CICC released a research report maintaining its Non-IFRS net profit forecasts for KUAISHOU-W (01024). The current stock price corresponds to 14/12x FY25/26 Non-IFRS P/E ratios. The firm maintains its Outperform rating and raises the target price by 11% to HK$89 (18/15x FY25/26 Non-IFRS P/E), representing 24% upside potential, citing the company's continuous AI ecosystem upgrades that warrant a valuation premium.

CICC's main views are as follows:

**Performance Exceeds Expectations, First Special Dividend Declared**

KUAISHOU-W's Q2 FY25 revenue increased 13% year-over-year to RMB35.0 billion (beating CICC's forecast of RMB34.5 billion), while Non-IFRS net profit rose 20% to RMB5.62 billion (exceeding CICC's estimate of RMB5.1 billion). CICC attributes the outperformance mainly to: 1) Other services revenue beating expectations (e-commerce GMV exceeded forecasts); 2) Improved gross margin year-over-year. The company announced its first special dividend since listing of HK$0.46 per share (totaling HK$2 billion).

**Q2 Revenue Shows Steady Growth, Pan-Shelf Scenario Value Continues to Emerge**

1) Advertising growth driven by key industry advertisers and intelligent placement efficiency improvements: Q2 revenue up 13%. Breaking it down: quarterly domestic and international advertising revenue growth was primarily driven by content consumption, local lifestyle, and automotive sectors. For domestic circulation, the company upgraded its site-wide promotion products to improve material placement stability, while optimizing traffic distribution strategies and building dedicated models for pan-shelf scenarios to achieve dual improvements in e-commerce conversion rates and domestic advertising eCPM.

2) Other services revenue increased 26%, exceeding CICC's expectations. E-commerce GMV grew 18% to RMB358.9 billion, with the company reporting year-over-year increases in both monthly average buyers and repurchase frequency among active e-commerce users. By scenario breakdown: Pan-shelf GMV growth outpaced the overall market, accounting for over 32% of total GMV; short-video e-commerce GMV increased over 30%.

Looking ahead to Q3, CICC expects: advertising business to grow 12-13% (with domestic growth of 14-15%); other revenue growth to accelerate sequentially, with estimated e-commerce GMV growth of 15%, diversified value-added services driving commission rate improvements, and further growth in flexible revenue.

**AI Ecosystem Empowerment Creates Dimensional Upgrade, Boosting Both User Ecosystem and Monetization Efficiency**

AI Multimodal: Kling AI launched version 2.1 during the quarter, enhancing generation efficiency, while introducing tools like "Dynamic Canvas" to strengthen its productivity platform attributes. Kling generated RMB250 million in Q2 FY25 revenue, up 67% quarter-over-quarter, meeting CICC's expectations, accelerating monetization while upgrading products. The company also guided that Kling's expected 2025 revenue will double from initial projections.

Recommendation Algorithm: The company announced the launch of OneRec, an end-to-end generative recommendation model featuring upgrades across multiple areas: 1) Short video recommendations: using generative methods to predict videos matching user preferences from the entire video library, improving user engagement and retention; 2) Advertising: directly generating marketing materials end-to-end, improving click-through and conversion rates, contributing low single-digit growth to advertising revenue; 3) E-commerce: enhancing product information extraction capabilities and improving person-product matching efficiency.

**First Special Dividend, Financial Health Supports Long-term Strategy**

The company's first special dividend of HK$2 billion demonstrates strong cash flow capabilities and commitment to shareholder returns. The company accumulated approximately HK$1.9 billion in share buybacks in H1 FY25. The company also indicated it will consider various forms of shareholder returns including buybacks and dividends going forward. For long-term development, the company stated it will continue advancing its AI strategy, further exploring AI-driven value creation in creator, marketing client, and merchant empowerment.