Everbright Securities has issued a research report stating that the external financing for Kling AI is beneficial for attracting talent and alleviates the substantial capital expenditure burden on Kuaishou-W (01024) in the AI field. The current commercialization performance of Kling AI is impressive, and it is recommended to monitor subsequent updates and iterations. The firm maintains its adjusted net profit forecasts for the years 2026 to 2028, upholds a target price of HK$68.25, and reiterates a "Buy" rating. The main points from Everbright Securities are as follows:
Recent Kuaishou Business Updates
1) On July 2nd, Kuaishou announced the restructuring of its AI video business, "Kling AI," into the wholly-owned subsidiary Beijing Kling Intelligent Technology Co., Ltd., and introduced external financing. This marks the company's move towards independent capitalization and valuation of Kling AI to seek a public listing, aiming for asset revaluation and external synergies without relinquishing control.
2) On July 6th, Tencent Holdings conducted a large off-exchange block sale, reducing its holdings by 273 million Class B shares. Following this transaction, Tencent's stake decreased from 15.68% to 9.37%. Tencent stated it remains optimistic about the company's long-term development, with strategic cooperation continuing for mutual benefit. Kuaishou anticipates this share reduction will not have a significant negative impact on its operations.
Kling AI Overview
Kling AI is Kuaishou's AI video generation business, primarily providing text-to-video and image-to-video capabilities for advertising, e-commerce, short dramas, and film/TV content production scenarios. Full-year 2025 revenue was approximately RMB 1.1 billion, with Q1 2026 revenue exceeding RMB 650 million, continuing a high-growth trend. Concurrently, its annualized revenue run rate (ARR) rose to about $500 million by March 2026, indicating that commercialization, while still in a rapid scaling phase, has begun to form a foundation for scaled revenue.
Kling's Post-Money Valuation and Financing Details
1) Kuaishou has spun off Kling AI-related assets and operations into Beijing Kling and brought in external investors. The financing round has a maximum size of $3.0 billion ($2.79 billion in cash has been injected), corresponding to a pre-money valuation of $15 billion and a post-money valuation of approximately $18 billion. External investors hold about a 16.67% stake. The round includes around 34 external investors, such as Tencent (approximately RMB 1.363 billion in total), Alibaba Cloud (approximately RMB 1.363 billion), Baidu (approximately RMB 341 million), as well as several industrial and financial investment institutions like Guofang Shuke, Hongtu, CPE, and Chunhua. It also involves state-backed capital, including the Beijing Artificial Intelligence Industry Fund.
2) The transaction includes a repurchase clause. If an IPO is not completed by the latest listing date or before October 30, 2031, investors may require Beijing Kling and Kuaishou's related entities to jointly assume a repurchase obligation. The repurchase price would be the original investment cost plus an annual simple interest return of 8%.
Employee Share Participation Plan
Kuaishou has concurrently established long-term employee incentive arrangements centered on Beijing Kling. Through a combination of three instruments—equity incentives, employee stock ownership, and option plans—the plan covers up to 15% of the equity. Following the transaction, Beijing Kling will be consolidated into Kuaishou's financial statements. This allows Kuaishou to reconstruct an independent financing entity and an internal incentive system simultaneously, even as its direct ownership stake is diluted from 100% to a maximum of 68.33%. In the initial grant, Kling's CEO, Gai Kun, received approximately a 3% equity stake with super-voting rights up to 10x. Kuaishou's founder and Chairman, Cheng Yixiao, received approximately a 1% equity stake at zero cost, subject to a minimum three-year lock-up period, along with clauses for repurchase upon departure and long-term constraints.
Key Risk Factors
Potential risks include Kling's commercialization falling short of expectations, underperformance in e-commerce and advertising businesses, and continued increases in AI-related investments.