CICC: Maintains outperform rating on WB-SW (09898), lowers target price to HKD 86.2.

CICC released a research report stating that considering the unclear trend of advertisers' advertising budgets, the non-GAAP net profit for WB-SW (09898, WB.US) in 26/27 was reduced by 15% to 376/398 million US dollars. The current price corresponds to a Hong Kong/US stock price of 5.6/5.8 times the 26-year non-GAAP P/E ratio and 5.3/5.5 times the 27-year non-GAAP P/E ratio. The outperformance industry rating is maintained, and due to the adjustment of profit forecasts, the target price is reduced by 15/14% to $11.1 US dollars/86.2 Hong Kong dollars (corresponding to 8.0/7.5 times the 26/27-year non-GAAP P/E ratio), with respective upside potentials of 37%/41%. CICC's main points are as follows: Performance basically meets the expectations of the bank and the market In the first quarter of 26, the company's revenue increased by 6% to US$421 million, and the non-GAAP net profit was US$91.93 million, which basically meets the expectations of the bank and the market. Strong performance in 1Q26 AI application advertising, 2Q26 performance may be relatively differentiated Advertising revenue in 1Q26 was US$370 million, a year-on-year increase of 9%, and the growth rate further improved compared to the previous quarter (+5%). Among them, revenue from Alibaba's advertising was US$43.3 million, a year-on-year increase of 2%; excluding Alibaba, advertising revenue was US$327 million, a year-on-year increase of 10%, mainly benefiting from increased demand for advertising in industries such as Internet services (AI large models used in the Spring Festival for increased advertising), automotive, and local life. In the outlook for 2Q26 and beyond, the company stated that external consumption pressures still exist, with divergent performances among industry advertisers. The company expects the automotive industry's new product launch speed to be better than last year, and expects advertising by advertisers in this segment on the Weibo Corp. Sponsored ADR Class A platform to continue to grow; the company expects e-commerce and local life industries to face pressure from high base numbers starting from 2Q26; the company will also strive to attract some fast-moving consumer goods customers into the World Cup marketing cycle budget. VAS revenue was US$51.57 million, a decrease of 11%, mainly due to a decrease in contributions from game-related businesses. Deeper product improvements, continued exploration of AI-driven user stickiness, advertising conversion efficiency improvement opportunities In terms of user ecology, the company continues to optimize the home page's information flow experience, strengthen the supply and distribution of high-quality video content, and promote user retention and engagement. In terms of content ecology, the company effectively improves user content consumption efficiency by improving the quality of hot content, deepening community interaction, and enhancing AI search capabilities. In terms of commercialization, the company stated that it will continue to promote content marketing solutions for more industry customers and use AI technology to systematically improve advertising conversion efficiency. Expense investment remains cautious, with ample quasi-cash reserves In 1Q26, the operating profit margin decreased by 2 percentage points, mainly due to an increase in advertising production costs and marketing expenses. The company stated that it will maintain cautious expense control while continuing to invest in AI and product development. Excluding changes in fair value of investments and non-recurring items, core operating profit performance remains robust. As of the end of 1Q26, the company had a total of US$2.59 billion in cash and cash equivalents and short-term investments, with relatively good quasi-cash reserves. Risk warning: Macroeconomic and consumer demand recovery is lower than expected; advertiser budget cuts; intensified industry competition; risk of fluctuations in fair value of investments.