Kuaishou announced 2Q24 results: total revenue was up by 12% YoY to RMB31.0bn, largely in line with consensus estimate; adjusted net profit grew by 74% YoY to RMB4.7bn, 8% ahead of consensus estimate thanks to better-than- expected cost optimization and opex control. E-commerce GMV growth (+15% YoY) in 2Q24 was slower than consensus expectation amid soft consumption sentiment and intense competition, and we expect the pressure to continue in 2H24E. Nonetheless, we remain upbeat on Kuaishou's FY24 earnings growth outlook on its solid online marketing business and margin expansion. We lift our FY24 adjusted net income forecast by 3% to factor in the better-than-expected cost optimization; but lower our SOTP-derived TP to HK$92.0 (previous: HK$97.0) in view of the headwinds faced by e-commerce business (which accounted for 54% of total valuation). We transfer coverage with a BUY rating.

Online marketing maintained solid growth; e-commerce GMV below expectation. Online marketing revenue grew by 22% YoY to RMB17.5bn in 2Q24, driven by solid growth of both external and enclosed loop marketing services. External marketing services revenue YoY growth rate accelerated in 2Q24, supported by strong demand from media, e-commerce and local services industries. Other services revenue was up by 21% YoY to RMB4.2bn in 2Q24. The YoY growth rate of e-commerce GMV decelerated to 15% in 2Q24 (1Q24/4Q23: +28/29% YoY). E-commerce MPUs maintained healthy growth of 14% YoY to 131mn in 2Q24, but this implies largely flattish average GMV per MPUs amid weak consumption sentiment. Live streaming revenue declined by 7% YoY to RMB9.3bn in 2Q24.

Headwinds in e-commerce business to sustain in 2H24. Looking ahead in 3Q24E, we forecast total revenue to grow by 11% YoY, with online marketing/others/live streaming revenue +20/+18/-5% YoY respectively. We remain upbeat that Kuaishou's online marketing revenue growth will outpace sector growth in 2H24, underpinned by its optimized intelligent marketing solutions and incremental demand from short plays & mini games. We expect headwinds in e-commerce business to sustain and GMV to grow by 15% YoY in 3Q24E, mainly due to soft consumption and Kuaishou's relatively conservative subsidy strategy.

Intact earnings growth outlook. Adjusted NPM improved by 5.4ppt YoY to 15.1% in 2Q24, primarily due to favourable revenue mix shift and cost optimization. Domestic operating profit grew by 48% YoY to RMB4.5bn, while overseas operating loss narrowed by 65% YoY to RMB277mn in 2Q24. For 3Q24E, Kuaishou will continue to focus on executing its high- quality growth strategy. We expect adjusted NPM to expand by 1.5ppt YoY and adjusted net profit to grow by 25% YoY to RMB4.0bn in 3Q24E, fuelled by rising GPM and prudent expenses control.