Kuaishou Tech (1024.HK) 1Q23 beat; unleashing monetization potential

 

Asian Daily

 

Maintain OUTPERFORM

Previous Rating: OUTPERFORM

Target price (HK$): 100.00

Previous target price (HK$): 100.00

• Rev +20% YoY (beat) mainly driven by live streaming and e-com. Adj. NP turned positive at Rmb42mn, one quarter earlier than expected.

Overseas loss meaningfully narrowed 45% QoQ to Rmb823mn.

• Key focus. (1) Ad outlook: Despite macro concerns and competition, ad continues to stay solid and we estimate to accelerate to 25%

YoY in 2Q, helped by strong internal ad demand, external ad turning positive and platform algorithm 

 

upgrade. (2) E-com: User penetration, more targeted user tagging, and platform infrastructure upgrade

 

  would drive 30% GMV growth this year. KS started monetizing KOL distribution, lifting take rate close  

 

to 4%, with further upside vs peer.

• (3) Profit outlook: Op leverage, controlled spending (S&M down despite DAU growth), mix improvement (high-margin ad and e-com),

we expect margin would continue to improve as catalyst ahead.

• KS' solid growth over the past few quarters has demonstrated its ability to unlock monetization potential (e.g., take rate increase in e-

com) and improve efficiency. Buyback program of HK$4bn would provide more support to stock price. The 

 

stock is trading at 10x P/E FY24E on 20% steady margin. We lift 2023/24E EPS by 79%/22% (better 

 

margin trajectory). Our TP is based on long-term stabilized margin and remains unchanged at HK$100.  

 

Maintain Outperform.

 

Q23 achieved group breakeven. DAU +8% YoY to 374.3 mn but average daily time spent slightly 

declined 

by 1% YoY to 126.8 mins post Covid. Revenue: +20% YoY to Rmb25.2bn, 2%/3% ahead of CSe/cons.  

By  

segment, LS (beat) accelerated to 19% YoY on ARPPU uptick (+12% YoY) as Kuaishou (KS) deepens 

cooperation with MCN. Ad (in line, +15% YoY) mainly driven by internal ad (growth slightly ahead of  

GMV +30% on ROI improvement), while external ads remain negative YoY. E-commerce GMV (in line)  

+28% YoY to Rmb225bn. Monthly purchasing customer penetration was largely stable at 15%.  

Commission take rate ticked up with monetization of KOL distribution channel (GMV +50% YoY).  

Bottom line: GPM +90 bp QoQ to 46.4%, as revenue sharing to streamers normalized. Adj. net profit 

turned positive, at Rmb42mn, a milestone achieved one quarter earlier than expected. This is

helped by revenue beat and well-controlled S&M, R&D. Overseas loss meaningfully narrowed 45% QoQ  

to Rmb823mn.

Key investor focus. (1) Ad market recovery: Despite the concern on weaker macro and competition (from  

Video Accounts, VA), KS ad continues to see improvement. By segment, internal ad (live streaming e-com 

related) continues to see strong growth outpacing GMV at 30%+ amid ROI improvement for merchants. 

External ad also sees sequential improvement (verticals including game, information services,  

e-commerce and retailing). Looking ahead, on the back of continued strong momentum of e-commerce, 

demand recovery of external ad (expected to turn positive in 2Q, with information services and games as  

key drivers), platform algorithm upgrade, we estimate KS ad growth to accelerate to 25% in 2Q. (2) E-com  

GMV drivers: User penetration, better user tagging, and platform infrastructure upgrade that lift  

merchant return are drivers. KS started to test new shopping mall entry button on landing page of Kwai 

shop during 1Q. The shopping mall would help KS better understand consumers and fortify user 

shopping mindset. Pan-shop GMV contribution exceeded 10% in 1Q and is expected to continue to 

outperform. (3) E-commerce take rate: One of the key factors for the beat is the e-commerce take rate.  

During the quarter, KS started to monetize KOL distribution channel (快 分銷). Longer term, we see 

upside for KS e-com take rate of c.4% vs Douyin's high-single digit over time. (4) new initiatives: Local  

service

 

would continue to expand to core operation cities and create high- quality content to build user mind 

 

share. It would also expand product supply to entertainment, hotels & ticketing services. For Kwai Hire,  

 

management expects monetization in the next 1-2 quarters.

What to do with the stock? KS' recent share price weakness is due to concerns over shareholder selling 

(Tencent reiterated its 17.96% stake remains unchanged), weak market sentiment (investors prefer  

names with earnings and low valuation) and a slower-than-expected macro. That said, we believe the 

solid top-line performance over the past few quarters has demonstrated its ability to unlock monetization  

potential (e.g., a take rate increase in e-com, ROI & Ad load uplift for Ad) and improve efficiency.

 

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THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.