Core Insights - E-commerce platforms are increasingly investing in AI tools to enhance product selection, design, and customer service, with companies like 1688 and ZhiDeMai Technology updating their AI offerings [1][4] - Small and medium-sized enterprises (SMEs) utilizing AI have reported significant productivity improvements, with some achieving a revenue increase to 5 million yuan per employee and creating products with a gross margin of 92% [1][4] - Despite the potential benefits, SMEs face challenges in AI adoption, including high understanding costs, time for widespread implementation, and insufficient cost-effectiveness [1][6] Group 1: AI Implementation in E-commerce - Current AI applications by merchants are primarily basic, focusing on tasks like image generation and data insights, with more complex integrations requiring additional time [1][6] - Platforms like 1688 have iterated their products to lower barriers for SMEs, but the primary need remains cost reduction and efficiency improvement [1][7] - The consensus in the industry is that AI tools must be further tailored to specific scenarios and personalized to achieve true scalability [1][9] Group 2: Case Study of Successful AI Utilization - Liu Shiqi, general manager of Tiwantans Trading Co., leveraged AI to grow his slipper business to an annual revenue of 40 million yuan, successfully selling a "ugly slipper" for $145 with a profit margin of $50 [4][5] - His strategy involved using AI for product selection based on market trends, significantly reducing the product development cycle from 1-1.5 months to less than a week [4][5] - Liu emphasized the importance of innovation over imitation, focusing on creating unique products that meet new market demands [5] Group 3: E-commerce Platforms' AI Tools - Major e-commerce platforms are developing AI products to enhance merchant efficiency in areas like product selection, marketing, and customer service [6][8] - For instance, Taobao's "Image to Video" tool automates the creation of promotional videos, while JD's Yanxi model analyzes product features and user preferences [6][8] - 1688's digital human product has evolved to assist merchants in optimizing product images and participating in marketing activities, resulting in a 150% improvement in business outcomes for SMEs using the tool [7][8] Group 4: Future of AI in E-commerce - The current focus for e-commerce platforms is on acquiring customers rather than immediate commercialization of AI products [9] - There is a recognition that AI tools need to adapt to various industry scenarios and user needs to achieve widespread application [9] - The integration of AI into the e-commerce search process is being prioritized to enhance user experience, with improvements in search accuracy from 88% to 94.5% [8][9]

Core Viewpoint - Kuaishou's 2024 financial report highlights a total revenue of 126.9 billion RMB, a year-on-year increase of 11.8%, and an adjusted net profit of 17.7 billion RMB, up 72.5%. The company is leveraging AI not just as a concept but as a revenue-generating engine, distinguishing itself in the competitive landscape of Chinese tech stocks [1][3][24]. Group 1: AI Strategy and Breakthroughs - Kuaishou's AI strategy has achieved eight core breakthroughs that are reshaping the short video industry and defining the future of the digital content sector [3]. - The first breakthrough is the recognition of Kuaishou's Keling AI as a global leader in technology, with its video generation capabilities ranked second only to Google's Veo 2 [4][5]. - The second breakthrough involves a comprehensive AI matrix with three technical pillars: visual model (Keling), language model (Kuaiyi), and recommendation model (ACT), creating a systemic technological barrier [6][7]. - The third breakthrough is the rapid commercialization of Keling AI, which has generated over 100 million RMB in revenue within months of its launch [8]. - The fourth breakthrough is the enhancement of Kuaishou's commercial ecosystem, with online marketing service revenue reaching 20.6 billion RMB, surpassing Baidu's 17.9 billion RMB [9]. Group 2: Content Production and Cost Efficiency - The fifth breakthrough is the democratization of creative production, allowing ordinary users to become content creators, thus enhancing user engagement and commercial conversion efficiency [13][14]. - The sixth breakthrough involves a revolutionary restructuring of content production costs, exemplified by the success of the AIGC micro-drama "Shan Hai Qi Jing," which significantly reduced production team size and costs [16][18]. Group 3: New Business Models and Ecosystem - The seventh breakthrough is the "Future Partner Program," which connects brands with creators, fostering a new ecosystem that enhances brand marketing efficiency [19]. - The eighth breakthrough is the revaluation of Kuaishou's technology company status, as investors reassess its long-term value in light of Keling AI's success and global impact [20][21]. Group 4: Market Context and Future Outlook - The current wave of revaluation for Chinese tech stocks, particularly Kuaishou, is seen as just the beginning, with the potential for significant valuation recovery as AI's value becomes more apparent [22][23].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of 68.73 HKD [7][24]. Core Insights - The company's 4Q revenue increased by 8.7% year-on-year to 35.38 billion RMB, aligning with consensus expectations of 35.7 billion RMB. The gross margin improved by 0.9 percentage points to 54%, and adjusted net profit rose by 13.3% year-on-year to 4.7 billion RMB, also meeting expectations [1][19]. - For 2025, total revenue is expected to grow by 11% year-on-year, with advertising revenue and GMV growth rates slowing to 14% and 13%, respectively. Adjusted net profit is projected to reach 20.6 billion RMB [1][20]. - The company is anticipated to accelerate revenue growth starting in 2Q 2025, driven by AI commercialization opportunities in areas such as 2C subscriptions, 2B e-commerce advertising, and API calls, which could contribute an additional 400 to 800 million RMB in revenue [1][20]. Revenue and Business Segments - E-commerce and other revenue growth slowed to 14.1% year-on-year in 4Q, below expectations by 3.5%. The e-commerce GMV grew by 14.4% year-on-year, with the share of general merchandise e-commerce increasing to 30% [2]. - The number of active e-commerce merchants increased by over 25% year-on-year, with significant growth in GMV from small and medium-sized businesses driven by new policies [2]. - The AI capabilities of the company are expected to enhance advertising efficiency, with a 13.3% year-on-year increase in advertising revenue in 4Q, although this was 2% below expectations [3]. Financial Forecasts and Valuation - The revenue forecast for 2025 has been adjusted upward by 0.6%, while the adjusted net profit forecast has been reduced by 12.6% to 20.6 billion RMB due to increased investments in AI [20][22]. - The report introduces a new valuation for 2027, projecting revenue and adjusted net profit of 163.8 billion RMB and 28.3 billion RMB, respectively [20]. - The target price of 68.73 HKD is based on a sum-of-the-parts (SOTP) valuation, with the advertising business valued at 53.36 HKD per share, the e-commerce business at 8.75 HKD, and the live streaming business at 4.87 HKD [24][25].

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 68.73 [7][24]. Core Insights - The company's Q4 revenue grew by 8.7% year-on-year to RMB 35.38 billion, aligning with consensus expectations of RMB 35.7 billion. The gross margin improved by 0.9 percentage points to 54%, and adjusted net profit increased by 13.3% year-on-year to RMB 4.7 billion, also meeting expectations [1][19]. - For 2025, total revenue is expected to rise by 11%, with advertising revenue and GMV growth slowing to 14% and 13% respectively, while adjusted net profit is projected to reach RMB 20.6 billion [1][20]. - The company is anticipated to accelerate revenue growth starting in Q2 2025, driven by AI commercialization opportunities in areas such as 2C subscriptions, 2B e-commerce advertising, and API calls, which could contribute an additional RMB 400-800 million in revenue [1][20]. Revenue and Profitability - Q4 e-commerce and other revenue growth slowed to 14.1%, below expectations by 3.5%. E-commerce GMV grew by 14.4% year-on-year, with a notable increase in the number of active merchants [2]. - The AI capabilities are expected to enhance advertising efficiency and optimize targeting, with Q4 advertising revenue growing by 13.3% year-on-year [3][14]. - The company has adjusted its revenue forecasts for 2025 and 2026, with a slight increase of 0.6% for 2025 and a minor decrease of 0.1% for 2026, while the adjusted net profit forecast for 2025 is revised down by 12.6% to RMB 20.6 billion [20][22]. Valuation and Market Position - The report introduces a new valuation for 2027, projecting revenue and adjusted net profit of RMB 163.8 billion and RMB 28.3 billion respectively. The target price has been raised to HKD 68.73 based on a sum-of-the-parts (SOTP) valuation approach [4][24]. - The valuation reflects a price-to-earnings (PE) ratio of 10.2 times for the advertising business, which is at a discount compared to comparable companies, indicating potential for growth as advertising efficiency improves with AI [24][25]. Business Segments - The "live streaming+" model continues to innovate, driving growth in traditional sectors, with significant increases in user engagement metrics for related services [12]. - The local lifestyle business saw GMV double year-on-year, with a 52.4% increase in monthly paying users, indicating strong demand and effective service optimization [13]. - The AI tool "可灵" has shown promising results in enhancing content creation and advertising efficiency, with significant revenue contributions expected from its commercialization efforts [14].