CICC: Maintain KUAISHOU-W (01024) Outperform rating with a target price of HKD 66.

CICC released a research report stating that considering the short-term concessions in the internal circulation and the impact of the investment in Kuaishou's AI, the bank has downgraded Kuaishou-W's (01024) 2025/2026 Non-IFRS net profit by 9%/8% to RMB 20.07 billion / 23.64 billion. The current stock price corresponds to 12/10 times 2025/2026 Non-IFRS P/E. The bank maintains an outperform industry rating, taking into account the industry-leading position of Kuaishou's AI, possessing a valuation premium, and maintains a target price of HK $66, corresponding to 13.6/11.4 times 2025/2026 Non-IFRS target P/E. Key points from CICC: 4Q24 performance is in line with the bank's and market expectations The company's revenue in 4Q24 increased by 9% year-on-year to RMB 35.4 billion, with Non-IFRS net profit of RMB 4.7 billion (compared to RMB 4.36 billion in 4Q23), basically in line with the bank's and market expectations. 4Q24 DAU increased by 4.8% to 401 million, while MAU increased by 5.0% to 736 million (institutional consensus expected 702 million). Advertising business eCPM increased, focusing on the incremental opportunities in the external circulation track; e-commerce GMV quarterly increased by 14%, showing overall stable performance Online marketing revenue in 4Q24 increased by 13% to RMB 20.6 billion, with eCPM growing high unit numbers year-on-year. External circulation drove the growth of advertising revenue, with good growth in specific industries such as short videos, small games, and novels. The bank suggests continuing to focus on incremental opportunities in the external circulation track. In terms of e-commerce, 4Q24 GMV increased by 14% to RMB 462.1 billion, with 30% of e-commerce GMV coming from the general shelf scene. The GMV of short video shopping increased by over 50% year-on-year, demonstrating the synergistic potential between content and shelf scenes. The bank expects full-year GMV growth to reach 13% in 2025, reaching RMB 1.57 trillion. AI strategy deepening, the monetization of Kuaishou's AI steadily accelerating, AI capital expenditure in 2025 will focus on Kuaishou's inferential training Since the monetization of Kuaishou's AI started in July 2024, the cumulative revenue has exceeded RMB 100 million by February 2025. The company stated at the earnings conference that it expects AI capital expenditure in 2025 to increase steadily and controllably compared to 2024, ensuring sufficient inferential training capabilities for Kuaishou (coordinating with the commercial progress of Kuaishou, considering that the supply of inferential computing power to meet Kuaishou's needs is relatively sufficient, and expenditure growth is relatively controllable). The company will continue to improve existing computing power and server efficiency through engineering innovation and operational optimization. The company also stated that the current gross margin has been flattened on the inference level, and the increase in computing power expenses has a relatively small overall impact on profits; the company expects that the impact of AI investment on the adjusted net profit margin will be around 1-2 percentage points. Overseas expansion has gradually established regional models The company's overseas revenue in 4Q24 increased by 53% to RMB 1.3 billion (online marketing revenue increased by 83.5%). In terms of regions, the company's DAU in the Brazilian market increased by 9%, with daily active users using the platform for over 75 minutes on average (improving compared to the previous period). The company stated that the commercial model of its e-commerce business in Brazil has been preliminarily validated, and the order volume continues to rise. Risk warning: Intensified industry competition, slower-than-expected commercial growth, risk of user loss, higher-than-expected investment in new businesses, content and regulatory risks.