We model an inline 4Q25 with +10% YoY topline and RMB5.4bn adj. net profit. Despite N-T pressure from core businesses amid intense market and stricter tax scrutiny, we see a bright L-T monetisation potential on Co.’s committed AI executions on Kling AI and core ecosystems integrations. We deem Kling AI solidifies its edges primarily on integrated model capabilities with enriched customised features, userfriendly interface, competitive tiered pricing with monetisation-centric design, cost efficiency and localised operations across global regions. Upgrade to BUY with new TP of HK$80.0.
Key Factors for Rating
Kling AI 3.0 model series solidifies leading position. Building on its 2.6 and O1 versions released in Dec 2025, Kling AI officially launched the upgraded 3.0 series models with All-IN-ONE framework on 4 Feb, 2026, which are currently accessible by its ultra/premier/pro members. Generally, 3.0 series models upgrade fields including consistency, photorealistic output, video duration and audio generation. Notably, V3.0 has allowed multi-image/ video references and improved audio output with character referencing and more diverse language options; V3.0 Omni has significantly improved its subject consistency and enabled visual /audio capture; both have introduced powerful multi-shot features and now support flexible video generation of 3-15s. With further amplified competitive edges in output quality, cinematic controllability, and narrative precision that especially appeal to professional and enterprise clients (currently 30,000+), we believe Kling will maintain its leading position in the AI video generation industry and extensively applied in various verticals including marketing, eCommerce, media, game, etc. We see Co. will continue accelerating the iterations of its MVL (Multi-modal Visual Language) model line-up, positioning Kling as an intelligent creative agent instead of a mere generation tool.
Operational and Monetisation-wise, apart from tiered pricing mechanisms of 2P VIP & 2B API subscriptions and collaborations, we deem Kling also habours significant potential for in-depth integration with Co.’s innate content, ad and ecommerce ecosystems. For instance, the high-quality micro dramas/films/animations generated by Kling further enrich content offerings (for example: the first CNY AI animation series co-created with 快手星芒 is set to premier on 6 Feb), unlocking various monetisations in the future. Meanwhile, Kling is also exploring its e-commerce application beyond AI avatar, demonstrated by its Canvas Agent launched in Jan 26 featuring a one-click function for generating e-commerce display image sets. Co. has stated that Kling achieved monthly revenue exceeding US$20m in Dec 2025, corresponding to an ARR of US$240m. We currently estimate Kling will contribute around US$290m revenue in 2026E (+100% YoY), with Dec 2026 ARR attaining over US$400m.
N-T core businesses pressure with accelerated AI integrations. We see Co. continues to accelerate AI tech integrations into their core algorithm, ad and eCommerce scenarios including OneRec, OneMall, OneSearch, etc. While we see Co. will face N-T financial pressure from stricter tax scrutiny across eCommerce, streaming and ad amid intense competitions. We see these challenges will not affect Co.’s commitment for their AI-related executions in a consistent costefficiency manner.
Earnings and forecasts change: Considering above factors and our latest estimates of Kling, we cut our FY2026-27E total forecasts by 2% due to 2-3% of streaming and ad cut, partially offsetting by increasing revenue contribution from Kling AI. Our 6-7% adj EPS cut reflects our increasing AI-related expenses but we deem it will be manageable to maintain Kling leading position.
4Q25 preview: inline quarter. We model total revenue to deliver 10% YoY to RMB39.0bn, in line with consensus, among which streaming, online ad and eC & others logging -4% YoY, 12% YoY and 31% YoY respectively. We deem Kling continues accelerate their monetisations and forecast over RMB320m revenue in 4Q25. GPM/ adj. NPM of 55.3%/ 13.9%, both meet streets’ expectation.
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-thanexpected macro recovery; 4) ineffective strategy executions; 5) content supply and source; 6) ineffective monetisation; 7) main shareholders’ divestiture.
Valuation
We shift our valuation approach from PE to SOTP as Kling accelerates monetisations on their solidified competitive edges. Upgrade to BUY with new TP of HK$80.0 derived from 1) HK$58.0 on 10.0x 2026E adj. EPS of HK$5.81; and ii) HK$22.0 on 40.0x 2026E total sales of Kling around HK$2.4bn.