13% YoY topline and historical high RMB5.6bn (20% YoY) adj. net profit in 2Q25 beat consensus by 2% and 11% respectively. We deem Co. is reaping monetisation and efficiency gains from AI empowerments on core ad and eC and “Kling” due to committed AI strategies and investments. Although 2H25 online ad will be negatively impacted by unpredictable Brazil incident and domestic food delivery combat, we keep our FY2025 topline forecast unchanged due to higher streaming, Kling and GMV estimates. Maintain HOLD but raise our TP to HK$76.0 on uplifted 15.0x adj. PER to reflect accelerated Kling monetisations and improved gains from core segments on AI.
　　Key Factors for Rating
　　Strengthened AI gains on ecosystem. We see Co. is reaping economic benefits in terms of monetisation and efficiency from its dedicated AI strategies.
　　Various AI models and capabilities integrated into core ad and eC facilitate virtuous cycles for accelerated high quality growth with customised services for content creators, users, advertisers and merchants. Furthermore, we expect rising star “Kling” will experience accelerated topline growth mainly fueled by increased paying clients on expanded application scenarios due to frequent iterations and functions’ optimisations. Thus, we keep our FY2025-27 revenue forecasts unchanged with 4% cut on online ad in 2H25 due to Brazil ad incident and lower marketing spending from domestic FD combat, offsetting by increased GMV forecasts mainly on increased frequency as well as higher Kling (est.
　　RMB950m in 2025) and streaming estimates. We keep our opex assumptions unchanged, leading to largely unchanged bottom line forecasts.
　　2Q25 record high profit; HK$2.0bn special cash dividends. Total revenue grew 13% YoY to RMB35.0bn, 2% above consensus and BOCIe. Users remained solid, with MAUs and continuous record peak DAUs logging 3% YoY to 715m and 409m respectively. Online ad revenue delivered 13% YoY mainly benefitted by AI models empowerments such as “OneRec”, with external and internal ad both generating low teens YoY growth. Increased purchase frequency per MAC mainly contributed to outperformed 18% YoY eC GMV, among which robust pan- shelf-based eC GMV grew at 50% YoY. Kling AI revenue was RMB250m, primarily facilitated by paying users. Historical high operating profit grew 35% YoY to RMB5.3bn, implying outperformed 15.1% OPM, with domestic and overseas OPM logging 16.0% and 1.5% respectively. Adj. net profit grew 20% YoY to RMB5.6bn. Co. declared a HK$2.0bn (33% payout) special cash dividend for the first time.
　　Key Risks for Rating
　　Upside risks: 1) monetisations ramp up of AI and new initiatives; 2) domestic consumption recovery; 3) increased shareholder return initiatives.
　　Downside risks: 1) regulations; 2) intensified competition; 3) slower-than- expected macro recovery; 4) ineffective strategy executions; 5) content supply and source; 6) ineffective monetisation; 7) main shareholders’ divestiture.
　　Valuation
　　Maintain HOLD while uplift our TP to HK$76.0 on 15.0x (vs. 13.0x previously) FY2025E adj. EPS of HK$5.06. We raise our P/E multiple to reflect i) Kling AI’s solidified global leading positions on frequent well-functioned upgrades and accelerated commecialisations; ii) moneitsation and efficiency gains of core ad and eC businesses empowered by AI models.