company Overview

Meitu, Inc. is a leading Chinese internet company specializing in photo editing and beauty enhancement applications. Founded in 2008 and headquartered in Xiamen, China, Meitu operates a comprehensive portfolio of popular apps including Meitu, BeautyCam, BeautyPlus, Meipai, and Airbrush that serve millions of users globally. The company has evolved from a pure photo editing platform to a diversified internet services provider offering online advertising, VIP subscriptions, image software-as-a-service, influencer marketing, and smart hardware products. Meitu's core business model leverages its massive user base to generate revenue through multiple streams including advertising, premium subscriptions, and value-added services. As a prominent player in China's competitive internet content and information sector, Meitu has established itself as a go-to platform for beauty and photo enhancement, particularly popular among younger demographics and social media users seeking professional-grade editing tools.

Investment Summary

Meitu presents an intriguing investment case with strong profitability metrics, generating HKD 805 million in net income on HKD 3.34 billion revenue in its latest fiscal year. The company demonstrates solid cash generation with HKD 746 million in operating cash flow and maintains a healthy balance sheet with HKD 1.3 billion in cash against only HKD 318 million in debt. However, investors should note the company's high beta of 1.395, indicating significant volatility relative to the market. The dividend yield of approximately 1% provides some income component, but the primary investment thesis revolves around Meitu's ability to maintain its user base and monetization in the highly competitive Chinese internet landscape. Key risks include regulatory changes in China's internet sector, competition from larger tech platforms, and potential saturation in the photo editing app market.

Competitive Analysis

Meitu operates in a highly competitive segment of China's internet ecosystem, competing against both specialized photo editing apps and larger platform companies. The company's competitive advantage stems from its early mover status in beauty and photo enhancement technology, developed specifically for Asian beauty standards and preferences. Meitu's strength lies in its specialized AI-powered beauty algorithms and filters that cater to the specific aesthetic preferences of its primarily Asian user base. The company has built a comprehensive ecosystem around its core photo editing capabilities, expanding into community features, influencer marketing, and smart hardware. However, Meitu faces intense competition from larger tech platforms like Tencent and ByteDance that can leverage their massive user networks and superior resources. The company's positioning as a specialized beauty-focused platform differentiates it from broader social media competitors, but it must continuously innovate to maintain its technological edge. Meitu's challenge is to defend its niche against both vertical competitors and horizontal platforms that are increasingly incorporating advanced photo editing features into their core offerings.

Major Competitors

• Baidu, Inc. (9888.HK): Baidu operates numerous photo and video editing tools through its mobile ecosystem and AI capabilities. While not primarily a photo editing company, Baidu's vast resources and AI research capabilities allow it to develop competitive image processing technologies. Its weakness in this segment is lack of focus compared to Meitu's specialized approach, but its strength lies in integration with broader ecosystem and superior AI resources.
• Bilibili Inc. (BILI): Bilibili's video platform includes built-in editing tools and filters that compete with Meitu's offerings. Its strength is the massive community of content creators who use its platform, creating network effects. However, Bilibili's editing tools are secondary to its core video sharing platform, making them less sophisticated than Meitu's specialized offerings for still photography and beauty enhancement.
• Kuaishou Technology (KUASF): Kuaishou integrates advanced beauty and filter features into its short video platform, directly competing with Meitu's core functionality. Its strength is the seamless integration of editing tools with social sharing, creating immediate utility for users. Weakness compared to Meitu is the lack of standalone, professional-grade photo editing capabilities focused specifically on beauty enhancement rather than video content creation.
• Snap Inc. (SNAP): Snap's AR filters and camera technology represent global competition in the photo enhancement space. Its strength lies in advanced AR capabilities and strong brand recognition among younger users globally. However, Snap's focus is primarily on Western markets and real-time filters rather than the sophisticated post-processing beauty enhancement that Meitu specializes in for Asian markets.
• Adobe Inc. (ADBE): Adobe's Lightroom and Photoshop apps represent the professional end of photo editing. Its strength is industry-standard software with advanced capabilities across all editing domains. Weakness in competing with Meitu is the lack of focus on Asian beauty standards, higher complexity that appeals more to professionals than casual users, and significantly higher price point for premium features.