The company's recent situation
Recently, we were invited to participate in the “Intelligent Management · 2024 Magnetic Conference” held by Kuaishou. At the conference, the company shared Kuaishou's commercialization 2024 development plan on business strategy, product iteration, business policies, etc.
reviews
Content+management unlocks closed-loop incremental opportunities. At the conference, the company explained that more and more industry advertisers regard Kuaishou as an important business position. In addition to e-commerce and local life in Kuaishou to achieve closed-loop transactions, industries such as mini-games, skits, and education can also achieve closed-loop transformation through live streaming, mini-programs, etc. In this context, in addition to directly obtaining traffic within the site, advertisers are accumulating everything from front-end content production to back-end interactive services in Kuaishou. Currently, the number of service accounts that have been launched exceeds 15 million. The company suggests that industrial layout combined with native management can enhance user understanding and recognition. When merchants and consumers establish a more natural connection through content, consumption potential is expected to be further stimulated. 1Q24 Kuaishou's MAC (effective monthly advertising user) /MAU increased by more than 10% year-on-year. Among them, indicators in e-commerce circulation, games, paid skits, and local lifestyle all grew higher than the general market.
Intelligence+ service to improve the efficiency of full-link delivery. Using technology such as big models, Kuaishou empowers advertisers from intelligent production, understanding, distribution and interaction: 1) Content production: reducing advertisers' production and customer acquisition costs through AIGC intelligent materials, digital live streaming, etc., with 1Q24 AIGC video material usage penetration rate reaching 24%; 2) Content understanding: Kuaishou marketing domain language model has leveled the GPT4 level in understanding short video content; 3) Intelligent delivery: product iterative upgrades around intelligence, simplification, and determinization; 1Q24 full-site promotion/intelligent product hosting penetration rate up to 20%/40%. In addition, the 3.0 version of the sitewide promotion is now being tested; 4) Intelligent interaction: improving the efficiency of conversation and fund retention through customer service robots, etc. At the same time, the 2024 team plans to focus on building integrated delivery capabilities to provide customers in standardized industries such as local lifestyle with one-stop solutions from material production to delivery.
Strong performance is expected to drive a return in valuations. Looking ahead to 2024, we think: 1) E-commerce business:
Under continuous optimization of supply and algorithms, we determine that the penetration of active buyers in the medium term is expected to further increase to 20%; the 4Q23 pan-shelf GMV share has already exceeded 20%, and we judge that it may increase further to 25-30% in 2024. 2) Advertising business: We estimate that 4Q23 external circulation advertising increased by double digits over the same period last year. Advertisers in games, education, media information, etc. are showing good trends and are expected to continue until 1Q24. 3) Live streaming business:
In order to maintain ecological health, the platform takes the initiative to make product and operation adjustments, which have a certain impact on sales performance. However, on the one hand, the company will continue to promote business strategies such as guild cooperation and form innovation. At the same time, the decline in the share of the live streaming business will also make a positive contribution to the increase in gross margin. 4) Shareholder return: The company's current repurchase plan is HK$4 billion. As of the 4Q23 financial report, it has repurchased HK$2.5 billion. We recommend paying attention to arrangements such as renewing the repurchase plan after the expiration of the 2024 mid-year repurchase plan.
Profit forecasting and valuation
Maintaining the 2024/2025 earnings forecast, the current stock price corresponds to 11/8 times 2024/2025 non-IFRS P/E. Maintaining an outperforming industry rating and target price of HK$70, corresponding 16/12 times 2024/2025 non-IFRS P/E. The target price has room for a 43% increase compared to the current stock price.
risks
User or commercial growth falls short of expectations, cost or expense control falls short of expectations, industry regulatory risks.