3% YoY topline and RMB3.4bn adj. net profit in 1Q26 beat consensus by 1% and 11% respectively. Kling AI RMB650m quarterly revenue and US$500m ARR in March 2026 impressed the street. We see Co. continuing to accelerate i) Kling AI iterations, penetrations and monetisations; ii) integration of AI models into core ad and eCommerce ecosystems; and iii) organisational efficiency improvement with AI empowerments. For Kling AI, we expect Co. to prioritise SOTA capabilities and execute tiered pricing mechanisms for expanding clients across various industries with disciplined ROI assessment. Maintain BUY and SOTP TP unchanged at HK$60.0.
Key Factors for Rating
Impressive Kling AI monetisations and deepened AI integrations; RMB26bn FY2026 capex holds. We see Co. unwaveringly executing its AI investments and strategies through 3 clear dimensions, i) accelerated Kling AI monetisations through consistent model iteration, product upgrades and deepened multi-industries penetrations; ii) deepened AI integrations into core ad and eCommerce commercial systems; and iii) improved operational efficiencies. We expect unchanged RMB26bn capex in 2026 with the majority to occur in 1H26. We also see core ad and eCommerce continuing to face intense competition amid relatively tepid consumption sentiments, along with near-term dampened streaming. Thus, we cut our FY2026-28E topline estimates by c.2% to reflect decreased streaming, ad and eCommerce revenue while increasing our Kling AI monetisations. We maintain our ~RMB17.2bn adj. net profit estimate for 2026 unchanged and trim our FY2027-28E adj. net profits by 5-7% to reflect decreased GP forecasts on committed AI investments which were partially offset by decreased S&M assumptions.
1Q26 beat; Kling AI impresses. Total revenue grew moderately at 3% YoY to RMB33.7bn, 1% above consensus. MAUs/ DAUs rose 8% YoY/ 1% YoY to 772m/ 413m respectively. 9% YoY online ad (10%+ YoY domestic online ad) revenue consistently benefitted by AI models empowerments (3-4% domestic online ad growth facilitated by these models). RMB650m Kling AI quarterly revenue (up 333% YoY) and around US$500m ARR in March 2026 impressed the market. Adj. NPM was 10.0%, above 9.1% consensus. Co. repurchased HK$562m shares in 1Q26.
Key Risks for Rating
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
Maintain BUY and TP of HK$60.0, derived from 1) HK$32.0 on 7.0x 2026E adj. EPS of HK$4.50; and ii) HK$28.0 on 30.0x 2026E our estimated total sales of Kling around HK$4.0bn (US$500m).