17% YoY 1Q24 total revenue led consensus/BOCIe by 1%. 28% YoY eCommerce continued be the main contributor. GPM expanded to 54.8% and pushed adj. NPM to historical high of 14.9%, both beating consensus. We expect eC will continue to drive near to mid-term topline growth while AI empowerments and integrations will strengthen monetisation capabilities and improve monetisation and cost efficiency down the road. New initiatives strategies remain ROI-prioritised with L-T monetisation imaginations. Along with newly announced 3-year HK$16bn buyback scheme till June 2027, maintain BUY.

Key Factors for Rating

AI integrations. We see solid eCommerce momentum on engaged and healthy traffic will continue to be the main contributor of Co.'s N-T topline growth. AI/ LLM deployments in various integrated consumption scenarios will further deepen user engagement, optimise algorithm, improve monetisation/ cost efficiency and unlock commercialisation imaginations. We see Co. will continue to execute their ROI-prioritised strategy and progressively monetise new initiatives such as local services and "live streaming+" Kwai Hire and Ideal housing in key areas. We expect such new initiatives will have non-material impact on N-T financials while anticipating monetisations to ramp up in the long run. Thus, we keep our 2024-26E total revenue and eC GMV forecasts unchanged. Our raised 2024-26E bottom line estimations reflect our increased GPM assumptions due to revenue mix shift and improved cost efficiency, as well as disciplined opex despite increased R&D assumptions on AI investments.

1Q24: solid profit beat; new 3-year HK$16bn buyback. Total revenue grew 17% YoY to RMB29.4bn, 1% above consensus/ BOCIe. MAUs/DAUs rose 7% YoY/ 5% YoY to 697m/394m respectively. DTSPU was resilient at 129.5mins. eCommerce remained as the key growth engine. Online ad revenue jumped at accelerated 27% YoY driven by solid eCommerce, AI empowerment, new ad products and omni-platform solutions. eC GMV delivered 28% YoY with 126m MAC mainly contributed by increased consumption scenarios including shelf based eC (c.25% of GMV, up from 20% in 4Q23) and short video eC, along with marketing tools enhancements. -8% YoY streaming revenue reflected Co.'s streaming adjustments. Overseas strategies remained consistent in key countries. GPM continued its solid expansion and beat consensus by climbing 8.4ppts YoY/1.7ppts QoQ to 54.8%. OPM was 13.6%, with domestic OPM continuing to expand to 14.0% and overseas operating loss shrinking to - RMB268m. Non-IFRS net profit remained flattish QoQ at RMB4.4bn with record high adj. NPM of 14.9%, significantly beating streets' expectation. Co. has utilised approximately 77% of their HK$4bn share buyback quota till 13 June 2024 as of 22 May 2024. In addition, Co. has announced a new 3-year buyback scheme with total amount up to HK$16bn till 2027 AGM.

Key Risks for Rating

Downside risks: 1) regulations; 2) intensified competition; 3) slower-than- expected macro recovery; 4) ineffective strategy executions; 5) content supply and source; 6) ineffective overseas monetisation; 7) main shareholders' share distribution.

Valuation

Maintain BUY and slightly raise our TP to HK$70.0 on unchanged 15.0x FY2024E Non-IFRS EPS of HK$4.64 (previously HK$4.51), implying 2.2x 2024E P/S and 0.4x 2024E PEG.