Kuaishou 23Q3 Financial Report Review: Strong Performance In the Third Quarter, Great Potential In E-commerce.

On November 21st, Kuaishou released its Q3 financial report. On November 22nd, CMB International issued a commentary on Kuaishou's Q3 financial report, stating that Kuaishou performed strongly in Q3 and is expected to continue growing in Q4. The e-commerce potential is great and advertising revenue growth is higher than the industry average.

Stock Rating: BUY

Closing price (at the time of the preview release): HK$58.50 (November 21, 2023)

Current closing price:HK$59.25 (November 24, 2023)

Target price: HK$97

The Q3 performance exceeded expectations, with excellent performances from the e-commerce and advertising businesses. Looking ahead to Q4, Kuaishou will continue its strong development trend. Supported by strong e-commerce, resilient advertising, and better profitability, the profit margin is expected to be better in Q4.

The Q3 revenue increased by 21% year on year to RMB 27.9 billion, and the adjusted net profit was RMB 3.2 billion. Both revenue and net profit were higher than market expectations and CMB International's forecasts. This was mainly due to a higher gross profit margin, better control of operating expenses, and an increase in other income.

The year-on-year growth rates for e-commerce GMV and revenue were 30% and 37%, respectively, and received wide participation from brands and support for shelf-based e-commerce. DAU increased by 6% YoY, and the shopping center GMV showed a gradual upward trend, with shelf-based GMV accounting for nearly 20% of total GMV. Kuaishou achieved the highest GMV growth on the Singles' Day promotion platform. Advertising revenue also grew by 27% YoY, attributable to external ad recovery and contributions from internal ads.

Supported by strong e-commerce, resilient advertising, and better profitability, the profit margin outlook for Q4 is expected to be better. CMB International forecasts a good performance for Kuaishou in Q4, with revenue expected to grow by 15% YoY. The e-commerce and advertising businesses will continue to develop strongly, with expected YoY growth rates for e-commerce GMV and other income of 29.5% and 40%, respectively. Internal ads will contribute about 50% of advertising revenue, while external ad recovery will continue to benefit from elastic media, small games, healthcare, and education verticals. Live streaming business revenue is expected to remain stable. The adjusted net profit is expected to be RMB 2.8 billion, with an adjusted net profit margin of 9%, and domestic operations are stable.

CMB International forecasts a good performance for Kuaishou in Q4, as the shelf-based shopping center expands and profitability improves. Therefore, CMB International has raised its revenue forecast for FY23-25E by 7-10%, with a target price unchanged at HKD 97.