20221111-招银国际-快手-W-01024.HK-Share_gain_intact_with_enhanced_ecosystem_10页_1mb

Kuaishou (1024 HK) Company Update Summary

Core Content

Kuaishou (1024 HK) continues to show resilience in its core business segments, particularly in e-commerce and livestreaming, despite challenges in the advertising sector due to the resurgence of the epidemic and macroeconomic uncertainty. The report reiterates confidence in the company's long-term share gain and margin improvement, with the updated target price at HK$80, reflecting a more conservative outlook due to sector de-rating.

Main Points

• User Metrics: Estimated DAU for 3Q22E is at 360 million, showing a 12% YoY increase.
• E-commerce Performance:
  • E-commerce GMV is forecasted to grow by 25% YoY in 3Q22E, significantly outperforming industry growth.
  • The company is on track to meet its annual GMV target of RMB900bn.
  • The "11.6" promotion is expected to accelerate GMV growth in 4Q22E by 31% YoY, supported by traffic and subsidies.
• Livestreaming:
  • Livestreaming revenue grew by 9% YoY in 3Q22E and is expected to grow by 3% YoY in 4Q22E.
  • The segment remains resilient, with a healthy user base and positive growth trajectory.
• Advertising:
  • Advertising revenue grew by 5% YoY in 3Q22E, slower than prior growth of 12% YoY.
  • A slight rebound is expected in 4Q22E with 8% YoY growth, driven by internal ad acceleration and external recovery.
• Margin Improvement:
  • Adjusted net profit margin is forecasted at -8.3% for 3Q22E, better than feared due to disciplined S&M.
  • The company is focusing on ROI-driven S&M and monetization in key overseas markets (Brazil, Middle East, Indonesia).
• Valuation:
  • The target price is adjusted to HK$80, implying a 3.0x FY23E P/S multiple.
  • This is considered attractive, as the company is trading at a historical low with a 1.6x FY23E P/S.
  • The valuation is based on SOTP, with a new EV/Sales multiple applied to each segment.
• Catalysts for Rebound:
  • 4Q22E acceleration in e-commerce and ads.
  • Improved margin outlook.
  • Enhanced ecosystem and monetization following management changes.

Key Information

• Earnings Summary:
  • Revenue for FY22E is forecasted at RMB91,636 million.
  • Adjusted net profit for FY22E is forecasted at RMB-6,711 million.
  • Adjusted net profit for FY23E is forecasted at RMB72 million, with a positive trend expected.
  • The company is expected to achieve positive operating profit in the second half of 2022.
• Valuation Table:
  • The new target price is HK$80, down from HK$120.
  • The implied P/S multiple for FY23E is 3.0x, compared to the industry average of 1.8x.
• Shareholding:
  • Tencent holds 20.6% of the shares.
  • Morningside Venture Cap holds 16.0%.
  • Employee Shareholding Plan holds 7.4%.
• Stock Performance:
  • 1-month share performance is -25.1%.
  • 3-month share performance is -47.2%.
  • 6-month share performance is -30.3%.
• Market Position:
  • Kuaishou is expected to maintain a 5-6% market share in e-commerce for FY22/23E.
  • It is well-positioned to deliver above-industry growth due to its engaged community, trusted users, and resilient e-commerce platform.

Investment Recommendation

• Rating: Maintain BUY.
• Implied Upside: 73%.
• Catalysts:
  • 4Q22E acceleration in e-commerce and ads.
  • Better margin outlook.
  • Enhanced ecosystem and monetization after management changes.
• Valuation: The company's valuation is at a historical low, suggesting a buying opportunity on dips.

Conclusion

Kuaishou's core business segments, especially e-commerce and livestreaming, show resilience and strong growth potential. While advertising faces short-term headwinds, the long-term monetization trend is expected to continue. The company's improved margin outlook and enhanced ecosystem support a long-term positive outlook, with the updated target price reflecting a more conservative valuation due to sector de-rating. Investors are advised to consider buying on dips, as the company is poised for rebound in the coming quarters.