Daiwa cuts Kuaishou to Hold, slashes target 44% to HK$40

Daiwa cut its Kuaishou-W price target 44.4% to HK$40 and downgraded the stock two notches to Hold, citing deteriorating core business in the second half.

Daiwa expects Kuaishou's core business to keep deteriorating in the second half, with weakness in both online marketing and "other services" including e-commerce commissions and Kling AI, the broker said in a report.

The broker cut its 2026 net profit forecast for the company by about 40 percent and lowered adjusted EPS estimates for 2026-28 by 39-43 percent. Daiwa now forecasts full-year 2026 online marketing revenue to decline 1 percent year over year, livestreaming revenue to sink 16 percent, and overall revenue to fall 3.5 percent. Only "other services" revenue is expected to grow, by 10 percent.

Shares of Kuaishou fell 9.7 percent on the day, with short-selling turnover reaching HK$982 million and a short-selling ratio of 31.3 percent. The downgrade follows second-quarter results that showed revenue growth slowing to 1.4 percent while heavy AI investment weighed on profitability.

The rating change marks a sharp reversal for a stock Daiwa previously rated Buy. Kuaishou reported second-quarter revenue of 35.535 billion yuan, up 1.4 percent year over year and slightly above the consensus of 35.51 billion yuan, but net profit fell 36 percent to 3.152 billion yuan. Adjusted net profit dropped 30.3 percent to 3.913 billion yuan, while adjusted EBITDA declined 7.7 percent to 7.122 billion yuan.

Kling AI, Kuaishou's video-generation model, emerged as a bright spot with second-quarter revenue exceeding 850 million yuan, more than double a year earlier and up from more than 650 million yuan in the first quarter. But research and development expenses rose 34.7 percent to 4.58 billion yuan, driven by AI model training costs, and gross margin narrowed to 51.6 percent from 55.7 percent.

For the first half, Kuaishou posted cumulative revenue of 69.25 billion yuan, up 2.4 percent year over year, while net profit declined 32 percent. The results show the pressure on Kuaishou's traditional advertising and livestreaming businesses even as Kling AI's revenue more than doubled.

The downgrade shows Daiwa sees Kuaishou's AI investment failing to offset a slowdown in its traditional segments, a risk that could pressure the stock further. Investors will watch whether other brokers follow with similar cuts and whether Kling AI's growth can stabilize the company's revenue mix in the coming quarters.

This article is for informational purposes only and does not constitute investment advice.