CICC: Maintain KUAISHOU-W (01024) "Outperform" Rating, Target Price at 89 Hong Kong Dollars.

Zhongjin released a research report stating that KUAISHOU-W (01024) has good cost control, raising its 25-year Non-IFRS net profit by 3% to 20.6 billion yuan. The current price corresponds to a 12.5/11.5 times 25/26-year Non-IFRS P/E. Taking into account the company's AI business layout, the rating of outperforming the industry and the target price of HK$89 (17/16 times 25/26-year Non-IFRS P/E) are maintained, with a 40% upside potential. The company's revenue in 3Q25 was 35.6 billion yuan, a year-on-year increase of 14%, Non-IFRS net profit attributable to the parent company was 4.99 billion yuan, GMV increased by 15% to 385 billion yuan, which overall meets the bank's expectations. Key points of Zhongjin are as follows: Advertising revenue growth accelerated in 3Q, high-quality development of e-commerce ecosystem In 3Q25, advertising revenue increased by 14% (compared to 13% in 2QYoY). The bank believes that on the technical level, the overall promotion and UAX (fully automatic delivery) have jointly improved the efficiency of advertising delivery, driving internal and external circulation growth. In terms of breakdown: external circulation is mainly driven by industries such as life services and content consumption; internal circulation is enhanced by upgrading the full-site promotion product to increase the willingness of merchants to advertise. In terms of e-commerce: in 3Q25, total GMV increased by 15%, with the share of GMV from a wide shelf exceeding 32%, and the growth rate exceeding the industry average; short video e-commerce GMV grew healthily. The company stated that in 3Q25, active users of e-commerce increased their repurchase frequency, enhancing stickiness. Live streaming in 3Q25 remained stable with a 2.5% increase. Continuous advancement of AI strategy, technology implementation driving main business revenue growth 1) In terms of AI multimodal basic models, Keling achieved model iteration and service upgrades for B-end in 3Q, with revenue exceeding 300 million yuan during the quarter (1/2Q was 150/250 million yuan), and the company expects Keling's revenue to reach 140 million US dollars for the whole year (August guidance was 125 million US dollars for the year). 2) AI large models empower Kuaishou's advertising and e-commerce businesses. In terms of advertising, model technology (especially OneRec application, as well as generative reinforcement learning bid model G4RL cooperation for efficiency improvement) brought a 4-5% increase in domestic advertising revenue in 3Q25, with AIGC advertising material consumption exceeding 3 billion yuan; in e-commerce, the end-to-end generative retrieval architecture OneSearch promoted a nearly 5% increase in mall search volume, and OneRec promoted a high single-digit increase in e-commerce mall information flow GMV. Robust cost control, steady expansion overseas In 3Q25, management expenses were significantly lower than the bank's expectations, mainly due to SBC expenses being lower than expected. The sales expense rate decreased by 4 percentage points to 29.3%, with the company attributing it to marketing efficiency. In terms of overseas markets, the scale of transactions and the number of orders in the Brazilian e-commerce sector grew in 3Q25 compared to the same period last year.