SenseTime reported FY24 results: total revenue was up by 11% YoY to RMB3.77bn, below consensus estimate of RMB4.50bn, mainly due to the decline in Traditional AI business revenue; adjusted net loss narrowed by 21% YoY to RMB4.25bn, but worse than consensus net loss estimate of RMB3.53bn, primarily due to the greater-than-expected R&D investment in AI. Supported by its growing computing power and enriching industry solutions, management remains upbeat on the Gen AI revenue growth in FY25E. We forecast total revenue to grow by 27% YoY in FY25E, driven by the Gen AI business. We revise our FY25E adjusted net loss estimates to RMB2.75bn (previous: RMB2.10bn), in view of the increased AI investment. We lower our target price to HK$1.85, which translates into 10.5x FY25E EV/sales in tune with AI-related sector valuation re-rating (previous: HK$2.00 on 9.0x FY25E EV/sales). Maintain BUY.
　　Robust Gen AI business. Revenue from Gen AI business was up by 103% YoY to RMB2.40bn in 2024, accounting for 64% of total revenue. The robust growth was mainly driven by the 92% YoY increase in the operational computing power, which has exceeded 23,000 Petaflops as of Mar 2025. SenseTime was ranked among the top three in China’s Large Model Application Market with a market share of 13.8%, as per IDC. Computer Vision business revenue declined by 40% YoY to RMB1.11bn (29% of total revenue), as the company continues to focus on high-quality customers. The number of customers with over 3-year cooperation expanded to 389 in 2024 and accounted for c.40% of total Computer Vision client base. Smart Auto business revenue declined by 33% YoY to RMB256mn in 2024, primarily due to the decreased revenue from V2X business.
　　Key growth initiatives in FY25. Looking ahead, SenseTime will focus on: 1) reinforcing the synergy among AI infrastructure, large model and applications: the company will not only capture the demand for large model training & inference, but also enrich industry solutions with distinct advantages; 2) developing industry-leading multimodal large model and next-generation agent applications; 3) improving commercialization of Computer Vision business. For FY25E, we expect total revenue to increase by 27% YoY to RMB4.80bn, driven by over 40% YoY growth of the Gen AI business revenue.
　　Expect further efficiency gains in FY25. GPM declined by 1.1ppts YoY to 42.9% in FY24, primarily due to the increase in hardware and AIDC operation costs. We expect GPM will drop to 38.5% in FY25E given the higher revenue contribution from lower-margin Gen AI business. Thanks to the “1+X” organizational restructuring in FY24, adjusted net loss margin improved by 46ppts YoY to -112.7% in FY24. We expect further operating efficiency gains in FY25E, as SenseTime continues to optimize its organizational structure and drive reductions in large model training expenses.