IH - iHuman: Gaining Momentum After Breakout Year

2023-04-06 16:25:49 ET

Summary

• Since going public in 2020, iHuman Inc. generated its first annual profit in 2022 - a good performance when considering the headwinds it faced.
• On a year-over-year basis, most Q4 earnings numbers were significantly up.
• While the share price has moved up strong since its 52-week low of $1.34, if it maintains momentum, it could move up a lot higher over time.
• iHuman Inc. stock appears to have found a bottom at approximately $2.70, and I think anything under $3.00 per share would be a good entry point, using a dollar-cost averaging strategy.

iHuman Inc. ( IH ), a provider of intellectual development products to individuals, kindergarten classrooms, and distributors of educational products in China, finished off 2022 strongly. It produced record numbers in various earnings metrics while generating its first annual profit since going public in 2020.

The company had significant improvement in the fourth quarter of 2022 and full year 2022, as well as a lot of momentum heading into 2023.

Concerning the domestic side of its business, the company attributes its growth to expanding its content library and diversifying its content platforms, which it believes was compelling from offering its customers an improved dynamic experience.

Its AI tech empowered children to interact more with art creations, providing a more immersive experience for them, which makes their products sticky.

The company has been working on expanding internationally, and to that end it launched Aha World, an interactive app which empowers children to interact with different adventures in a fantasy world. Kids can engage with different themes within the world and create their own stories, characters, and props.

In this article we'll look at its numbers from Q4 and full year 2022 , the momentum of the company, and some of the metrics from various factor grades.

Some of the numbers

iHuman Inc. revenue in the fourth quarter of 2022 was RMB260.7 million or US$37.8 million, compared to revenue of RMB237.8 million in the fourth quarter of 2021. Revenue for full year 2022 were RMB985.5 million or US$142.9 million, compared to revenue of RMB944.7 million for full year 2021.

Gross profit in the reporting period was RMB181.0 million, or US$26.2 million, compared to gross profit of RMB164.9 million in the fourth quarter of 2021. Gross profit for full year 2022 was RMB691.2 million, or US$100.2 million, compared to RMB660.6 million for full year 2021.

Operating income in the fourth quarter of 2022 was RMB39.1 million, or US$5.7 million), compared to an operating loss of RMB10.6 million in the fourth quarter of 2021. Operating income for full year 2022 was RMB111.6 million or US$16.2 million, compared to an operating loss of RMB54.2 million in full year 2021.

Net income for the fourth quarter of 2022 was RMB35.4 million or US$5.1 million, compared to a net loss of RMB7.9 million in the fourth quarter of 2021. Net income for full year 2021 was RMB109.8 million or US$15.9 million, compared to a net loss of RMB37.1 million in full year 2021.

Average total MAUs in the fourth quarter of 2022 came in at a record-high of 22.22 million, up 35.9 percent year-over-year. Average total MAUs for full year 2022 were 19.86 million.

The number of paying users in the fourth quarter jumped to a record-high of 1.75 million, up 23.9 percent year-over-year. The number of paying users for full year 2022 was 4.75 million. The key takeaway from the Q4 and full year numbers is the company's performance has been accelerating, and it's highly probable that's going to continue on into 2023 and further out, based upon a number of positive metrics.

Quant factor grades for the company

First we'll look at the profitability grade of IH, which in most metrics outperformed the sector median. It needs to be taken into consideration that the grades of the company are relative to the communications services sector.

Profitability

Starting with net income margin, it came in at 11.14 percent, compared to the sector median of 3.38 percent, higher by 229.34 percent.

Gross profit margin was 70.13 percent, compared to the sector median of 50.22 percent, better by 39.66 percent.

EBIT margin was 11.32 percent, compared to the sector median of 8.43 percent, up 34.28 percent.

EBITDA margin was 11.97 percent, compared to the sector median of 18.02 percent, lower by -(33.56) percent.

Return on equity was 15.94 percent, compared to the sector median of 2.96 percent, up 438.49 percent. Return on capital was 9.81 percent, compared to the sector median of 9.81 percent, compared to the sector median of 3.54 percent, up by 177.23 percent. Return on assets was 8.24 percent, compared to the sector median of 1.64 percent, up 401.41 percent.

Cash from operations was 6.01 million, compared to the sector median of 210.43 million, down 97.14 percent. Price/Cash flow was 29.00, compared to the sector median of 8.20, higher by 253.48 percent.

Valuation

On a GAAP basis, P/E ((TTM)) was 11.04, compared to the sector median of 19.47, lower by 43.30 percent. EV/Sales ((TTM)) was 0.16, compared to the sector median of 1.97, lower by 91.68 percent. EV/Sales ((FWD)) was 0.15, compared to the sector median of 1.87, lower by 92.05 percent.

EV/EBITDA ((TTM)) was 1.37, compared to the sector median of 9.93, lower by 86.20 percent.

Price/Sales ((TTM)) was 1.22, compared to the sector median of 1.30, lower by 5.83 percent. Price/Sales ((FWD)) was 1.11, compared to the sector median of 1.23, lower by 9.90 percent.

One metric I wanted to share on the growth side was (YoY) revenue growth, which was 4.32 percent, compared to the sector median of 6.20 percent, lower by 30.39 percent. Revenue growth ((FWD)) was 12.03 percent, compared to the sector median of 5.30 percent, higher by 126.79 percent.

This reflects the company's momentum and expectations for ongoing growth in 2023 and beyond.

Speaking of momentum, over the last year it was 53.32 percent, compared to the sector median of -(23.09) percent.

While even though its weakest grade was in profitability, iHuman Inc. still outperformed the sector median in most metrics, and it significantly outperformed them in valuation, growth, and momentum.

With the current visibility I have on the stock, I don't see anything that stands in the way of steady, sustainable growth in the long term.

Conclusion

The share price of iHuman Inc. has plummeted from its high of approximately $31.50 per share not long after it went public in November 2020. Since then, it has steadily declined in price, falling to its 52-week low of $1.34 per share on October 24, 2022, and since rebounding to its 52-week high of $4.26 per share on January 9, 2023, before pulling back to trading at $3.19 per share as I write.

It has found a bottom at about the $2.50 per share mark and has bounced off that from February 10, 2023, to today. Even though it temporarily surpassed the $3.30 per share mark for a little over a week in early March 2023, it has, for the most part, traded in a range of $2.50 to $3.30 per share.

My thought is waiting for iHuman Inc. to pull back under $3.00 per share would be a good place to take a position, assuming it includes a dollar-cost averaging strategy.

I think, over time, iHuman Inc. stock has a lot of room to move higher, but in the near term, when considering the significant bounce off its low, it's more prudent in my opinion to wait for a lower entry point in order to mitigate risk and improve the potential reward.

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