A RECOVERY may be around the corner for Kuaishou Technology after Hong Kong’s biggest initial public offering (IPO) of 2021 delivered hefty losses in its first year on the stock exchange.

That’s the view of equity analysts who cite the large user base of the rival to TikTok and strong profit outlook in coming quarters as catalysts for a turnaround.

After losing about one-quarter of its market value since the jumbo US$6.2 billion offering, the stock is now the best “contrarian play in the China internet space” this year, JPMorgan Chase & Co. analysts, including Alex Yao, wrote in a note initiating coverage with an overweight rating.

“We believe management has changed its growth strategy from absolute growth to quality growth since mid-2021,” they wrote, adding that a “more benign competitive environment” is likely to ease margin pressure.

Kuaishou’s trading debut timing was not good enough, with China’s regulatory actions on internet giants throwing the industry into disarray last year. The rout made it the worst-performing IPO stock in Asia over its first year since Xiaomi Corp.’s in 2018, among deals bigger than US$3 billion.

In the short-term, there may be further downward pressure this week as about 103 million shares are allowed to trade following the end of an IPO lockup period to stakeholders.

Tencent Holdings Ltd.’s recent move to cut its stake in Singapore’s Sea Ltd. has sparked speculation that the Shenzhen-based giant could do the same with part of its 21 percent holding of Kuaishou.

Notwithstanding the risks, analysts at China International Capital Corp. have a target price for Kuaishou of HK$140 (US$17.96), about 60 percent above the current level, given their expectations for the company to reach 400 million daily active users by 2024.

It had 320 million active daily users during the three months ended in September, making Kuaishou the second-largest short-video platform globally by user count behind ByteDance Inc.’s Douyin and TikTok.

“Kuaishou’s large and highly engaged user base constitutes a solid, long-term foundation for robust sales growth,” BI analysts Matthew Kanterman and Tiffany Tam wrote in a note.

The Beijing Olympic Winter Games could also help the company expand as it is an official broadcaster of events, CCB International Securities Ltd. analysts Ronnie Ho and Jessie Jing wrote in a note. (SD-Agencies)