JP Morgan: Upgrades KUAISHOU-W (01024) rating to "overweight" and raises target price to 71 Hong Kong dollars.

J.P. Morgan released a research report stating that it has upgraded its investment rating on KUAISHOU-W (01024) from "Neutral" to "Buy", and has raised its target price for the company from 48 Hong Kong dollars to 71 Hong Kong dollars by December 2026. The firm expects that the value of Kling AI, a subsidiary of Kuaishou, will be realized in the next 12 months. Based on recent announcements and news reports from Kuaishou, external financing sought by Kling AI will trigger a revaluation by Kuaishou. The firm currently values Kling AI at $3.5 billion, supported by a projected P/S ratio of 30x in 2027 (Kuaishou's current market value is $25 billion). In addition, Kling AI's growth rate is faster than expected, so the firm has raised its revenue forecasts for Kling AI by 34% and 64% for 2026 and 2027 respectively, predicting revenue growth of 250% and 104% in those years. The demand in the global enterprise and professional consumer markets is strong, with over 70% of Kling AI's revenue coming from overseas markets, and a 60:40 mix of API and subscription revenue. Meanwhile, the competitive environment is becoming more favorable, with ByteDance's Seedance recently raising prices in the second quarter, while major US competitors (Google and OpenAI) are focusing on AI code writing rather than video generation. J.P. Morgan points out that Kuaishou's current stock price has downside protection, with the firm holding $13 billion in net cash, accounting for 52% of its market value. If the net cash and the value of its stake in Kling AI (worth $17 billion; Kuaishou currently owns 100% of Kling AI, with the firm giving a 50% discount for the holding company) are subtracted from the current market value, Kuaishou's remaining value from its core short video business transactions would be negative, yet the firm still expects the core video business to generate approximately $3 billion in profits by 2026. J.P. Morgan predicts that Kling AI's exponential growth will continue, with a 4x year-on-year increase in revenue in the first quarter of 2026 and an annualized recurring revenue (ARR) reaching $500 million in March 2026, expected to exceed $1 billion by the first half of 2027. Kling AI is gradually penetrating the market of individual video creators and professional video content developers. The firm's analysis shows that Kling AI has a total addressable market (TAM) of $108 billion (mainly in advertising and professional video production), with Kling AI currently having a penetration rate of less than 1%. J.P. Morgan expects that the launch of a new version of Kling AI, equity financing updates, and an increase in ARR will be key share price catalysts. Despite the high e-commerce base from last year, the recovery of Kuaishou's core revenue in the second half of 2026 and 2027 (potential driving factors include the fading effect of the high base from live streaming in 2027, and the accelerated growth of AI short video ads in the second half of 2026) will also drive the share price upwards.