UBS maintains Buy rating on Meitu but lowers target price to HK$7.20

Overview

This report is UBS’s preview of Meitu’s first-half 2026 results. UBS believes the company’s monthly data shows no slowdown in growth, and that first-half 2026 revenue, gross margin, and adjusted net profit should be broadly in line with company guidance. The report maintains its Buy rating but lowers the target price to HK$7.20 because of a higher WACC and investors’ wait for evidence of ARR acceleration.

Core views

UBS’s core view is that Meitu’s current growth remains resilient, with strong performance from the PVD business and subscription revenue. Revenue from PC-based productivity products such as DesignKit could provide upside surprises. However, the investment debate centers on the quality of AI growth: first, whether the proportion of AI-native revenue and AI-native ARR can continue to accelerate; and second, whether Meitu’s existing paid features could become commoditized or be forced to become free as foundation models improve their image-editing and enhancement capabilities.

Analysis framework

The report analyzes company guidance, UBS Evidence Lab monthly app subscription data, revenue forecasts by business segment, changes in competition among AI software peers, and DCF valuation. For valuation, UBS largely maintains its earnings forecasts, but raises WACC to 14% and assesses downside support using 2026/2027 PEG, P/E, and dividend yields.

Methodology notes

• Valuation methodologyDCF

  Discounted cash flow valuation

  UBS uses DCF to value Meitu; the target price cut is mainly due to WACC rising from 12.3% to 14%, rather than a substantial downward revision to earnings forecasts.

• Data validationUBS Evidence Lab monthly data

  Monthly app subscription revenue tracking

  The report cites UBS Evidence Lab monthly data showing that Meitu app mobile subscription revenue grew 42% year on year in the first six months of 2026, supporting the view that the business has not slowed.

• Relative valuationPEG/P/E/dividend yield

  Cross-validation using growth, earnings multiples, and dividend yield

  UBS notes that the target price implies a 2026/2027 PEG of 0.8x, broadly in line with internet and software peers. The current valuation is 12.6x/9.5x 2026/2027 P/E, while an approximately 4% 2027 dividend yield provides support.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Meitu 01357.HK

  Covered stock; UBS maintains its Buy rating

  Strengths

  Strong subscription revenue growth, high PVD growth, potential upside from productivity products such as DesignKit, and some support from net cash and dividend yield.

  Weaknesses

  More evidence is needed on AI-native revenue quality and ARR acceleration; advertising revenue is expected to remain flat, while valuation assumptions are pressured by a higher WACC.

  Comparison

  The report compares Meitu with creative software companies such as Adobe, noting that Adobe’s greater shift toward freemium and reduced ARR growth guidance indicate that AI may affect the pricing power of existing software. By contrast, Meitu has benefited from AI and gained share in the prosumer segment over the past one to two years.

  Risks

  Paid features may become commoditized as foundation models improve; AI startups or hyperscalers may launch stronger competitors; globalization may fall short of expectations; and declining AI inference costs may intensify competition.

Key data

• First-half 2026 total revenue forecast+28% YoYUBS expects total revenue to grow 28% year on year.
• First-half 2026 PVD revenue forecast+40% YoYPVD stands for Photo, Video, and Designs and is the main growth driver highlighted in the report.
• First-half 2026 advertising revenue forecastFlat YoYAdvertising revenue is expected to be broadly flat compared with the same period last year.
• First-half 2026 adjusted net profit forecast+33% YoYUBS believes this should be broadly in line with company guidance.
• Meitu app mobile subscription revenue+42% YoY in 6M26UBS Evidence Lab data shows that growth in China was slightly faster than overseas.
• Q126 AI-driven productivity applications ARRRmb580mn, +56.2% YoYThis was above the 34% year-on-year growth in total PVD revenue of Rmb852mn.
• Target priceHK$7.20Down 14% from the previous target price of HK$8.40.
• WACC assumption14%Previously 12.3%; the increase reflects a higher equity risk premium while awaiting evidence of ARR acceleration.
• Current share priceHK$4.12As of July 20, 2026.
• Forecast price appreciation74.8%Forecast price appreciation disclosed in the table.
• Forecast total stock return78.1%Includes a 3.3% forecast dividend yield.

Impact & implications

If first-half 2026 results meet expectations and AI-native ARR continues to accelerate, Meitu’s AI productivity tools narrative and position in the software ecosystem could be strengthened, with valuation support becoming clearer. Conversely, if improvements in foundation models weaken the value of existing paid features or ARR fails to accelerate, the market may continue to demand a higher risk premium, limiting valuation recovery.

Risks

• Globalization progresses more slowly than expected.
• Hyperscalers or other AI startups launch more competitive products.
• Declining AI inference costs for LLMs and foundation models intensify competition in image and design tools.
• Continued improvement in the image-editing and enhancement capabilities built into foundation models may weaken the value proposition of Meitu’s existing paid features.
• If AI-native ARR fails to accelerate, investors may continue to demand a higher equity risk premium.

What to watch

• Whether actual first-half 2026 revenue, gross margin, and adjusted net profit are in line with company guidance.
• Whether the proportion of AI-native revenue and AI-driven productivity applications ARR continues to accelerate.
• Whether PC-based revenue contributions from productivity products such as DesignKit generate upside surprises.
• Differences in app revenue growth between China and overseas markets, as well as progress in globalization.
• Whether improvements in foundation models drive user conversion or reduce the pricing power of existing paid features.
• Changes in the product strategies of competitors, particularly Adobe, hyperscalers, and AI startups.