Hua Er Jie Jian Wen·2025-08-13 01:55Core Viewpoint - Morgan Stanley identifies Kuaishou as the most undervalued AI stock, raising its target price from HKD 71 to HKD 88, indicating a potential upside of 22% and reaffirming Kuaishou as the preferred stock in China's digital entertainment sector [1] Group 1: AI Business Outlook - Morgan Stanley significantly raised revenue forecasts for Kuaishou's AI video generation tool, Keling, for 2025 and 2026 by 61% to RMB 12 billion and RMB 19 billion respectively, based on strong performance in Q2 2025 [2] - Keling's monthly revenue exceeded RMB 100 million in April and May, and concerns about cash flow fluctuations are deemed as "overly worried" by Morgan Stanley, as most revenue comes from the PC side rather than mobile [2] - The global market for AI video generation is projected to exceed USD 100 billion, with Keling priced at only 20-30% of its overseas competitors, indicating substantial growth potential in international markets [2] Group 2: Business Model and Strategy - Morgan Stanley views Kuaishou's entry into the food delivery sector as an overreaction, noting that it employs a light-asset model by partnering with established companies like Meituan instead of building its own logistics [3] - This model minimizes upfront investment and allows Kuaishou to monetize through service commissions from directing users to third-party platforms [3] Group 3: Advertising and Revenue Growth - The core reason for Kuaishou being a preferred stock is the underappreciation of its advertising and e-commerce business, with projected compound annual growth rates of 13% for advertising and e-commerce commission revenue from 2026 to 2027 [4] - Kuaishou's user traffic remains stable and is not significantly impacted by the rapid growth of WeChat's video accounts, with a shift towards higher-margin advertising and e-commerce expected to boost profit margins, leading to a projected 20% compound annual growth rate in profits from 2026 to 2027 [4] Group 4: Valuation and Market Performance - Despite a 73% rebound in Kuaishou's stock price year-to-date, Morgan Stanley believes its valuation remains attractive, with a current price corresponding to 14/11 times the expected earnings for 2025/2026, while projecting a 20% compound growth rate in profits for 2026-2027 [7] - The target price of HKD 88 is based on a 14 times expected earnings multiple for 2026, reflecting optimism about accelerated growth in core advertising and Keling's strong momentum [9]