Knowledge Graph: Paving the Broad Frontier Towards AGI

Sailing toward the vast frontier of AGI Target PriceHK$1503.90Up/DownsideCurrent PriceHK$1048.00 Knowledge Atlas(Zhipu orZ.ai) is a leading independent large language model(LLM) developer in China, with full-stack capabilities spanning foundation-modelpre-trainingandfine-tuning,enterprisedeployment,andapplicationdevelopment.Per Frost&Sullivan(F&S),it ranked first among China'sindependent large-model developers and second across all developersin termsof revenue in 2024, with amarket share of6.6%. Our positive view is anchoredonZ.ai’s: 1) frontier model capability, underpinned by deep research thatsustainsrapid iteration;2)strategic foresight in pinpointing monetizationscenarios, positioning it to capture opportunities yet to unfold; and 3) a large China Software & ITServices Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk Strong capability in frontier-grade models, validated by pricing power.Z.aihas demonstrated strong capability in developing frontier-grademodels, in our view. Built onits proprietary General Language Model (GLM)framework,Z.ai operates a full-stack model portfolio.On aggregatecapability,Artificial Analysis Intelligence Index data show that thecompany's GLM-5.1 achieved a score of 51—the highest among Chinesemodels at launch on 8 Apr—and we believe Z.ai has the ability to sustain Wentao LU, CFAluwentao@cmbi.com.hk ◼Coding-led monetization with runway beyond.Z.ai identified codingearly as a key monetization scenario and now ranks among the globalleadersacross multiple coding benchmarks.On a three-benchmarkcomposite (SWE-Bench Pro, Terminal-Bench 2.0, and NL2Repo), GLM-5.1scored 54.9, rankingfirst among Chinese modelsat launchand onlybehindGPT-5.4 and Claude Opus 4.6. Benchmarked against Anthropic, in ourview,Z.aihas a credible path along a similar ARR trajectory, but at highervelocity, from a lower base, and at materially lower per-token cost. Our ◼Initiate at BUY with a target price of HK$1,503.9.Our TP is based on40.0x 2028E P/S, discounted to 2026E at a 15% WACC, which isjustifiedin our view, by a 199% revenue CAGRover 2025-2028Eon rapidly risingtoken usage. Key catalysts: 1) launch of next-generation frontiermodels; Source: FactSet Contents Knowledge Atlas (2513 HK)-Sailing toward the vast frontier of AGI.........................................................................................................1 Investment thesis...........................................................................3China's LLM market is scaling rapidly, with Z.ai being the leading independent providerby revenue..................................................................................................................3Z.ai: frontier model capability with clear competitive edges..........................................3Sound judgment in picking monetization scenarios—with more to come......................3 Z.ai—A leading independent large-model developer with full-stackcapabilities and deep competitive moats....................................4 Monetization through an integrated MaaS platform with two primary delivery formats..4Full-stack model portfolio expands addressable demand and strengthens platformeconomics..................................................................................................................6 China's AI market is at an inflection point, with LLMs at the core...............................12Enterprise demand is the primary monetization driver................................................13Cloud MaaS to drive breadth of adoption...................................................................14Value chain expanding beyond text into multimodal and agentic workflows................15 Business segement analysis and financial forecast.................23 Open platform and API (64.9% of 2026E revenue)....................................................24On-premise deployment (35.1% of 2026E revenue)..................................................24Margin analysis.........................................................................................................25Valuation: HK$1,503.9 per share based on 40.0x 2028E PS.....27 Investment thesis China's LLM market is scaling rapidly, with Z.aibeingthe leading Per F&S,China's LLM industry revenue is projected to grow from RMB5.3bn in 2024 toRMB101.1bn by 2030, a 63.5% CAGR. Three structural features define the opportunity, inour view: 1) enterprise-led monetization; 2) expanding usage, as applications evolve fromtextgeneration toward multimodal and agentic workflows,raising consumption perenterprise; and 3) dual deployment, with on-premise anchoring near-term revenue amonglarge and regulated customers while cloud MaaS broadens adoption among SMEs, Z.ai: frontier model capability with clear competitive edges Built on its proprietary GLM framework, Z.ai has assembled a full-stack model portfolioorganiz