Investment Rating - The report maintains a "Buy" rating for Kuaishou with a target price of HK$66, representing an expected return of 35.4% from the current price of HK$48.75 [6][10][22]. Core Insights - Kuaishou's advertising growth is expected to accelerate in the second half of 2025, driven by easier comparisons for non-ecommerce ads and ongoing monetization efforts in various verticals [1][2]. - The company has seen a positive trend in monetization from its Kling platform, with plans to introduce more cost-effective versions to enhance user engagement and revenue [4][22]. - Despite challenges in the live streaming segment due to regulatory pressures, Kuaishou's overall revenue growth remains robust, with a projected 12% revenue growth in 2Q25E [2][12]. Revenue Outlook - Kuaishou's total revenue for 1Q25 was Rmb32.6 billion, reflecting a year-on-year increase of 10.9%, with live streaming revenues up 14.4% and advertising revenues increasing by 8.0% [12][13]. - The company anticipates a GMV growth of 14% year-on-year for 2Q25E, supported by traffic boosts for merchants during the upcoming 618 shopping festival [2][12]. - The full-year revenue growth estimate is maintained at 13% year-on-year, with expectations for continued growth in ecommerce and advertising segments [2][12]. Margin Outlook - Kuaishou's operating profit margin (OPM) is expected to expand year-on-year in 2025, although this may be offset by a higher effective tax rate, leading to a flat net profit margin (NPM) [3][12]. - The adjusted earnings estimates for 2025 are maintained at Rmb20 billion, with a focus on improving margins through higher-margin advertising revenues [3][12]. Updates on Kling - Kling generated Rmb150 million in revenue in 1Q25, with a rapid increase in both individual and enterprise users, indicating strong growth potential [4][12]. - The rollout of Kling AI 2.0 is expected to further enhance monetization efforts, catering to diverse user demands [4][12]. Financial Summary - Kuaishou's financial performance shows a significant increase in net profit from Rmb10.3 billion in 2023 to an estimated Rmb20.1 billion in 2025, with a diluted EPS growth of 15% [5][10]. - The company is projected to maintain a strong return on equity (ROE) of 27.9% in 2025, reflecting effective capital utilization [5][10].
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