On July 2nd, Kuaishou-W (ASX: 01024) announced its intention to spin off its Kling AI unit and secure external financing.

According to the announcement, this funding round for Kling AI is close to $3 billion, with a post-investment valuation expected to reach $18 billion, signifying the formal commencement of its independent commercial development.

The round was co-led by CPE, Guofang Chuangtou, BlueFive, Tencent, Zhongguancun Science City Fund (in partnership with United National Science Investment), and CITIC Securities, with participation from dozens of other leading institutions.

It is reported the financing also attracted industry capital such as Alibaba Cloud and Baidu, as well as entertainment industry participants like Huace Film and TV and Mango Industrial Investment's Houwei Capital.

Morgan Stanley released a research report stating that if the valuation of Kling corresponding to this transaction is deducted from Kuaishou's $23.5 billion market capitalization, the implied 2026 price-to-earnings ratio for Kuaishou's core business is approximately 3 times.

Even applying a 30% holding company discount to Kuaishou's stake in Kling, the implied 2026 P/E for the core business is only 4.3 times.

Morgan Stanley views this valuation as "highly attractive."

Based on this assessment, Morgan Stanley maintains its "Overweight" rating on Kuaishou-W with a target price of HK$65.

Based on the closing price of HK$42.6 on July 3rd, this target price implies an upside potential of approximately 52%.