Topline accelerated to +14% YoY in 3Q25, contributed by outperformed+14% YoY online ad, both led consensus by 1%. Operating profitsurged +70% YoY to RMB5.3bn, beating consensus by 16%. We deemCo. is forming a virtuous cycle of AI innovations, applications,integrations, monetisations on core content, commercialisation andinfrastructure ecosystems to generate sustainable profitable growth. We will closely monitor marginal benefits brought by accelerated AIintegrations on core ad and eC, as well as Kling’s industry positionsand monetisation progresses amidst intensified competitions. Maintain HOLD.
Key Factors for Rating
AI everywhere amidst intensified eC and Kling competitions. We seeCo. has seamlessly integrated AI into daily operations and achieved goodprogress in all business segments, including i) material production and targetingin ad; ii) product matching and purchase experience optimisation in eC; iii)engagements and tipping in streaming; and iv) cost efficiency in user acquisitionand organisational operations. For Kling, we deem Co. executes its dedicatedtech and product strategies targeting at 2P and 2B users with disciplinedmarketing in the near to midterm. We largely maintain our FY2025-27E totalrevenue forecasts and adj. net profit estimates unchanged to reflect Co.’sconsistent strategies.
3Q25 record high DAUs; AI drove beat quarter. Total revenue grew ataccelerated 14% YoY to RMB35.6bn, 1% above consensus and BOCIe. Usersremained solid, with DAUs of 416m hitting peak again. Outperformed 14% YoYonline ad revenue (16%+ YoY domestic online ad) consistently benefitted fromAI models empowerments with solid internal ad (up mid teens YoY) and externalad (up low teens YoY) such as lifestyle service and short play sectors. 15% YoYeC GMV met streets’ expectation, among which pan-shelf-based GMV grew at+37% YoY. Kling AI revenue was RMB300m (+20% QoQ) primarily facilitatedby paying users. Historical high operating profit grew at accelerated 70% YoYto RMB5.3bn despite underperformed GPM, implying outperformed 14.9% OPM,with domestic and overseas OPM logging 15.7% and -5.5% respectively. Adj. NPM was 14.0%, in line with consensus.
Key Risks for Rating
Upside risks: 1) monetisations ramp up of AI and new initiatives; 2) domesticconsumption recovery; 3) increased shareholder return initiatives.
Downside risks: 1) regulations; 2) intensified competition; 3) slower-thanexpectedmacro recovery; 4) ineffective strategy executions; 5) content supplyand source; 6) ineffective monetisation; 7) main shareholders’ divestiture.
Valuation
We roll over to 2026 estimates. Maintain HOLD and new TP of HK$66.0 is basedon 11.0x FY2026E adj. EPS of HK$6.00. We will closely monitor Kling AI’sreiteration and monetisation progresses and marginal benefits which AI modelsbrought to Co.’s core eCommerce and online ad segments.