CICC: Maintains "outperform industry" rating on KUAISHOU-W (01024), core business expected to continue driving revenue growth.

CICC released a research report stating that it maintains a "outperform industry" rating for KUAISHOU-W (01024). The bank believes that in 1H24, the company's e-commerce GMV and core business revenue achieved steady growth year-on-year, and the core business is expected to continue driving revenue growth for the company. At the same time, AI empowerment and operational efficiency enhancements strengthen the company's profit release capabilities, with the gross profit margin and adjusted net profit margin continuing to improve both quarter-on-quarter and year-on-year in 2Q24. The bank suggests focusing on: 1) the stability of future profit releases; 2) progress in shareholder returns execution; 3) progress in AI empowerment and commercial efficiency enhancement for the company's business. CICC's main points are as follows: Users come first, AI reshapes business ecology. The management introduced the company's main strategies at the meeting: 1) High-quality user growth: the company will prioritize user value, introduce a mixed-flow distribution mechanism, achieve the coordinated development of commercial and community ecology, balance user experience and commercial revenue, promote the conversion of low-active users to DAU, and enhance user retention. 2) Strengthening product and content development: consolidating the moats of social and private sectors, exploring various innovative interactive gameplay to enhance user community participation; creating Kuaishou's unique content and unique creators, enhancing platform differentiation. 3) AI reshaping business forms: AI empowers content creation, content understanding, and content recommendation, enriching Kuaishou's business scenarios. In terms of content creation, AI short film, AI advertising, and AI short film creation are supported by large-scale models; in terms of content understanding and recommendation, Kuaishou AI can accurately identify original content, commercial content, etc., enhance the logic and matching of content recommendation, and improve user experience and platform commercial efficiency. Investors attention: prospects for e-commerce and commercial growth, progress of AI models, company's long-term profitability prospects, etc. The company stated that in terms of e-commerce, the ceiling for content e-commerce is high. In the dimension of live e-commerce, the company will focus on how to lower the threshold for merchants, introduce more merchants to enhance the ceiling of live e-commerce. In terms of commercialization, short-term attention should be paid to external advertising demand, the advertising delivery capabilities, matching efficiency, and AI technology effectiveness of Kuaishou platform; long-term attention should be paid to whether new advertising suppliers emerge, such as paid short films, mini-games, and novels. Regarding AI, the company believes that it has a 3-6 month industry-leading advantage, and will continue to maintain its advantage based on the choice of technical path judgment, algorithm innovation capabilities, etc. In terms of profitability, the company stated that the gross profit margin is aimed to reach 60%, with the main sales expense ratio targeted to be reduced to below 30%; it has confidence in the long-term positive ROI for the local life business.