China AI Applications: What we learned from 3Q26 – AI revenue comes with a bill; Upgrade Meitu to OW, downgrade Kingsoft Office to Neutral

We upgrade Meitu to Overweight (Dec-27 PT HK$5.00, up from HK$4.50) and downgrade Kingsoft Office to Neutral (Dec-27 PT Rmb251, down from Rmb325). 3Q26 made one lesson clear for China AI applications: AI revenue comes with a bill. In SaaS, extra revenue is almost all extra profit; with AI, every task consumes tokens, so revenue and profit can grow at very different speeds. We believe the question for investors moves from how much AI revenue a company can add to how much of it survives as profit. On that test, Meitu's consumer monetization strengthened while management kept B-end spending in check, whereas Kingsoft Office's profit lagged revenue as AI was added to fees customers already paid. We keep Kingdee at Neutral and Yonyou at Underweight. Token prices are broadly similar across companies, so the difference lies in pricing power. Companies whose AI gives customers a new reason to pay, priced against the cost of labor and charged more for heavy use, can pass the bill on. Companies