XD Inc stock initiated with Outperform rating by CLSA on gaming growth

CLSA initiated coverage on XD Inc (HK:2400) with an Outperform rating and a HK$60.00 price target, citing the company's strong game development track record and its operation of TapTap, China's largest game community with 44 million monthly active users. The firm forecasts robust revenue and net profit growth for XD in 2025 and 2026, driven by improved gross margins from higher advertising contributions and operating leverage, underscoring confidence in the company's dual revenue streams from game development and its platform.

Analysis

CLSA has initiated coverage on XD Inc (HK:2400) with a bullish outlook, assigning an Outperform rating and a HK$60.00 price target based on a discounted cash flow valuation. The firm's confidence is anchored in XD's dual-engine business model, which combines a strong track record in game development with the strategic operation of TapTap, identified as China's largest game community with 44 million monthly active users as of December 2024. The analysis highlights XD's historical performance, including a 23% revenue CAGR from 2021-24 driven by self-developed titles. Looking forward, CLSA projects robust growth, forecasting 16.2% revenue and 15.2% net profit growth in 2025, followed by 9.4% revenue and 18.1% net profit growth in 2026. This anticipated acceleration in profitability is attributed to improving gross margins, driven by an increasing contribution from TapTap's higher-margin advertising business and the benefits of operating leverage.

Key Decisions for Investors

• The initiation of coverage by CLSA with a specific HK$60.00 price target presents a clear bullish catalyst that may warrant a re-evaluation of the stock's potential upside.
• Investors should closely monitor the growth of TapTap's monthly active users and the revenue mix shift towards advertising, as these are the primary drivers for the forecasted margin expansion and profit growth.
• Use CLSA's specific forecasts for 2025 (16.2% revenue growth) and 2026 (18.1% net profit growth) as performance benchmarks to assess the company's execution in future earnings releases.
• Evaluate the company's ability to successfully execute on both its game development pipeline and platform monetization, as the investment thesis relies on the synergistic performance of these two distinct revenue streams.