Inline US$438m total revenue dropped by -1% YoY or increased by 1% YoY on constant currency basis. Core online ad dropped by -3% YoY or -1% YoY on c.c. basis. Improved 43.9% D/M ratio and 28.8% adj. NPM both demonstrated Co.'s solid executions of high quality user, content and operational strategies. We deem Co. will continue to execute core user, content, monetisation and operational strategies to amplify their social edges while intensified competition on cautious and ROI- oriented ad spending amid tepid macro will weigh on Co.'s near to medium-term ad recovery. Maintain HOLD but cut our TP to US$8.20/ HK$64.0.

Key Factors for Rating

Committed core strategies. We deem Co. will continue to prioritise high quality user engagement, content ecosystems enhancement (core IP and industry-based vertical investments) and operating efficiency improvement on intensified competition with cautious and ROI-oriented ad budget spending amid lukewarm domestic macro. Co. will amplify their social edges by leveraging their hot trends, IP marketing solutions and celebrity & KOL resources to strengthen their competitiveness. Thus, we slightly lower our FY2024-2026E core online ad revenue forecasts by 1-2% to reflect lower ad sentiments for key advertisers especially discretionary ones. We largely kept our FY2024-2026E adj. net profit forecasts unchanged with decreased opex assumptions to reflect their disciplined cost initiatives.

2Q24: Improved operational efficiency. Total revenue of US$438m (down -1% YoY/ up 1% YoY on constant currency), in line with consensus. Core online ad revenue dropped by -3% YoY (-1% YoY on C.C), with Non-Alibaba and Alibaba ad revenue logging -4% YoY and +21% YoY respectively. Regarding verticals, handset and auto verticals remain strong while cosmetics and personal care especially international brands kept drop YoY. VAS revenue raised 15% YoY due to launch of SVIP member pack. D/M ratio raised moderately to 43.9% with MAUs/ DAUs standing at 583m/ 256m respectively. Adj. NPM remains flattish YoY at 28.8%, beat consensus of 26.0%.

Key Risks for Rating

Upsides: (i) macro and ad recovery; (ii) supportive policies; (iii) key advertisers' brand ad rebound; (iv) new ad products; and (v) novel monetisation modelsn Downsides: (i) marketing behaviors change of key advertisers; (ii) slower-than- expected macro and ad rebound; (iii) competition; and (iv) ADR delisting.

Valuation

Maintain HOLD but cut our TP to US$8.2/ HK$64.0 on 5.0x (down from 6.0xpreviously) 2024E adj. EPADS.