20221123-招银国际-快手-W-01024.HK-Resilient_growth_with_FY23E_group_breakeven_8页_930kb

Kuaishou (1024 HK) Company Update Summary

Core Content

Kuaishou (KS) reported a strong performance in the third quarter of 2022, demonstrating resilience amid market challenges. The company achieved revenue growth of 13% YoY, surpassing both the consensus and CMBIGM estimates. Key drivers included growth in livestreaming and e-commerce, which contributed significantly to the top line. Despite challenges in the external advertising sector, particularly in the game vertical, the company managed to narrow its adjusted net loss to -RMB672mn, significantly better than the consensus of -RMB1.7bn.

The company's DAU reached 363 million, up 13% YoY, showing continued user engagement. Gross margin improved by 1 percentage point to 46%, driven by cost efficiencies in bandwidth and content. The company's financials are expected to continue improving, with a forecast of group breakeven in FY23E and positive profit in FY24E.

Main Points

• Revenue Growth:

  • 3Q22: +13% YoY, beating both consensus and CMBIGM estimates.
  • E-commerce: +39% YoY, significantly exceeding estimates, driven by the "11.6" promotion and higher penetration.
  • Livestreaming: +16% YoY, showing strong performance despite a high base.
  • Ads: +6% YoY, in line with expectations but with external ads still declining.

• Profitability:

  • Adjusted net loss narrowed to -RMB672mn, with domestic business maintaining positive profit.
  • Gross margin improved to 46% in QoQ, supported by scale effects and cost management.

• 4Q22E Outlook:

  • Revenue growth is forecasted at +10% YoY, with e-commerce and ads expected to accelerate.
  • Adjusted net loss is projected to narrow to -RMB348mn, with domestic business showing better margins and overseas loss remaining stable.

• FY23E Outlook:

  • Revenue is expected to grow by +14% YoY.
  • E-commerce GMV is forecasted to increase by +25% YoY.
  • Ads are expected to recover to double-digit growth.
  • Group-level profitability is anticipated, with overseas net loss continuing to narrow and domestic operating leverage contributing positively.

Key Financial Forecasts

Key Risks and Catalysts

• Risks:

  • Potential selling from pre-IPO investors.
  • Slower ads recovery due to epidemic resurgence and macroeconomic uncertainty.
  • Regulatory risks on short video time spent.

• Catalysts:

  • Acceleration of e-commerce and ads in 4Q22E.
  • Continued margin improvement and cost discipline.
  • Enhanced ecosystem and monetization post-management changes.

Valuation and Investment Recommendation

• Target Price (TP): HK$80 (unchanged), implying a 3.0x FY23E P/S.
• Recommendation: Maintain BUY.
• Reasoning: Despite short-term volatility due to epidemic concerns and profit-taking, the company is expected to deliver resilient growth and improved profitability in the long term.

Shareholding and Market Performance

• Major Shareholders:

  • Tencent: 20.6%
  • Morningside Venture Cap: 16.0%
  • Employee Shareholding Plan: 7.4%

• Market Performance:

  • 1-month return: +14.0%
  • 3-month return: -26.6%
  • 6-month return: -20.0%

Analyst and Rating Information

• Analyst Certification:

  • The research analyst certifies that the views expressed accurately reflect their personal views and confirms no direct or indirect compensation related to the report.

• CMBIGM Ratings:

  • BUY: Potential return of over 15% over next 12 months.
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.

Summary of Financial Highlights

• Revenue Growth: Expected to continue at a steady pace with a focus on e-commerce and ads.
• Margin Improvement: Driven by scale and cost discipline, with gross margin improving and adjusted net margin turning positive in FY23E.
• Profitability: The company is on track to achieve group breakeven in FY23E and positive profit in FY24E.
• Earnings Revisions: Slight increase in FY22E revenue and margin, with FY23-24E financials largely unchanged.

Conclusion

Kuaishou is showing signs of recovery and resilience, with strong performance in e-commerce and livestreaming. The company's financials are expected to improve further, leading to a group breakeven in FY23E and positive profit in FY24E. Despite short-term volatility, the long-term growth and profitability trends remain positive, supporting the BUY recommendation.