Kuaishou announced 4Q24 results: total revenue was up by 9% YoY to RMB35.4bn, and adjusted net profit grew by 8% YoY to RMB4.7bn, both in line with our/consensus estimates. FY24 total revenue/adjusted net income increased by 12/72% YoY respectively. For FY25E, we forecast total revenue to grow by 12% YoY with a largely stable adjusted net margin, as the favourable revenue mix shift and efficiency gains will be largely offset by the increase in AI- related investment. We believe AI will start to generate meaningful revenue and empower existing businesses in FY25E. We lower our FY25-26E earnings forecast to RMB20.1/23.7bn (previous: 22.4/27.9bn) in view of the increased AI investment. We lower our SOTP-derived TP to HK$80.0 (previous: HK$85.6). Maintain BUY.
　　Core commercial businesses maintained solid growth. By segment: 1) Online marketing revenue grew by 13% YoY to RMB20.6bn in 4Q24, mainly driven by a high single-digit YoY growth of eCPM. External marketing services continued to outpace closed-loop marketing services growth, with short-play marketing spending up by over three-fold YoY in 4Q24. Closed- loop marketing revenue growth was relatively slow as Kuaishou offered more user traffic support to merchants, which impacted monetization rate. 2) Other services revenue increased by 14% YoY to RMB4.9bn in 4Q24. E- commerce GMV rose by 14% YoY to RMB462.1bn (3Q24/2Q24: +15%/15% YoY), with e-commerce MPUs up by 10% YoY to 143mn and accounting for 19.5% of total MAUs in 4Q24 (4Q23:18.6%). 3) Live streaming revenue declined by 2% YoY to RMB9.8bn in 4Q24, with the YoY decline rate further narrowing versus 3Q24.
　　Leverage AI to capture new growth opportunities. Kling AI’s user base has grown at an accelerated pace, supported by the Kling 1.6 model upgrade. As of Feb 2025, Kling AI has generated cumulative revenue of over RMB100mn since its monetization in 4Q24. We expect Kling AI to generate c.RMB450mn revenue in FY25E. The AIGC capabilities have also enhanced production efficiency of online marketing services. Advertisers’ average daily spending on AIGC marketing materials surpassed RMB30mn in 4Q24. For 1Q25E, we forecast total revenue to grow by 10% YoY, with online marketing/others/live streaming revenue up by 8/14/12% YoY. We expect e-commerce GMV to increase by 15% YoY in 1Q25E.
　　Stepping up AI investment. Adjusted NPM was largely flat YoY at 13.3% in 4Q24, as the improved GPM was offset by increase in S&M expenses. Looking ahead in FY25E, Kuaishou plans to step up AI investment, which will impact the adjusted net margin by 1-2ppt per management; but we still expect adjusted net margin to remain stable at 14% in FY25E, as the favourable revenue mix shift and enhanced S&M efficiency shall largely offset the stepped-up AI investment.