China Merchants Jinling International: Maintains KUAISHOU-W "Buy" rating and raises target price to HKD 64

According to Zhitong Finance APP, Jiangyin International released a research report stating that the increased investment in AI computing power by KUAISHOU-W (01024) offsets the optimization of cost expenses, maintaining the profit expectation of 20.3 billion yuan for 2025, corresponding to an adjusted net profit margin of 14% for 2025, roughly flat compared to 2024. Considering the commercial potential of KuaLing's leading video generation capabilities, a valuation premium is given, maintaining a target price of HKD 64 based on a 13 times price-to-earnings ratio for 2025, indicating a 31% upside from the current price, and maintaining a buy rating.

Key Points from Jiangyin International:

Q1 Performance Meets Expectations

Kuaishou's total revenue/adjusted net profit for Q1 2025 was 32.6 billion yuan/4.6 billion yuan (RMB, same below), representing a year-on-year increase of 11%/4%, which is basically in line with the bank/market expectations. The gross profit margin remained roughly flat year-on-year, with an adjusted net profit margin of 14.0%, and marketing expense ratio increased by 1.6 percentage points.

Q1 Segment Overview

1. E-commerce GMV increased by 15% year-on-year, with MAC at 135 million, up 7% year-on-year, MAU penetration rate at 19%, and per capita spending up 7% year-on-year. The share of general merchandise GMV is about 30%, and the number of active merchants in the mall field increased by over 40% year-on-year. 2) Online marketing revenue grew by 8% year-on-year, with content consumption (high double-digit growth) and local life (over 50% growth) leading the industry. 3) Live streaming revenue resumed growth (up 14% year-on-year), with the number of contracted guilds and contracted anchors increasing by over 25% and 40% year-on-year, respectively. 4) Local life continues to enrich supply, with active merchants and product numbers increasing by 81% and 71% year-on-year, respectively, and monthly average paid users up 73% year-on-year. 5) Overseas revenue driven by advertising increased by 33% year-on-year, achieving positive quarterly operating profit for the first time. 6) KuaLing AI upgraded to version 2.0 in April, achieving commercial revenue of 150 million yuan in Q1 and positive marginal profit at the inference level.

Outlook: Expectation for Q2

1. E-commerce GMV is expected to grow by 14% year-on-year, with influencer distribution potentially leading to a slight optimization in commission rates. 2) Advertising is expected to recover with double-digit year-on-year growth (+12%), with mall field advertising benefiting from improved infrastructure or accelerating domestic circulation growth, while external circulation continues to be driven by content consumption and local life. 3) KuaLing continues to release commercial increments, with the bank expecting annual revenue to exceed 100 million USD, and there are further opportunities for exceeding expectations, maintaining the expectation that increased investment in inference computing power and R&D talent will impact the profit margin for 2025 by 1-2 percentage points