4Q25 outperformed 12% YoY topline that was mainly contributed by 15% YoY online ad and 13% YoY eC GMV, consistently facilitated by AI integrations. Inline adj. NPM was 13.8%. We deem Co. commits to scale up AI investment with RMB26bn FY2026 capex budget (over 74% YoY) to solidify Kling edges for enhanced monetisations and accelerated integrations into core content and commercial ecosystems. While we expect these upfront investments and lower core businesses topline forecasts stressed by macro, competition and regulations will lead to - 17% YoY adj. net profit estimate in FY2026. Maintain BUY with new SOTP TP of HK$60.0 on robust Kling monetisation momentum.
Key Factors for Rating
RMB26bn FY2026 capex scheme to further unleash AI fruits; Core businesses under pressure in FY2026. We deem Co. dedicates to consistently execute their AI strategies containing i) solidifying Kling AI leading position; and ii) deepening AI integrations (multiple large models) into core content and commercial ecosystems through committed investments including around RMB26bn capex budget (+74% YoY, 17+% of topline) in FY2026. Furthermore, we expect Co. to gradually upgrade AGI capabilities into their Kling and various AI models. While we deem macro, competition and regulatory scruitiny will weigh on their 2026 core streaming, online ad and eCommerce businesses. Thus, we cut our FY2026-2028E topline estimates by 3-4% with decreased 3 core segments’ estimates while increased Kling revenue forecasts. We significantly cut our FY2026-27E bottom line estimates by 19-24% to reflect increasing AI investments with decreasing GPM estimates and increasing opex assumptions. We introduce 2028E estimates.
Largely inline 4Q25; HK$3.0bn proposed FY2025 dividends. Total revenue delivered 12% YoY to RMB39.6bn, 2%/1% above consensus/ BOCIe. MAUs/ DAUs moderately grew at 1% YoY/ 2% YoY to 741m/ 408m respectively. Outperformed 15% YoY online ad revenue consistently benefitted by AI models empowerments (5% growth facilitated by these models) with solid internal ad (up mid teens YoY) and external ad (up low teens YoY) such as content consumption and AI sectors. 13% YoY eC GMV met streets’ expectation, among which pan-shelf-based GMV grew at 20% YoY, stably contributing 32% of GMV. Kling AI revenue was RMB340m (+13% QoQ) primarily facilitated by paying users. Adj. NPM was 13.8%, in line with consensus. Co. proposed around HK$3.0bn dividends for FY2025.