Key Takeaways
Haitong International said Kuaishou's (01024.HK) shares could surge to HKD84, projecting a HKD368.6 billion valuation for the company if it spins off its Kling AI model, a move the broker sees as increasingly likely.
"A spin-off could broaden Kling's financing channels and ease KUAISHOU's own AI capex burden, especially as peers ramp up AI investment," Haitong International said in a research report, following a 20% run-up in the company's stock price between May 5 and May 8 on market speculation.
The broker outlined four key reasons for a potential spin-off, including the argument that Kling may be undervalued within the slower-growing core business of Kuaishou. Separating the AI unit would also create a dedicated entity to retain top talent and allow Kuaishou's traditional business valuation to recover by reducing capex pressure.
The proposed spin-off highlights the immense pressure on tech giants to fund multi-billion dollar AI development efforts. Creating a separately listed, pure-play AI entity could allow Kuaishou to attract specialized investors and unlock significant shareholder value, a strategy that could be emulated by other conglomerates with advanced AI divisions.
Haitong's analysis suggests that Kling, Kuaishou's advanced AI model, is currently not fully valued by investors while being part of the larger company. A spin-off would create a focused AI pure-play that could attract a different class of investors and command a higher valuation multiple, similar to what has been seen with other specialized technology firms. This comes as Kuaishou's core short-video and e-commerce businesses face slowing growth and intense competition from rivals like ByteDance, which are also investing heavily in their own AI capabilities.
The financial benefits could be substantial. By offloading the high capital expenditure associated with AI model training and development onto a separately financed entity, Kuaishou could improve the profitability and valuation of its legacy operations. Haitong estimates that if the spin-off is implemented this year, Kuaishou's overall valuation could reach HKD368.6 billion.
Despite the bullish projection, Haitong also pointed to several risks that could derail the scenario. These include broad macroeconomic weakness that could dampen investor appetite for new listings, intensifying competition in the AI space, and the persistent threat of regulatory risks facing China's short-video platforms. Furthermore, there is no guarantee that the spin-off plan will proceed, as it could face delays or an outright rejection from regulators.
This article is for informational purposes only and does not constitute investment advice.
