The company's recent situation
Kuaishou hosted the 2024 Investor Day in Beijing on September 13th, and we were invited to attend. At the conference, company management shared the company's strategy, business ecology, technology ecology and international business, and answered investors' concerns.
reviews
Put users first, and AI reshapes the business ecosystem. At the conference, management introduced the company's main strategies: 1) High quality user growth: the company will put user value first, introduce a mixed traffic distribution mechanism to enable the collaborative development of the business ecosystem and community ecosystem, achieve a balance between user experience and commercial revenue, promote the transformation of low active users to DAU, and enhance user retention. 2) Consolidate product and content construction: consolidate social and private moats, explore various innovative interactive gameplay methods to enhance users' community participation; create Kuaishou's featured content and featured creators, and enhance the platform's differentiated attributes. 3) AI reshapes the business format: AI empowers content creation, content understanding and content recommendation, and enriches Kuaishou business scenarios. Among them, in terms of content creation, the Keling Big Model supports the creation of AI skits, AI advertisements, and AI short films; in terms of content understanding and recommendation, Kuaishou AI can more accurately identify original content, commercial content, etc., enhance the logic and compatibility of content recommendations, and enhance the user experience and platform commercialization efficiency.
Investors' concerns: e-commerce and commercialization growth prospects, AI model progress, company long-term profitability prospects, etc. The company said that in terms of e-commerce, the ceiling for content e-commerce is high. Among them, in terms of live e-commerce, the company will focus on how to lower the operating threshold for merchants and introduce more merchants to raise the e-commerce ceiling for live streaming.
In terms of commercialization, external advertising focuses on external advertising needs in the short term, as well as the Kuaishou platform's advertising capabilities, matching efficiency, and improving the efficiency of AI technology; long-term attention is paid to whether new advertiser supply is emerging, such as paid skits, mini-games, and novels. In terms of AI, the company believes that Keling has a leading edge in the industry for 3 to 6 months, and will continue to maintain its advantages in the future based on judgment in technology path selection and ability to innovate algorithms. In terms of the company's profitability, the company stated that the target gross margin was 60%, and the main cost ratio was aimed at reducing the sales expenses ratio to 30% or less; among them, the local lifestyle business is confident that it will achieve positive ROI in the long term.
Our view: Achieve steady growth in core business, improve operational efficiency and enhance the ability to release profits. We believe that 1H24's e-commerce GMV and core business revenue achieved steady year-on-year growth, and the core business is expected to continue to drive the company's revenue growth; at the same time, AI empowers and operational efficiency to enhance the company's ability to release profits, and 2Q24's gross margin and adjusted net profit margin both continue to increase month-on-month. We recommend focusing on: 1) the steadiness of subsequent profit releases; 2) progress in implementing shareholder returns; and 3) the progress of AI in empowering the company's business and improving commercialization efficiency.
Profit forecasting and valuation
Maintaining the 2024/2025 profit forecast, the current stock price corresponds to 2024/2025 8/7 times non-IFRSP/E. Maintaining an outperforming industry rating, considering a downward shift in the valuation center, the target price was lowered by 15% to HK$56, corresponding to 12/11 times 2024/2025 non-IFRS P/E, with potential for 47% upward space.
risks
User or commercial growth fell short of expectations, new business investment was higher than expected, content and regulatory risks.