09911.hk newborn town 210823_value-added services refuels the “traffic+” direction

1
Newborn Town | 09911.HK
Value-added Services refuels the “Traffic+” direction
STOCK RATING
STRONG BUY
TARGET PRICE
HK$ 8.39
Newborn Town (09911.HK) primarily engages in the development of i) social networking
platforms and ii) games under the direction of “Traffic+”, it has a wide range of products like
Yumy, MICO, YoHo and Yiyo under the social networking segment and Merge Island and
Solitaire Chapters under its games portfolio. The Group also has a strong global coverage
as it gradually taps into the Middle East, North America, Southeast Asia, South Asia and some
other developed countries.
Convincing performance from social networking Apps: Newborn Town (09911.HK)
commenced its business in the social networking segment since 2016 via an investment of
MICO, and the Group defined social networking as its core business together with an
announcement of “Traffic+” in 2020. The Group currently has a comprehensive portfolio of
stranger social networking Apps, including Yumy, MICO, YoHo, Yiyo. MICO is the most
successful App in the product portfolio of the Group, and we believe that the Group is
capable to replicate the business model to other social networking Apps. In 2021, the Group
released a new social networking App, Yumy, with 10mn accumulated installation worldwide.
Value-added services pick up after a potential deceleration of traffic monetization: The
growth momentum of traffic monetization of games is majorly driven by i) the number of
MAU, and ii) the usage time, iii) the number of ads displayed in a given session, iv) pricing
strategies and v) the advertisers. Although we are surprised and positive to all means
adopted by Newborn Town (09911.HK) to maximize the MAU, the growth still decelerates
after booming for years. Newborn Town (09911.HK) enlarged its investment in the mid-core
games in 2020, and it primarily monetizes the games via i) in-App purchase and ii) ads
placement, we believe that is a new driver bringing the Group growth momentum.
Valuation: We use the DCF valuation methodology for valuation and take the P/S valuation
methodology as a reference to derive the fair value. We initiate our first coverage on
Newborn Town (09911.HK) with a “STRONG BUY” rating and a HKD 8.39/share target price,
implying 3.3x/2.3x/1.8x forward P/S of 2021/2022/2023.
Risk factors: Fail to develop the mid-core games, Accuracy of the ads placed falls, Total
spending on the ads drops, Keen competition
| RESEARCH
23 Aug, 2021
INITIATION
H F NGO, Brian, CFA
SENIOR ANALYST
brianngo@westbullsec.com.hk
+852 3896 2965
2701 – 2703, 27/F, Infinitus Plaza, 199 Des Voeux Rd Central,
Sheung Wan, HK
Newborn Town (09911.HK)
Stock Rating STRONG BUY
Target Price 8.39
Current Price HK$ 4.43
52-Week Range HKD 1.40 – 10.54
Market cap. (HKD, bn) HK$ 4.4
RMB, mn 20(A) 21(E) 22(E) 23(E)
Revenue 1,181.6 2,287.7 3,207.4 4,146.9
Gross Profit 752.5 1,152.8 1,858.3 2,589.2
Gross Margin 63.7% 50.4% 57.9% 62.4%
Net Profit 114.3 335.6 443.6 567.7
Attr. EPS 0.040 0.171 0.269 0.385
P/S 3.3 1.7 1.2 0.9
P/E 99.2 23.0 14.6 10.2
ROE 16.1% 35.1% 33.0% 30.7%
Performance 1 mth 3 mth 6 mth 1 year
Absolute -16.1% -25.2% -35.1% 153.1%
Relative to HSI -8.1% -13.4% -17.1% 153.2%
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2020-08-21
2020-09-21
2020-10-21
2020-11-21
2020-12-21
2021-01-21
2021-02-21
2021-03-21
2021-04-21
2021-05-21
2021-06-21
2021-07-21
2021-08-21

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| RESEARCH
Table of Contents
BUSINESS OVERVIEW 3
BUSINESS MODEL 3
“Traffic+” Social Networking 3
“Traffic+” Games 9
COMPANY BACKGROUND 12
INDUSTRY OVERVIEW 14
GLOBAL DATING SERVICES MARKET 14
ONLINE DATING SOFTWARE 15
GLOBAL GAMES MARKET 16
CHINESE MOBILE GAMES IN THE OVERSEAS MARKET 18
REMOVAL OF IDFA BY APPLE (AAPL.US) 19
Impact on advertisements of removal of IDFA 19
Impacts on game developers from the removal of IDFA 19
INVESTMENT THESIS 20
CONVINCING PERFORMANCE FROM SOCIAL NETWORKING APPS 20
Comprehensive coverage on the stranger social networking Apps portfolio 20
Rapid penetration across the world 20
Growing monetization means 21
VALUE-ADDED SERVICES PICK UP AFTER A POTENTIAL DECELERATION OF TRAFFIC MONETIZATION 22
A mild deceleration on traffic monetization of games 22
Picking up monetization from value-added services 23
A REMOVAL OF IFDA MAY NOT BE DETRIMENTAL 25
FORECAST & VALUATION 26
FORECAST 26
VALUATION 27
PEERS COMPARISON 28
RISK FACTORS 28
FINANCIAL STATEMENT 29

3
| RESEARCH
Business Overview
Newborn Town (09911.HK) primarily engages in the development of i) social networking platforms
and ii) games under the direction of “Traffic+”, it has a wide range of products like Yumy, MICO,
YoHo and Yiyo under the social networking segment and Merge Island and Solitaire Chapters under
its games portfolio. The Group also has a strong global coverage as it gradually taps into the Middle
East, North America, Southeast Asia, South Asia and some other developed countries.
Business model
Newborn Town (09911.HK) launched the “Traffic+” strategy in social networking and game segments,
and the booming traffic brought the Group a YoY 203.2% increment in total revenue in 2020, in
which 43.3% and 55.6% of total revenue was derived from traffic monetization and value-added
services respectively.
Exhibit: Revenue breakdown by segments
Source: Company data, West Bull Securities
◼ “Traffic+” Social Networking
Newborn Town (09911.HK) explores the social networking segment and expands globally
through a diverse portfolio of Apps, in which Yumy, MICO, YoHo and Yiyo are the core products
covering both video and audio social networking. The Group primarily monetizes the social
networking Apps via live broadcast rewards, chat duration purchase, member subscription,
advanced functions. Benefited from a consolidation of MICO since 2020 2H, Newborn Town
(09911.HK) achieved a YoY 55.5x increase in the revenue of value-added services segment in
2020 to RMB 657.5mn, and it, according to the unaudited numbers, also reported a >50x
growth in the segment revenue of 2021 1H.
90.5
378.0
524.1
2.4
11.6
657.5
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
2018 2019 2020
Traffic monetisation Value-added services Media buying

4
| RESEARCH
The Group commenced its business in the social networking segment since 2016, it started in
the Middle East and Southeast Asia via an investment of MICO. It stepped into India in 2018
and tried to explore the developed regions since 2019. As of the end of Jun 2021, Newborn
Town (09911.HK) has tapped in several developed regions, including America, Europe, Japan
and Korea, and it achieved approximately 18.2mn MAU in 2021 Q2.
Exhibit: MAU of social networking Apps
MICO: MICO is a social networking App featuring Live Streaming, Matching, Private Games,
Moments, Chatting and Party functions.
o Live Streaming
MICO live videos are hosted by broadcasters from more than 100 different countries, and
those live videos are typically classified by country.
o Match
Users are able to like and match with strangers by swiping left or right.
o Moment
It is an area allowing the users to interact with people by sharing stories or posts.
o Chats and Group Chats
The Chat functions enable the users to chat with each other privately or publicly in a
group, users can join the group live chat room or create a multi-guest room by inviting
at most 8 people to join the room.
o Real-time Translation
The translation function allows the users from various countries to chat with no language
barrier.
o Games with Versus Mode
o Gifts with localized features
9.6
12.0
13.2
16.6
18.2
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
2020 1H 2020 Q3 2020 Q4 2021 Q1 2021 Q2
MAU of social networking Apps

5
| RESEARCH
Newborn Town (09911.HK) invested in Beijing Duanji in May 2016 which merged with MICO in
May 2017, it was the first step for the Group to participate in the social networking segment.
The Group further acquired the interest of MICO in 2019 and 2020, and it holds approximately
48.9% of MICO currently.
Exhibit: Different function pages of MICO
MICO was a social networking platform operating in the Middle East and South East Asia before
investment from Newborn Town (09911.HK), and it extended its business to the developed
regions such as America, Europe, Japan as well as Korea. A rapid horizontal expansion of MICO
brought the Group a decent growth via a provision of membership, gifts and other premium
functions, making MICO the single largest contributor to the Group in the social networking
segment.
Newborn Town (09911.HK) generally shares 50% - 70% of the total spending on the gifts
redeemed, according to the contracts signed by the Group with the streamers. Nevertheless,
given the fact that the streamers would send gifts to each other as “marketing” or “re-
investment”, the streamers typically share 25% - 40% of total spending on the gifts redeemed
eventually.
Discover
Source: Company data
Live Streaming Moments Party

6
| RESEARCH
Yiyo: Yiyo is a stranger social networking App providing enhanced features like Video and Voice
Chat, VIP Membership System, Translation and Gifts.
o Chats
Yiyo provides a private chat room to the matched users in the form of instant text
messaging, video or voice calls.
o VIP Membership
Users paid for a VIP membership will be recommended to more users, and VIP members
can also enjoy video or voice call functions as well as translation function.
barrier.
o Gifts
Exhibit: Different function pages of Yiyo
Newborn Town (09911.HK) launched Yiyo in developing regions like the Middle East as well as
the S.E. Asia in 2020, it is the first popular social networking App developed internally and its
MAU has reached a lustrous level as MICO in a short period of time. However, due to the nature
of the private conversation and insufficient time for loyalty-building and penetration, its ARPPU
remains at a level of low double digits per month.
Worldwide social networking
Source: Company Facebook
Discover Real-time Translation Private Chat

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| RESEARCH
YoHo: YoHo is a stranger social networking App featuring private or group voice chats.
o Chats
YoHo provides private or group chat rooms allowing the users to chat by both text and
voice message.
o Games
Multi-player games like Ludo, Uno, and Dominoes are available on the App, players can
chat in the group during the game session.
o Moment
Users can search for strangers by the posts shared by other users.
o Gifts
Exhibit: Different function pages of YoHo
Discover
Games Group Chats Private Message

8
| RESEARCH
Yumy: Yumy, launched in 2021, is a stranger social networking App featuring instant matching,
users are given 10 seconds to make a matching decision, unmatched users will not be given
another chance to match in the future. Yumy has tapped into both developed and developing
markets with over 10mn installations, for instance, the U.S., U.K., Australia, UAE, India, Pakistan,
Malaysia etc. As of 19 Aug 2021, according to App Annie, Yumy has topped the first 20 social
networking apps of Google Play in terms of downloads in 66 countries and regions, including
the U.S., U.K., Pakistan, UAE, Iraq etc.
o Instant matching
Users are given 10 seconds to make a matching decision, unmatched users will not be
given another chance to match in the future.
o Random matching
Users will be randomly matched with other users around the world.
barrier.
o Beauty camera
o Gifts
Exhibit: Different function pages of Yumy
Translation Beauty Camera Video Chats Moments
Discover

9
| RESEARCH
◼ “Traffic+” Games
Newborn Town (09911.HK) aggressively participated in the development of games in 2019, the
Group majorly developed casual games and it has successfully developed many popular games
like Archery Go, Beetles.io and Tank Heroes. The Group commenced to launch mid-core games
in 2021, as of 19 Aug 2021, the Group has launched two mid-core games, namely Solitaire
Chapters and Merge Island.
Newborn Town (09911.HK) primarily monetizes the games via in-App purchase and ad
placement, it realized a RMB 511.2mn of revenue in the traffic monetization segment in 2020,
representing a YoY 35.2% increment. The Group also reported a YoY >50% uplift in that
segment in 2021 1H, according to the unaudited numbers, amounting to approximately RMB
205.0mn – RMB 225.0mn. Besides, the MAU of the games developed by the Group reached a
record high of 15.6mn in 2021 Q2, but the QoQ growth remained flat in the past three quarters
due to an unfavourable market environment, a limited growth potential on eCPM deterred the
Group from further investment on casual games.
Exhibit: MAU of Games
Newborn Town (09911.HK) typically distributes the ads originated from the platforms like Pangle,
“優量匯” and Google. Those platforms are the intermediaries between the advertisers and
publishers, they help i) the advertisers to disseminate the ads and ii) the platforms to sell the
ad inventories, leaving the Group a room to focus on the Apps development.
9.6
7.0
14.1
15.5 15.5 15.6
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2
MAU of Games

10
| RESEARCH
A rocketing revenue generated from the traffic monetization of games is mainly a result of i)
continuously development of games, ii) the frequency of the ads displayed in the games. For
example,
Archery Go: Archery Go is an arrow shooting game providing both Adventure Mode and PVP
mode, players have to get the points and complete the tasks in each level, higher scores are
rewarded to the players who hit the bullseye. Each level of the game normally consumes
approximately a minute, and the ads are displayed after each level of the game, players can
skip some but not all the ads and a bonus is awarded to the players if the players fully watch
the ads.
Balls Merge: Balls Merge is an endless casual game requiring the players to merge small number
balls into bigger number balls, ads are displayed either after completion of a mini task or after
each level-up. Newborn Town (09911.HK) displays one to two ads consecutively each time and
it adopts both CPA and CPM pricing by showing actionable buttons (e.g. Apps installation) to
the audience after watching a 5 – 30 seconds video ad.
Exhibit: Ads displayed in Archery Go
Source: Archery Go, West Bull Securities

11
| RESEARCH
Newborn Town (09911.HK) has launched two mid-core games, namely Solitaire Chapters and
Merge Island, in 2021 and it primarily monetizes these games via value-added services. The
launch of mid-core games remarks a change of business strategies in the games segment, the
Group, instead of focusing on the growth of MAU, tries to maximize the lifetime value of each
paying user, various value-added services such as virtual tools are offered to the players in the
mid-core games.
Merge Island: Merge Island is a newly launched mid-core game featuring a fairyland theme,
players are asked to unlock and design the new area, create new buildings by the materials
collected etc. Events related to seasons, holidays or even fairy tales are available for the players
to earn coins, diamonds or special decorations. Typically, diamonds purchased by real money
are used to acquire the coins, and the coins are used to collect the materials to create new
buildings.
Solitaire Chapters: Solitaire Chapters is a time-killing game by observing the relationship
between the table cards and the players’ hand cards, and it is more than a solitaire game in the
sense that it inserts a number of mini-games to lengthen the life cycle and to increase loyalty.
As of 19 Aug 2021, Solitaire Chapters recorded over 100,000 installations.
Exhibit: Merge Island
Exhibit: Solitaire Chapters

12
| RESEARCH
Company Background
Mr. Liu Chunhe started his business as a mobile app developer in 2011, and the first proprietary
mobile app Solo Launcher was launched in 2013. Newborn Town repositioned itself to an
information distribution services provider by launching i) a programmatic advertising platform and
supply-side platform SFP in 2014 and ii) a proprietary AI engine, Solo Aware, in 2016.
2016 was an important year to Newborn Town, apart from launching the proprietary AI engine, it
acquired 17.9% of the equity interest in Beijing Duanji which entered into an absorption and merger
agreement with MICO in 2017, and it was the first corporate action connecting Newborn Town with
MICO. In 2019 and 2020, Newborn Town additionally invested in MICO three times in total,
increasing its equity interest in MICO to 48.9%, and it also consolidated the financial statement of
MICO since 2020. MICO is currently one of the major contributors to the Group in the social
networking business, it accounted for nearly half of the total revenue of the Group.
Newborn Town had another significant year in 2018, it commenced launching games to enhance
its product portfolio of Solo X this year. Beetles.io and Archery Go, two popular casual games, were
released by Newborn Town in 2018 and 2019 respectively, remarking the commencement of a
change in business direction.
Newborn Town was successfully listed in Hong Kong at the end of 2019 with a ticker of 09911.HK,
the listing price was fixed at a price of HKD 1.68/share, and the share price hit a record high of HKD
11.54/share in early 2021. Newborn Town (09911.HK) officially announced a new business direction,
“Traffic+”, after the IPO in Hong Kong, remarking a new era to Newborn Town (09911.HK) by i)
concentrating on social networking and gaming fields, and ii) fading out the traditional advertising
business.
Exhibit: Use of net proceeds from IPO as at the end of 2020
Net proceeds (HKD, mn) Remaining balance (HKD, mn)
Develop, expand and upgrade Solo X product matrix 68.6 47.3
Upgrade Solo Math programmatic advertising platform 57.7 55.9
Enhance the big data and AI capabilities of Solo Aware 28.4 19.2
Build a global information distribution network 6.5 6.5
Working capital and other general corporate purposes 5.7 2.9
Total 166.9 131.8

13
| RESEARCH
Starting from the Middle East and Southeast Asia, Newborn Town (09911.HK) expanded its footprint
to i) India, Pakistan in 2018, ii) North America in 2019, and iii) South America, Japan, Korea and
Europe in 2020 through a rapid expansion of MICO. In parallel, Newborn Town (09911.HK) launched
a series of social networking Apps to conquer the market of the Middle East as well as Southeast
Asia, namely Yumy, YoHo, and Yiyo, covering the stranger social networking Apps with both video
and voice chats features. According to App Annie, as of 19 Aug 2021, Yumy has topped the first 20
social networking apps of Google Play in terms of downloads in 66 countries and regions, including
the U.S., U.K., Pakistan, UAE, Iraq etc. And according to the annual report of the Group in 2020,
“MICO ranks first among the social networking apps of App Store in terms of downloads in 71
countries and regions, and is a top-10 social networking app of Google Play in terms of sales in 86
countries and regions. Yiyo is a top-10 social networking app of Google Play in terms of sales in 14
countries and regions. YoHo is a top-10 social networking app of Google Play in terms of sales in 31
countries and regions.” Besides, Newborn Town (09911.HK) released several casual games to realize
the “Traffic+” strategy, and it also commences to bet on the mid-core games to explore the
monetization way of value-added services.
Exhibit: Holding structure of Newborn Town (09911.HK)
Source: HKEX, Company data, West Bull Securities

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| RESEARCH
Industry Overview
Global dating services market
The market size of dating services reached USD 6.6bn in 2020, North America and Europe were
the largest markets which accounted for 22.6% and 22.4% of the market respectively. According to
Statista, the market size of dating services is expected to reach USD 9.9bn in 2024. Besides, there
were approximately 453mn users in the world in 2020, China, a region with over 100mn users, was
the largest market in terms of the number of users.
Exhibit: Market size of dating services
Source: Statista, West Bull Securities
Exhibit: Geographical breakdown of the market of dating services
in 2020
Exhibit: Number of users of dating services
Exhibit: Geographical breakdown of the number of users of of
dating services in 2020

15
| RESEARCH
Online dating software
There is several online dating software available for people from different countries, they can be
roughly categorized by their major features, including video chats, voice chats, provision of games,
dating-oriented UI, and the homosexual community.
Exhibit: Major features of online dating software
Apps Photos Videos/Voice Live Streaming Embedded Games
Tinder ✔ ✔
POF (Plenty Of Fish) ✔ ✔ ✔
Bumble ✔ ✔
Badoo ✔ ✔
Hello Yo ✔ ✔ ✔
Hago ✔ ✔ ✔ ✔
Yalla ✔ ✔
MICO ✔ ✔ ✔ ✔
Yiyo ✔ ✔
Yoho ✔ ✔ ✔
Yumy ✔ ✔
LivU ✔ ✔
Exhibit: Categorization of online dating software from China
Category Major Players
Video Yiyo Yumy LivU Holla
Voice Yalla Yoho Yoyo Hello Yo
Games Yalla Ludo Hago TopTop Hago
Dating MICO TanTan Omi Lamour
Homosexual Blued Grindr

16
| RESEARCH
Global games market
The global games market will decline YoY 1.1% to USD 175.8bn in 2021, in which Asia-Pacific and
North America will account for around 50% and 24% of game revenues in 2021 respectively,
according to Newzoo. Newzoo forecasts that mobile games will generate USD 90.7bn in 2021, up
YoY 4.4%, accounting for more than half of the global games market. The mobile games market
was less impacted by the pandemic than console and PC as mobile games rely more heavily on in-
app but not hardware purchases, making China, a mobile-first games market, one of the major
contributors in the global games market.
Exhibit: Breakdown of global games market by regions in 2021
Source: Newzoo, West Bull Securities
Mobile games market growth will continue to outperform both console and PC toward 2024, it will
be a result of, according to Newzoo, i) continued innovations in mobile monetization, ii) IP of the
big console and PC publishers is brought to mobile devices.
Exhibit: Breakdown of global games market by product in 2021
Asia-Pacific (+YoY 3.0%)
50%
North America (-YoY
7.2%)
24%
Europe (-YoY 5.6%)
18%
Latin America (+YoY 5.1%)
4%
Middle East & Afirca
(+YoY 4.8%)
4%
Smartphone Games (+YoY
4.7%)
45%
Console Games (-YoY
8.9%)
28%
Download / Boxed
PC Games (-YoY
1.4%)
19%
Tablet Games (+YoY 2.0%)
7%
Browser PC Games (-
YoY 18.0%)
1%

17
| RESEARCH
The number of global games players recorded 2.8bn in 2020, according to Newzoo, representing
a YoY 6.4% increase when compared to 2019. The global number of players will pass the 3bn in
2022, based on the forecast of Newzoo.
Exhibit: Number of global games players
2.03 2.17 2.33 2.49 2.64 2.81 2.96 3.09 3.22 3.32
0
0.5
1
1.5
2
2.5
3
3.5
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Number of global games players (bn)

18
| RESEARCH
Chinese mobile games in the overseas market
The market size of Chinese mobile games in the overseas market surged from RMB 36.8bn in 2015
to RMB 77.5bn in 2019, according to LeadLeo, and it is expected that the market size will grow
further to RMB 99.9bn in 2024, implying a 5.2% CAGR from 2019 – 2024.
Exhibit: The market size of Chinese mobile games in the overseas market
Source: LeadLeo, West Bull Securities
In 2019, the US, Japan and Korea are the largest contributors to the Chinese mobile games in the
overseas market, according to LeadLeo, the revenue from these three countries accounted for
30.9%, 22.4% and 14.3% of the total overseas revenue of the domestically developed mobile games
from China respectively. Besides, the growth rate of the Chinese mobile games outpaced the games
developed abroad in the overseas market, according to CNG.
36.8
50.1
57.4
66.5
77.5 81.1
88.7
95.9 98.3 99.9
-
20.0
40.0
60.0
80.0
100.0
120.0
2015 2016 2017 2018 2019 2020 (E) 2021 (E) 2023 (E) 2024 (E) 2025 (E)
Overseas revenue of the domestically developed mobile games from China (RMB, bn)
Exhibit: Geographical breakdown of revenue of
Chinese mobile games in 2019
Source: LeadLeo, West Bull Securities
Exhibit: Geographical breakdown of the growth of
Chinese mobile games in overseas in 2019
Source: CNG, West Bull Securities

19
| RESEARCH
Removal of IDFA by Apple (AAPL.US)
In the update of iOS 14.5, the App Tracking Transparency feature requires all apps to ask for
permission before using an IDFA number to track users’ activity. IDFA is the abbreviation of
“Identifier for Advertisers”, it is an ID used by the devices running on iOS, iPadOS and tvOS for ad
targeting & personalization. It is similar to the Android Advertising Identifier (AAID) and they are
both commonly referred to Mobile Advertising Identifier (MAID). Without IDFA, i) the fees charged
by the media publisher platforms may fall due to lower accuracy (the CPM falls about 2.4% - 8.7%,
according to Liftoff and AdColony); ii) the user acquisition cost may soar due to a lower conversion
rate.
Exhibit: App Tracking Transparency feature
Source: hk.asiatatler.com
◼ Impact on advertisements of removal of IDFA
The opt-in rate sat at a lower level, ~15.0%, a month after the iOS 14.5 went live, according to
Flurry. In addition, total ad spending surged by 8.3% - 21.0% and fell by low single-digit on
Android and iOS respectively, according to the researches made by Liftoff, Vungle, Singular and
AdColony after the enforcement of ATT. According to Fyber, a removal of IFDA disrupts the
effectiveness of advertising through mobile games, implying that mobile games which
monetize primarily through advertising will be severely impacted.
◼ Impacts on game developers from the removal of IDFA
The target players of casual games are more general in age, gender or income, those games
with less reliance on IFDA are affected to a less extent, according to Fyber. Mid-to-hard core
games are more, relatively, dependent on IFDA for attribution, analytics, fraud prevention,
campaign optimization and personalization, making the removal of IFDA a bigger hindrance
for development.

20
| RESEARCH
Investment Thesis
Convincing performance from social networking Apps
◼ Comprehensive coverage on the stranger social networking Apps portfolio
Newborn Town (09911.HK) commenced its business in the social networking segment since 2016
via an investment of MICO, and the Group defined social networking as its core business
together with an announcement of “Traffic+” in 2020.
Newborn Town (09911.HK) currently has a comprehensive portfolio of stranger social
networking Apps, including Yumy, MICO, YoHo and Yiyo that support both video and voice
chatting. Yumy, released in 2021 with over 10mn installations, is a stranger social networking
App featuring instant matching, users are given 10 seconds to make a matching decision; MICO
is a social networking App featuring Live, Match, Moment, Chat, Party and Translation functions;
YoHo is a stranger social networking App featuring private or group voice chats, and Yiyo is a
stranger social networking App providing enhanced features like Video and Voice Chat, VIP
Membership System, Translation and Gifts. By providing different features, Newborn Town
(09911.HK) successfully absorb users of different ages, users in similar age groups typically look
for similar features and conglomerate in particular Apps.
◼ Rapid penetration across the world
MICO is the most successful App in the product portfolio of Newborn Town (09911.HK), it
operated in the Middle East and Southeast Asia before an investment from Newborn Town
(09911.HK), and it expanded its footprint to i) India, Pakistan in 2018, ii) North America in 2019,
and iii) South America, Japan, Korea and Europe in 2020.
Leveraging on the successful track record of MICO, we believe that Newborn Town (09911.HK)
is capable to replicate the business model to other social networking Apps. Currently, the Group
is nurturing three more stranger social networking Apps, namely Yiyo (an App launched in
developing regions like the Middle East as well as Southeast Asia), YoHo, and Yumy (an App
launched in the regions like the U.S., U.K., Australia, Pakistan and Malaysia), we expect that the
Group may further explore and gain market share in the Middle East and Southeast Asia in
short-term, and we see a possibility that the Group may go farther by expanding to other
regions globally.

21
| RESEARCH
◼ Growing monetization means
Global players are enhancing the stranger social networking Apps by providing more features
for monetization, for instance, Tinder from Match Group (MTCH.US) has introduced video
profile, Passion, Swipe Night™ series and VIBES recently. Unlike Tinder, Newborn Town (09911.HK)
put its focus on the audience user experience and the interaction between users, mini-games
are, thus, added, allowing the users to play while watching the live stream.
Exhibit: Games in MICO and Yiyo
Mini-games can be categorized into single-player and multi-players, the former allows the user
to kill time when watching the live stream, and the latter allows the audience to interact in the
games, enhancing the user experience. Virtual coins that can be purchased are consumed for
the games, giving the Group a new monetization way to increase the lifetime value of each user.
Games exploration in MICO
Source: MICO and Yiyo
Mini game - MICO Mini game - MICO Games exploration in Yiyo

22
| RESEARCH
Value-added services pick up after a potential deceleration of traffic monetization
◼ A mild deceleration on traffic monetization of games
The growth momentum of traffic monetization of games is majorly driven by i) the number of
MAU, and ii) the usage time, iii) the number of ads displayed in a given session, iv) pricing
strategies and v) the advertisers. Although we are surprised and positive to all means adopted
by Newborn Town (09911.HK) to maximize the factors mentioned above, the momentum may
peak out as we cannot see any room for further improvement at this moment.
Number of MAU: Newborn Town (09911.HK) reported approximately 15.6mn MAU in the games
segment in 2021 Q2, the growing maturity of popular games and a lack of loyalty result in
stagnant growth in the previous three quarters. However, benefited from i) investment in Afun
to enhance the R&D ability, ii) a development of mid-core games, and iii) a provision of
incentives for daily login, the MAU likely remains strong in the coming future.
Usage time: Most casual games developed by Newborn Town (09911.HK) are turn-based, ads
are displayed after the completion of each game / level / task. It implies that players are less
addicted and it is difficult for the Group to lengthen the usage time by existing games.
Fortunately, we see a positive sign on one of the latest popular games, Balls Merge. It is an
endless casual game requiring the players to merge small number balls into bigger number
balls, ads are displayed either after completion of a mini task or after each level-up. The endless
nature breaks the limitations brought by turn-based games, and it may be able to lengthen the
usage time of each player, alleviating the pace of deceleration.
Number of ads displayed in a given session: Newborn Town (09911.HK) generally displays one
to two ads consecutively after completion of a task or level, implying that the Group has
maximized the number of ads that can be displayed in a session.
Pricing strategies: Advertising companies typically charge the advertisers on either a CPM or
CPA basis. Nevertheless, Newborn Town (09911.HK) adopts both CPA and CPM pricing strategies
in some games. For example, the Group typically shows two ads consecutively after completion
of a mini task or level in Balls Merge, actionable buttons (e.g. Apps installation) are provided to
the audience after watching a 5 – 30 seconds video ad, it means that the Group can potentially
get a higher revenue of each ad displayed.

23
| RESEARCH
Exhibit: Ad displayed through the App of Archery Go
Source: Archery Go, West Bull Securities
◼ Picking up monetization from value-added services
Newborn Town (09911.HK) enlarged its investment in the mid-core games in 2020 and it has
launched two mid-core games in 2021, namely Solitaire Chapters and Merge Island. The Group
primarily monetizes the games via i) in-App purchase and ii) ads placement, but the revenue
contributed from value-added services accounts for a larger proportion when compared to
casual games. Given a stagnant MAU growth and hence a potential peak-out on the growth of
traffic monetization in games, the development of mid-core games, the latest business direction,
maybe a new driver bringing the Group growth momentum.
For instance,
Solitaire Chapters: Solitaire Chapters is a time-killing game by observing the relationship
between the table cards and the players’ hand cards. It recorded over 100,000 installations as
of 19 Aug 2021. It is more than a solitaire game in the sense that it inserts a number of mini-
games to lengthen the life cycle and to increase loyalty.
Video ads which
charged via CPM
Actionable buttons
which charged via CPA
Exhibit: Solitaire Chapters

24
| RESEARCH
Exhibit: Reviews from players on Google Play
Source: Google Play
Merge Island: Merge Island is a newly launched mid-core game featuring a fairyland theme,
players are asked to unlock and design the new area, create new buildings by the materials
collected etc. Events related to seasons, holidays or even fairy tales are available for the players
to earn coins, diamonds or special decorations. Typically, diamonds purchased by real money
are used to acquire the coins, and the coins are used to collect the materials to create new
buildings.
Rather than developing the endless number of causal games and generating the revenue from
the ads placement, the development of mid-core games with greater loyalty, again, remarks a
change of the business strategies of Newborn Town (09911.HK). We believe that is a reasonable
move to the Group which faces stagnant growth of MAU for three consecutive quarters, it is
because the number of MAU is directly related to the number of ads placed and hence revenue
generated. We are positive about the instant response of the Group, and we believe that value-
added services, together with the development of mid-core games, will become the major
growth driver in the future.
Exhibit: Merge Island
Source: Merge Island

25
| RESEARCH
A removal of IDFA may not be detrimental
App Tracking Transparency feature requires all apps running on iOS 14.5 or above to ask for
permission before using an IDFA number to track users’ activity. IDFA is the abbreviation of
“Identifier for Advertisers”, it is an ID used by the devices for ad targeting & personalization. We
are not that pessimistic on the impacts imposed on Newborn Town (09911.HK), it is because i) the
majority of the games developed by the Group are casual games with more general target players,
making those games to be affected to a less extent, according to Fyber; ii) in long term, in our
opinion, total ad spending on both Android and iOS platforms may soar and the advertisers may
be the one who pays the externalities. Assuming i) the accuracy of the ads placed on iOS is lower;
ii) the user acquisition cost surges due to a lower conversion rate, iii) user demand for iPhone
remains inelastic, we may see a situation that the advertisers suffer from an increment of user
acquisition cost and hence total ad spending, while the intermediaries as well as the media
publishers may not be materially affected.
Exhibit: Questionnaire performed by SellCell
Source: SellCell.com, West Bull Securities
Exhibit: Questionnaire performed by SellCell
Source: SellCell.com, West Bull Securities
When you change
your phone, do you
intend on staying
with your current
brand or switching to
a different brand?
What is the main reason you intend to stay with your current brand of phone
and not switch to a different brand when you next upgrade?

26
| RESEARCH
Forecast & Valuation
Forecast
◼ Revenue
Thanks to the new Apps launched and the consolidation of MICO, Newborn Town (09911.HK)
announced a profit alert and expected that the total revenue for the six months ended 30 Jun
2021 will be approximately RMB 1,020mn to RMB 1,050mn, representing a YoY >5x increase. We
believe that the Group may benefit from i) development of mid-core games, ii) an increment
of the number of paying users and ARPU, iii) an expansion of social networking business,
offsetting the decelerating growth of MAU in casual games. We forecast that the Group will
realize RMB 2,287.7mn top-line in 2021, implying a YoY 93.6% increment when compared to
2020.
◼ Gross profit
The gross profit margin may decline to approximately 53.2%, according to our estimation, due
to a full-year consolidation of the financial statement of MICO, and the gross margin of MICO
is comparatively lower. However, we believe that the gross margin will recover in the coming
future as the business other than MICO like mid-core games will pick up and contribute a high
proportion to the Group.
◼ Net profit
According to the latest profit alert, the net profit of Newborn Town (09911.HK) for the six months
ended 30 June 2021 will be approximately RMB 120mn to RMB 150mn, representing a YoY ~34x
growth. We expect that i) an improvement of profitability of the business other than MICO, ii)
the consolidation of the financial statement of MICO will be positive to the Group, and it will
bring the Group a YoY 1.9x increment in the bottom-line to RMB 335.6mn in 2021, in which
RMB 170.9mn will be the profit attributable to shareholders.

27
| RESEARCH
Valuation
We use the DCF valuation methodology for valuation and take the P/S valuation methodology as
a reference to derive the fair value. We initiate our first coverage on Newborn Town (09911.HK) with
a “STRONG BUY” rating and a HKD 8.39/share target price, implying 3.3x/2.3x/1.8x forward P/S of
2021/2022/2023.
◼ DCF valuation
We assume a higher risk premium due to i) the uncertainty of the development of mid-core
games, ii) decelerating MAU growth, and ii) unfavourable market environment, and we assume
that the Group is able to remain no indebtedness. We also make use of the H-model to assume
a perpetual growth of 1.5%. Derived from the DCF model with the assumptions below, we assign
a fair value of HKD 8.39/share to Newborn Town (09911.HK).
Exhibit: Assumption of valuation
Discounted Cash Flow 439.9mn LT Debt-to-Equity Ratio -
Terminal Value 368.4mn BETA 2.0
Discounted Terminal Value 174.6mn LT Risk-free Rate 1.5%
Risk Premium 26.7%
LT Equity Cost 28.2%
LT Debt Cost -
LT Debt Cost (After Tax) -
WACC 28.2%
LT Growth Rate 1.5%
Source: West Bull Securities

28
| RESEARCH
Peers comparison
Mkt. Cap. P/E Fw. P/E P/B P/S Revenue GM ROE
(HKD, mn) (%) (%) (%) (%) (HKD, mn) (%) (%)
01163.HK AdTiger 635.0 50.8 - 3.2 2.0 236.7 20.3 2.6
01860.HK Mobvista 11,439.6 - 65.3 5.2 2.7 4,003.3 15.9 (2.0)
02013.HK Weimob 25,839.2 - - 7.7 7.3 2,215.4 50.9 (55.0)
02131.HK Netjoy 2,864.0 - 9.0 1.6 - 2,899.8 7.9 11.6
02660.HK Zengame 1,312.5 12.1 4.1 1.1 1.5 835.5 49.1 29.2
03798.HK Homeland 3,114.9 6.6 - 2.7 3.3 868.7 76.7 49.9
06988.HK Joy Spreader 5,288.3 25.8 13.4 2.0 3.9 1,039.6 32.6 10.6
02400.HK XD INC 19,121.1 1,656.8 - 6.6 5.1 3,174.8 53.4 0.4
BMBL.US Bumble 69,020.5 - 188.6 3.9 - 4,515.5 73.0 -
MTCH.US Match Group 286,117.2 67.3 50.7 - 13.3 18,547.0 73.4 -
YALA.US Yalla Group 10,552.7 - - 4.6 5.5 1,046.5 54.6 -
MOMO.US Hello Group 18,919.4 8.2 7.6 1.1 1.1 16,906.1 46.9 14.5
YY.US Joyy 28,601.9 - 270.6 0.7 1.3 14,888.3 28.1 2.8
Average 37,140.5 261.1 76.2 3.4 4.3 5,475.2 44.8 6.5
09911.HK Newborn Town 4,424.9 93.7 15.4 6.9 3.1 1,329.6 63.7 6.8
Risk factors
◼ Newborn Town (09911.HK) fails to develop and improve the mid-core games
◼ The accuracy of the ads placed through the Apps of Newborn Town (09911.HK) falls due to the removal of IDFA
◼ Total spending on the ads drops unexpectedly in the long term
◼ Keen competition on the traffic from peers and other online platforms in China

29
| RESEARCH
Financial Statement
PnL
(RMB, mn) 2020 (A) 2021 (E) 2022 (E) 2023 (E)
Balance Sheet
(RMB, mn) 2020 (A) 2021 (E) 2022 (E) 2023 (E)
Revenue 1,181.6 2,287.7 3,207.4 4,146.9 PPE 6.9 8.7 5.2 8.8
YoY growth 203.2% 93.6% 40.2% 29.3% Intangible assets 464.5 477.6 476.8 476.0
COGS (429.1) (1,134.9) (1,349.1) (1,557.7) Others 34.1 33.3 32.3 39.5
Gross profit 752.5 1,152.8 1,858.3 2,589.2 Non-current assets 505.5 519.6 514.3 524.3
Other income (15.5) 0.5 0.4 0.4
Operating expenses (604.9) (770.8) (1,356.1) (1,947.2) Inventories - - - -
Operating profit 132.1 382.5 502.6 642.3 Trade receivables 144.4 263.0 293.1 407.0
Finance expenses (1.9) 3.2 6.2 10.2 Cash & cash equivalents 431.0 698.7 1,149.9 1,662.3
JV & Ass. (0.0) - - - Others 187.3 182.9 182.5 182.7
Profit before tax 130.2 385.7 508.8 652.6 Current assets 762.7 1,144.7 1,625.5 2,252.0
Tax (15.8) (50.1) (65.1) (84.8)
Net profit 114.3 335.6 443.6 567.7 Total assets 1,268.2 1,664.3 2,139.7 2,776.3
YoY growth 87.5% 193.5% 32.2% 28.0% 110
Others 71.7 71.8 71.7 71.9
Non-current liabilities 71.7 71.8 71.7 71.9
Trade payables 155.9 244.3 245.0 336.0
ST borrowings - - - -
Others 253.6 184.9 175.3 112.1
Current liabilities 409.5 429.1 420.3 448.1
Total liabilities 481.2 500.9 492.0 520.0
Non-controlling interests 250.5 415.2 589.4 772.2
Controlling interests 536.5 748.2 1,058.4 1,484.1
Total equities 787.0 1,163.4 1,647.8 2,256.3

30
| RESEARCH
Cash Flow
(RMB, mn) 2020 (A) 2021 (E) 2022 (E) 2023 (E)
Financial Ratio
2020 (A) 2021 (E) 2022 (E) 2023 (E)
Profit before tax 130.2 385.7 508.8 652.6 Gross margin 63.7% 50.4% 57.9% 62.4%
Finance expenses - - - - Operating margin 11.2% 16.7% 15.7% 15.5%
Finance income (1.8) (4.2) (6.9) (11.3) Net profit margin 9.7% 14.7% 13.8% 13.7%
D&A 25.4 4.7 4.8 4.8 Adj. EBITDA profit margin 16.0% 17.8% 16.5% 16.1%
Others 69.6 (5.1) (17.5) (32.8) Return on Equity 16.1% 34.4% 31.6% 29.1%
Change in working capital 68.5 (97.6) (34.0) (87.3) Return on Asset 11.2% 22.9% 23.3% 23.1%
CFO 292.0 283.5 455.2 526.0 Current ratio 186.3% 266.7% 386.7% 502.6%
- - - Quick ratio 184.3% 224.4% 343.6% 462.1%
CAPEX 17.3 (7.3) (0.4) (7.5) Cash ratio 105.3% 162.8% 273.6% 371.0%
Others (114.4) - - - Debt-to-Equity ratio 0.0% 0.0% 0.0% 0.0%
CFI (97.1) (7.3) (0.4) (7.5) Net Debt-to-Equity ratio -54.8% -60.1% -69.8% -73.7%
- Inventory turnover days - - - -
Shares issuance 78.6 - - - Receivable turnover days 52.7 32.5 31.6 30.8
Net borrowings - - - - Payable turnover days 104.6 64.4 66.2 68.1
Interest paid - - - -
Dividend paid - - - -
Others (5.8) (4.8) (3.7) (6.0)
CFF 72.9 (4.8) (3.7) (6.0)
FCFE 228.3 276.3 454.8 518.5
FCFF 228.3 276.3 454.8 518.5
.

31
| RESEARCH
West Bull Securities is a dedicated small/mid cap investment banking / stock brokerage house. Find our research on: Bloomberg,
factset.com, S&P Capital IQ, Wind, Choice, and 同花順.
Ratings of West Bull Securities:
STRONG BUY : absolute upside of >50% over the next 12 months
BUY : absolute upside of >10% over the next 12 months
HOLD : absolute return of -10% to +10% over the next 12 months
SELL : absolute downside of >10% over the next 12 months
STRONG SELL : absolute downside of >50% over the next 12 months
Investors should assume that West Bull Securities is seeking or will seek investment banking or other related businesses with the
companies in this report.
Analyst certification: The views expressed in this report accurately reflect the analyst’s personal views of the subject securities and that
the analyst has not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations
or views in this report.
Disclaimer:
This research report is not an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The securities referred to
in this report may not be eligible for sale in some jurisdictions. The information contained in this report has been compiled by the
Research Department of West Bull Securities Limited (‘West Bull Securities’) from sources that it believes to be reliable but no
representation, warranty or guarantee is made or given by West Bull Securities Securities or any other person as to its accuracy or
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