Meitu (01357) Report Interpretation

Overview

This earnings review examines Meitu's 1H26 performance and the outlook for its subscription business. Goldman Sachs views AI-driven productivity tools and expansion in overseas markets as the principal growth drivers, maintains Buy, and sets a DCF-based 12-month target price of HK$10.8.

Core views

Meitu's 1H26 results were largely in line with Goldman Sachs guidance. Revenue rose 22% year-on-year to Rmb2.213bn, versus Goldman Sachs' Rmb2.189bn estimate, and net income increased 40% year-on-year to Rmb619m, versus Rmb546m estimated. Gross profit was Rmb1.581bn, 4% below the estimate, while operating profit was Rmb558m, 5% above it. Revenue from Photo, Video and design products grew 31% year-on-year, which the report attributes to strong productivity-application growth and the rollout of new AI features. The subscription rate increased to 6.5% in 1H26 from 5.5% in 1H25, primarily because overseas paying subscribers, which carry higher ARPU, grew. Goldman Sachs sees AI-driven productivity products and international expansion as the key drivers for the second half and beyond, forecasting 2H26 revenue growth of 24% year-on-year. The report argues that Meitu's AI products are differentiated from general models by their focus on defined use cases and identifiable user groups. Picchi, for example, targets users seeking to maintain a professional online visual presence. This targeted positioning, together with region- and user-specific product strategies, is viewed as supporting higher willingness to pay and further subscription-rate expansion. New June launches included AI music-generation tool MVLAND and AI photo-retouching agent Picchi; MVLAND's monthly ARPU reached Rmb220 per subscriber, which the report cites as evidence of monetization potential for selected users. Despite the constructive long-term view, Goldman Sachs lowered its 2026E, 2027E and 2028E net-income forecasts by 7%, 6% and 7%, respectively. The revisions mainly reflect lower expected revenue from legacy products and lower gross margin caused by product-mix changes across product life cycles and business segments. Revised revenue forecasts are Rmb4.747bn, Rmb6.454bn and Rmb8.383bn for 2026E-2028E, down 2%, 1% and 1% from prior estimates. Revised gross-margin forecasts are 72.2%, 72.8% and 72.9%, while revised net margins are 23.7%, 26.3% and 28.0%. The valuation remains based on a two-stage DCF designed to capture long-term cash-flow generation. Goldman Sachs assumes stage-two free-cash-flow growth of 12% year-on-year in 2032E-2036E, terminal growth of 2%, and a WACC of 11.5%, incorporating a beta of 1.3, a 3.0% risk-free rate and a 6.5% market-risk premium. Lower free-cash-flow estimates reduce the DCF target price to HK$10.8 from HK$12.3. Goldman Sachs nevertheless maintains Buy on Meitu; the report shows a HK$4.22 share price as of the 14 September 2026 close and 155.9% indicated upside to the target price.

Analysis framework

Goldman Sachs first compares 1H26 reported revenue, profit and margins with its estimates, then links subscription growth to overseas higher-ARPU users and AI-product adoption. It revises multi-year forecasts for legacy-product revenue and gross-margin mix effects, and values the company with a two-stage discounted-cash-flow model using explicit free-cash-flow growth, terminal-growth and WACC assumptions.

Methodology notes

• Valuation methodsDCF (Discounted Cash Flow)

  Two-stage discounted cash flow valuation

  The report discounts projected long-term free cash flow using an 11.5% WACC, assumes 12% annual stage-two FCF growth in 2032E-2036E and a 2% terminal-growth rate to derive the target price.

• Industry AnalysisVolume-price decomposition

  Subscription monetization through paying ratio and ARPU

  The report assesses subscription growth through the rise in paying subscribers and the higher ARPU of overseas users, using targeted AI-product use cases as the mechanism supporting willingness to pay.

Asset mapping & comparison

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

• Meitu (01357.HK)

  Primary covered company; the report links subscription growth to AI-native products and overseas higher-ARPU users.

  Strengths

  Photo, Video and design products grew 31% year-on-year; subscription rate reached 6.5%; AI-native launches offer monetization opportunities.

  Weaknesses

  Legacy-product revenue assumptions were reduced and product-mix changes are expected to lower gross margin.

  Risks

  Slower-than-expected AI adoption and monetization, lower-than-expected paying ratios, and fiercer-than-expected competition.

Key data

• 1H26 revenueRmb2.213bnUp 22% year-on-year and 1% above Goldman Sachs' Rmb2.189bn estimate.
• 1H26 net incomeRmb619mUp 40% year-on-year and 13% above Goldman Sachs' Rmb546m estimate.
• 1H26 subscription rate6.5%Up from 5.5% in 1H25, mainly driven by overseas paying-subscriber growth.
• Photo, Video and design product growth31% YoYSupported by productivity applications and new AI features.
• MVLAND monthly ARPURmb220 per subscriberCited as an example of monetization potential among target users.
• 2H26E revenue growth24% YoYGoldman Sachs forecast.
• 2026E/2027E/2028E net-income revision-7% / -6% / -7%Driven by lower legacy-product revenue and lower gross-margin assumptions.
• 12-month target priceHK$10.8DCF-derived; reduced from HK$12.3.

Impact & implications

The report considers stronger adoption and monetization of scenario-specific AI tools, particularly in overseas markets, capable of supporting subscription growth despite near-term pressure from legacy products and a less favorable gross-margin mix. The lower cash-flow forecasts reduce the target price, but Goldman Sachs continues to view Meitu's AI-native product pipeline and overseas strategy as supporting its Buy rating.

Risks

• AI adoption and monetization could be slower than expected.
• Paying ratios could be lower than expected.
• Competition could become fiercer than expected.

What to watch

• Adoption and monetization progress for AI-native products, including MVLAND and Picchi.
• Subscription-rate and overseas paying-subscriber growth.
• Revenue performance of legacy products and the resulting product-mix effect on gross margin.
• Delivery against Goldman Sachs' forecast for 24% year-on-year 2H26 revenue growth.