2024 年 03 月 25 日 公司研究 评级：买入 (维持 ) 研究所： [Table_Title] 将开启商业化，关注《剑网 无界》上 WPS AI 3 证券分析师： 陈梦竹 S0350521090003 chenmz@ghzq.com.cn 证券分析师： 尹芮 S0350522110001 线进展 yinr@ghzq.com.cn ——金山软件（ ） 财报点评 3888.HK 2023Q4 最近一年走势 事件 : 3月20日，公司公告2023Q4季报，实现营收23.10亿元（YoY+9.4%， QoQ+12.2%），营业利润7.15亿元，净利润4.38亿元，归母净利润2.05 亿元。 我们的观点：  1、主要财务指标分析：2023Q4整体营收增长稳健，同比增长9.4%， 毛利率与上年同期82%持平，相应季节网络游戏业务的推广导致销 相对恒生指数表现 2024/03/22 售费用上升，同比增长12.7%，归母净利润同比大幅增长331.9%。 表现 1M 3M 12M 金山软件 13.9% 9.4% -17.7%  2、办公软件：2023Q4同比增长18%至12.86亿元，国内个人订阅 恒生指数 -1 ...

计算机/软件开发 公 司 研 金山软件（03888.HK） 《剑网 3》全平台互通在即，WPS AI 商业化推进 究 2024年03月24日 ——港股公司信息更新报告 投资评级：买入（维持） 吴柳燕（分析师） 李祎晗（联系人） wuliuyan@kysec.cn liyihan@kysec.cn 证 书编号：S0790521110001 证书编号：S0790123080037 日期 2024/3/22  《剑网3》全平台互通在即，WPS AI商业化落地有利平台估值提升 港 当前股价(港元) 25.000 考虑到《剑网3》手游版即将上线、WPS AI付费测试稳步推进，我们提升公司 股 一年最高最低(港元) 42.350/18.400 公 净利润预测至7.86/11.59亿元（前值7.31/11.57亿元），新增2026年利润预测15.76 司 总市值(亿港元) 334.79 亿元，同比增速分别为62.6%/47.4%/36%，对应2024-2026年摊薄后EPS 0.6/ 0.9/ 信 流通市值(亿港元) 334.79 息 1.2 元，当前股价对应2024-2026 年38.8/26.3/19.3倍 PE。《 ...

Investment Rating - The report maintains a "Buy" rating for the company [1] Core Insights - The company achieved a total revenue of 2.31 billion yuan in Q4 2023, representing a year-over-year increase of 9.36% and a quarter-over-quarter increase of 12.16%. The net profit attributable to the parent company was 205 million yuan, with a year-over-year increase of 339.60% and a quarter-over-quarter increase of 621.03%, which aligns with previous expectations [2][3] Revenue Breakdown - **Gaming Business**: The revenue from online games and other sources was 1.024 billion yuan in Q4 2023, showing a year-over-year increase of 0.21% and a quarter-over-quarter increase of 6.56%. The revenue contribution from the newly launched game "Sword of the World: Origin" is expected to enhance performance, while the flagship game "Sword Network 3" continues to achieve record annual revenue [3] - **Office Business**: The revenue from office software and services was 1.286 billion yuan in Q4 2023, reflecting a year-over-year increase of 17.94% and a quarter-over-quarter increase of 17.06%. Growth was driven by increased subscriptions from both individual and institutional clients, with a notable rise in monthly active devices for the main office software product [3] Financial Forecasts - The report adjusts the earnings forecasts for the company, projecting EPS of 0.84 yuan for 2024, 0.96 yuan for 2025, and 1.19 yuan for 2026. The corresponding P/E ratios at the current stock price are expected to be 27, 24, and 19 times respectively [3][9]

Investment Rating - Buy (Maintained) [1] Core Views - The company has consistently maintained stable dividends, with its gaming business showing steady growth and office AI commercialization expected to gradually advance [1] - In 4Q23, the company achieved revenue of RMB 2.31 billion, a 9% YoY increase and a 12% QoQ increase Full-year 2023 revenue reached RMB 8.53 billion, up 12% YoY, with office business revenue growing 17% YoY and gaming business revenue increasing 6% YoY [1] - Full-year operating profit for 2023 was RMB 2.23 billion, up 19% YoY, with an OP Margin improvement of 1.6 percentage points to 26.1%, leading to a turnaround in net profit attributable to shareholders to RMB 480 million [1] - The dual subscription model in the office business provided strong growth momentum, with C-end subscription revenue up 29% YoY and B-end subscription revenue up 38% YoY in 2023 [1] - The company's gaming business is expected to see a low-to-high revenue trend in 2024, with multiple game launches planned, including the mobile game "JX3: Infinite" and other classic titles [2] - The company's 2024/25 net profit attributable to shareholders is forecasted to increase by 5%/22% to RMB 1.05 billion/RMB 1.69 billion, with a new 2026 forecast of RMB 2.31 billion [2] Financial Performance - 2023 full-year revenue: RMB 8.53 billion, up 12% YoY [1] - 2023 full-year operating profit: RMB 2.23 billion, up 19% YoY [1] - 2023 full-year net profit attributable to shareholders: RMB 480 million, a turnaround from previous losses [1] - 2023 office business revenue: RMB 4.56 billion, up 17% YoY [1] - 2023 gaming business revenue: RMB 3.98 billion, up 6% YoY [2] - 2024E/2025E/2026E revenue: RMB 9.93 billion/RMB 11.47 billion/RMB 13.21 billion [7] - 2024E/2025E/2026E net profit attributable to shareholders: RMB 1.05 billion/RMB 1.70 billion/RMB 2.31 billion [7] Office Business - Office business revenue in 2023: RMB 4.56 billion, up 17% YoY, driven by C-end and B-end subscription growth [1] - C-end subscription revenue grew 29% YoY, while B-end subscription revenue grew 38% YoY [1] - MAU for main products increased by 4.36% YoY to 598 million, with cumulative paying individual users up 18.43% YoY to 35.49 million [1] - WPS 365 was upgraded to provide enhanced content creation, collaboration, and digital asset management capabilities [1] - WPS AI entered public testing in 4Q23, laying the foundation for future commercialization [1] Gaming Business - Gaming business revenue in 2023: RMB 3.98 billion, up 6% YoY, driven by the flagship game "JX3" and new titles [2] - Multiple game launches are planned for 2024, including "JX3: Infinite" and other classic titles [2] - Gaming revenue is expected to show a low-to-high trend in 2024, with mid-to-high single-digit growth for the full year [2] Valuation and Forecasts - 2024E/2025E/2026E revenue: RMB 9.93 billion/RMB 11.47 billion/RMB 13.21 billion [7] - 2024E/2025E/2026E net profit attributable to shareholders: RMB 1.05 billion/RMB 1.70 billion/RMB 2.31 billion [7] - 2024E/2025E/2026E EPS: RMB 0.36/RMB 0.79/RMB 1.27 [7] - 2024E/2025E/2026E P/E ratio: 18x/13x/10x [7] Market Data - Current share price: HKD 24.80 [3] - Total market capitalization: HKD 33.21 billion [4] - 52-week high/low: HKD 42.35/HKD 18.40 [4] - 3-month turnover rate: 41.9% [4]

交银国际研究 公司更新 互联网 收盘价 目标价 潜在涨幅 2024年3月20日 港元23.55 港元26.00↓ +10.4% 金山软件 (3888 HK) 4 季度游戏收入不及预期，WPS 将开启 AI 商业化，维持中性  4季度游戏收入不及预期：收入同比增9%至23.1亿元人民币，较我们预期低 个股评级 2%，主要因游戏收入低于预期。游戏收入同比持平，较预期低8%，WPS收入 中性 同比增18%，超预期4%。调整后经营利润同比增17%至7.9亿元，较我们预 期高6%，主要因毛利超预期，预计与端游/手游收入结构变化有关。调整后净 1年股价表现 利润同比增38%至5.6亿元，较预期高6%。2023年总收入增12%（游戏/WPS 分别增6%/17%），调整后净利润为20亿元，同比增33%。2023年度派息每 3888 HK 恒生指数 40% 股0.14港元（2022年为0.13港元），股息率0.59%。 30% 20% 10%  4季度业绩要点：我们认为游戏收入增速的变化主要与2022年4季度游戏收 0% 入高基数有关，《剑网3无界》开启测试，该游戏今年上线之前预计游戏收 -10% -20% 入表现稳定。W ...

Financial Performance - Revenue for the year ended December 31, 2023, was RMB 8,533,611,000, representing a 12% increase from RMB 7,636,743,000 in 2022[3] - Operating profit increased by 19% to RMB 2,226,882,000 from RMB 1,868,682,000 year-over-year[3] - The company reported a profit attributable to equity holders of RMB 483,457,000, a significant recovery from a loss of RMB 6,049,409,000 in the previous year[3] - Basic earnings per share improved to RMB 0.36 from a loss of RMB 4.43 in 2022[3] - The company reported a net profit of RMB 1,215,188,000 for the year, a significant turnaround from a net loss of RMB 5,341,887,000 in the previous year[8] - The company reported a profit of RMB 1,215,188 thousand for the year ended December 31, 2023, compared to a loss of RMB 5,341,887 thousand in 2022, marking a significant turnaround[9] - Total comprehensive income for the year was RMB 1,285,670 thousand, recovering from a loss of RMB 4,841,532 thousand in the previous year[9] - The group reported a pre-tax profit of RMB 1,488,852,000 for the fiscal year ending December 31, 2023, compared to a pre-tax loss of RMB 5,721,343,000 in the previous year[27][25] - The company reported a total comprehensive loss of RMB (5,579,092) thousand for the year, which includes a significant loss of RMB (6,049,409) thousand attributed to the current year[11] Dividends and Equity - The board proposed a final dividend of HKD 0.14 per share, up from HKD 0.13 per share in 2022[5] - The company declared a dividend of RMB 162,831 thousand for the year ended December 31, 2023[10] - The company's equity attributable to owners increased to RMB 10,877,319 thousand as of December 31, 2023, from RMB 10,668,902 thousand at the end of 2022[10] - The total equity attributable to non-controlling interests was RMB 5,284,224 thousand as of December 31, 2023, compared to RMB 4,653,724 thousand in 2022[10] - The proposed final dividend is HKD 0.14 per share, an increase from HKD 0.13 per share in the previous year, totaling RMB 171,374 thousand[39] - The basic earnings attributable to ordinary equity holders for 2023 is RMB 483,457 thousand, a significant recovery from a loss of RMB 6,049,409 thousand in 2022[43] Assets and Liabilities - Total current assets increased to RMB 26,893,214,000 from RMB 23,539,831,000, reflecting a growth of approximately 14%[6] - The company’s total assets less current liabilities increased to RMB 30,314,274,000 from RMB 24,999,680,000, a growth of approximately 21%[7] - The company’s total assets reached RMB 26,573,257 thousand as of December 31, 2023, reflecting growth from the previous year[10] - The company has a deferred tax liability of RMB (74,941) thousand, compared to RMB (640,114) thousand in the previous year[39] - The group’s asset-liability ratio remained stable at 24% as of December 31, 2023, unchanged from the previous year[86] Cash Flow - The net cash flow from operating activities for the year ended December 31, 2023, was RMB 3,488,746 thousand, an increase from RMB 2,573,519 thousand in 2022, representing a growth of approximately 35.5%[12] - The net cash flow used in investing activities for 2023 was RMB (6,476,034) thousand, compared to RMB 4,421,589 thousand in 2022, indicating a significant shift in investment strategy[12] - The net cash flow from financing activities for 2023 was RMB 655,863 thousand, recovering from a net outflow of RMB (619,041) thousand in 2022[12] - The total cash and cash equivalents at the end of 2023 amounted to RMB 8,707,372 thousand, down from RMB 11,018,882 thousand at the end of 2022, reflecting a decrease of approximately 21%[12] - The cash and bank deposits held by the group amounted to RMB 20,271.2 million, accounting for 58% of total assets as of December 31, 2023[86] Research and Development - Research and development costs for the year were RMB 2,683,596,000, compared to RMB 2,552,754,000 in 2022, reflecting a continued investment in innovation[8] - R&D expenses in Q4 2023 amounted to RMB 684.9 million, a 4% increase year-on-year and 2% increase quarter-on-quarter, reflecting ongoing efforts to improve products and services[59] Employee and Compensation - Employee benefits expenses, including director remuneration, totaled RMB 3,765,451,000 for the year ending December 31, 2023, an increase from RMB 3,486,739,000 in 2022[27] - As of December 31, 2023, the company employed approximately 7,199 full-time employees, an increase from 7,116 in 2022[99] - Employee costs, including compensation for directors and senior management, were approximately RMB 3,765.5 million in 2023, compared to RMB 3,486.7 million in 2022[99] Stock Options and Share Repurchase - The company has a stock option plan in place, with 2,529,800 options remaining unexercised as of December 31, 2023, at a weighted average exercise price of HKD 20.25[32] - The 2021 stock option plan allows eligible participants, including directors and employees, to exercise options over a period of 10 years, with 5,500,000 options unexercised as of December 31, 2023, at an average exercise price of HKD 31.69[33] - The share reward plan has 4,182,220 unexercised reward shares as of December 31, 2023, down from 5,999,660 in the previous year, with 2,079,400 shares granted during the year[35] - The company repurchased a total of 9,490,000 shares at a total cost of approximately HKD 244.53 million during the year ending December 31, 2023[100] - The share repurchase was conducted at prices ranging from HKD 22.2 to HKD 29.05 per share across different months[100] Future Outlook and Strategy - The company plans to continue optimizing its solutions to enhance the digital office experience for enterprise clients, which is expected to drive further growth in subscription services[57] - The company plans to continue exploring digital office service opportunities and enhance product innovation around "multi-screen, cloud, content, collaboration, and AI" in 2024[97] Compliance and Governance - The company has adopted a standard code of conduct for securities trading by directors, confirming compliance for the year ending December 31, 2023[101] - The audit committee reviewed the financial statements for the year ending December 31, 2023, and confirmed adherence to applicable accounting standards[105] - The company has established a governance framework that includes quarterly performance updates to the board, rather than monthly as per the code[106] - Forward-looking statements regarding the company's financial condition and performance are subject to inherent risks and uncertainties[107] - The company emphasizes that actual performance may differ significantly from forward-looking statements due to various risk factors[107]

Financial Data and Key Metrics Changes - Total revenue for Q3 2023 was RMB 2,060 million, representing a year-on-year increase of 12% but a quarter-on-quarter decrease of 6% [4][8] - Operating profit increased by 13% year-on-year to RMB 376 million [4] - Gross profit increased by 14% year-on-year but decreased by 8% quarter-on-quarter to RMB 1,677 million, with a gross profit margin of 81% [10][11] - Profit attributable to owners of the parent was RMB 28 million, compared to a loss of RMB 6,055 million in Q3 2022 [13] Business Line Data and Key Metrics Changes - Revenue from office software and services increased by 9% year-on-year to RMB 1,098 million, while revenue from online games increased by 15% year-on-year to RMB 961 million [8][10] - The individual office subscription business saw improvements in paying ratio and average revenue per paying user due to an optimized membership system [6][9] - Revenue from the online games segment decreased by 10% quarter-on-quarter, primarily due to a decline in revenue from JX3 Online [10] Market Data and Key Metrics Changes - The revenue split was 53% for office software and services and 47% for online games and others [8] - The company expanded its user base in micro, small, and medium-sized enterprises through WPS 365 [7] Company Strategy and Development Direction - The company will continue to focus on AI and collaboration, restructuring office software to enhance user experience [15] - The online games business will maintain its strategy of developing premium games and long-term operations [15] - Strategic cooperation with Alibaba Group and iFlytek aims to build a digital and intelligent service ecosystem [6] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the gaming business outlook, particularly for JX Online III, which typically performs well in Q4 [29] - The company plans to launch new games in the JX series and Code Break in the upcoming year, indicating a focus on both existing IP and new developments [25][30] - The AI strategy is expected to enhance average revenue per user (ARPU) and the number of paying users in the Kingsoft Office business [32] Other Important Information - The company had cash resources of RMB 23 billion as of September 30, 2023 [14] - Share-based compensation costs increased by 15% year-on-year, indicating ongoing investment in talent [11] Q&A Session Summary Question: What are the commercialization plans for JX Online III and the gaming business outlook for next year? - Management confirmed that the monetization model for JX Online III remains unchanged, focusing on fair gameplay and value-added services. The JX3 Ultimate mobile version is expected to launch in the first half of next year, enhancing user interaction [18][19] Question: What is the strategy for growth in the gaming business amid increased competition? - Management acknowledged the increased competition but welcomed the easier access to game licenses. They plan to continue developing the JX series and expand into global markets [24][25] Question: What are the user feedback and revenue impact from the upgraded WPS membership system? - Management reported improvements in both the number of paying users and ARPU, attributing future revenue growth to the AI strategy combined with the membership upgrade [31][32] Question: What is the reason for the increase in expenses this quarter? - The increase in expenses was primarily due to marketing campaigns, but management expects expenses to return to a reasonable level in Q4 [33]

[Performance Highlights](index=1&type=section&id=Performance%20Highlights) [Summary of Financial Data](index=1&type=section&id=Summary%20of%20Financial%20Data) The Group's Q3 2023 revenue grew 12% YoY to RMB 2.06 billion, with operating profit up 13% YoY to RMB 376 million, and profit attributable to owners of the parent turning profitable at RMB 28.49 million Q3 2023 Financial Summary | Metric | Q3 2023 (RMB thousands) | Q3 2022 (RMB thousands) | Q2 2023 (RMB thousands) | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 2,059,679 | 1,837,127 | 2,193,490 | 12% | (6)% | | Operating Profit | 376,073 | 331,770 | 675,713 | 13% | (44)% | | Profit/(Loss) attributable to owners of the parent | 28,492 | (6,054,914) | 57,187 | Not Applicable | (50)% | | Basic earnings/(loss) per share (RMB) | 0.02 | (4.44) | 0.04 | Not Applicable | (50)% | [Summary of Operational Data](index=2&type=section&id=Summary%20of%20Operational%20Data) As of September 2023, monthly active devices for office software reached 589 million, while cumulative paying users grew 16% YoY to 33.24 million Office Software Operational Data | Metric | Sep 2023 | Sep 2022 | Jun 2023 | YoY Change | QoQ Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Monthly Active Devices (Millions) | 589 | 578 | 584 | 2% | 1% | | Cumulative Paying Users (Millions) | 33.24 | 28.56 | - | 16% | - | [Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Condensed Consolidated Statement of Profit or Loss](index=3&type=section&id=Condensed%20Consolidated%20Statement%20of%20Profit%20or%20Loss) This quarter's total revenue reached RMB 2.06 billion, yielding a gross profit of RMB 1.677 billion and an operating profit of RMB 376 million, with profit attributable to owners of the parent at RMB 28.49 million Q3 2023 Key Profit or Loss Items (RMB thousands) | Item | Q3 2023 | Q3 2022 | Q2 2023 | | :--- | :--- | :--- | :--- | | **Revenue** | **2,059,679** | **1,837,127** | **2,193,490** | | Office Software and Services | 1,098,325 | 1,004,726 | 1,120,845 | | Online Games and Others | 961,354 | 832,401 | 1,072,645 | | **Gross Profit** | **1,676,854** | **1,466,175** | **1,831,846** | | **Operating Profit** | **376,073** | **331,770** | **675,713** | | **Profit/(Loss) for the period** | **171,907** | **(5,917,334)** | **267,777** | | Profit/(Loss) attributable to owners of the parent | 28,492 | (6,054,914) | 57,187 | [Condensed Consolidated Statement of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statement%20of%20Comprehensive%20Income) The quarter's profit for the period was RMB 172 million, but after other comprehensive losses, total comprehensive income was RMB 128 million, with a loss of RMB 13.03 million attributable to owners of the parent Q3 2023 Summary of Comprehensive Income (RMB thousands) | Item | Q3 2023 | Q3 2022 | Q2 2023 | | :--- | :--- | :--- | :--- | | Profit/(Loss) for the period | 171,907 | (5,917,334) | 267,777 | | Other comprehensive income/(loss) for the period | (43,591) | 327,281 | 243,738 | | **Total comprehensive income/(loss) for the period** | **128,316** | **(5,590,053)** | **511,515** | | Attributable to owners of the parent | (13,030) | (5,746,881) | 283,296 | | Attributable to non-controlling interests | 141,346 | 156,828 | 228,219 | [Condensed Consolidated Statement of Financial Position](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Financial%20Position) As of September 30, 2023, the Group reported total assets of RMB 34.08 billion, total liabilities of RMB 7.75 billion, and net assets of RMB 26.33 billion, demonstrating strong liquidity Summary of Financial Position (As of September 30, 2023) | Item | Amount (RMB thousands) | | :--- | :--- | | Total Non-current Assets | 8,457,500 | | Total Current Assets | 25,623,162 | | Total Current Liabilities | 4,222,033 | | Total Non-current Liabilities | 3,529,067 | | **Net Assets** | **26,329,562** | | **Total Equity** | **26,329,562** | [Condensed Consolidated Statement of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows) In Q3 2023, net cash used in operating activities was RMB 552 million, net cash used in investing activities was RMB 3.53 billion, with period-end cash and bank balances at RMB 19.748 billion Q3 2023 Summary of Cash Flows (RMB thousands) | Item | Q3 2023 | Q3 2022 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net cash flow from operating activities | (552,445) | 288,104 | 1,944,992 | | Net cash flow from investing activities | (3,530,178) | (1,409,192) | 1,596,252 | | Net cash flow from financing activities | (50,911) | (45,776) | 1,105,903 | | Net (decrease)/increase in cash and cash equivalents | (4,133,534) | (1,166,864) | 4,647,147 | | **Cash and bank balances at end of period** | **19,747,717** | **12,251,351** | **21,684,511** | - Excluding the impact of payments for Q2 collections, net cash generated from operating activities for the quarter was **RMB 447.5 million**[10](index=10&type=chunk) [Notes to the Financial Statements](index=8&type=section&id=Notes%20to%20the%20Financial%20Statements) [Company Information and Business Overview](index=8&type=section&id=Company%20Information%20and%20Business%20Overview) Kingsoft Corporation Limited, listed on the HKEX, primarily operates in two core businesses: WPS Office software and services, and PC and mobile game development and provision - The Group's core businesses are divided into two segments: office software (WPS Office) and online games[11](index=11&type=chunk) [Basis of Preparation and Principal Accounting Policies](index=8&type=section&id=Basis%20of%20Preparation%20and%20Principal%20Accounting%20Policies) These interim financial statements are prepared under IAS 34, consistent with 2022 policies, incorporating new standards effective January 1, 2023, with restated comparative data for IAS 12 amendments - The financial statements are prepared in accordance with International Accounting Standards, adopting new standards effective in 2023, with retrospective application of amendments to IAS 12 (Deferred Tax)[12](index=12&type=chunk)[14](index=14&type=chunk) [Management Discussion and Analysis](index=10&type=section&id=Management%20Discussion%20and%20Analysis) [Financial Performance Analysis](index=10&type=section&id=Financial%20Performance%20Analysis) In Q3 2023, total revenue grew 12% YoY, but operating profit declined 44% QoQ due to increased marketing and administrative expenses, while profit attributable to owners of the parent turned profitable [Revenue](index=10&type=section&id=Revenue) Q3 total revenue grew 12% YoY to RMB 2.06 billion, driven by 9% growth in office software and services and 15% growth in online games and others - Office software business grew **9% YoY**, primarily driven by individual and institutional subscription services, partially offset by a decline in institutional licensing business[15](index=15&type=chunk) - Online game business grew **15% YoY**, benefiting from revenue growth of "Jian Wang 3" and contributions from the new game "Snowbreak: Containment Zone" launched in July[15](index=15&type=chunk) [Costs and Gross Profit](index=10&type=section&id=Costs%20and%20Gross%20Profit) Q3 gross profit increased 14% YoY to RMB 1.677 billion, with a gross margin of 81%, reflecting increased staff and server costs - This quarter's gross margin was **81%**, up **1 percentage point YoY** but down **3 percentage points QoQ**[16](index=16&type=chunk) [Operating Expenses](index=10&type=section&id=Operating%20Expenses) Operating expenses significantly increased this quarter, with selling and distribution expenses surging 24% YoY and 47% QoQ due to new game marketing, and administrative expenses up 20% YoY - Selling and distribution expenses increased **24% YoY** and **47% QoQ**, primarily due to marketing and promotion for new games[18](index=18&type=chunk) - Administrative expenses increased **20% YoY**, mainly due to higher staff-related expenses[18](index=18&type=chunk) [Profit / (Loss) Analysis](index=11&type=section&id=Profit%20%2F%20%28Loss%29%20Analysis) Profit attributable to owners of the parent was RMB 28.5 million this quarter, a significant turnaround from a RMB 6.055 billion loss last year, though lower than the previous quarter - The significant loss in **Q3 2022** was primarily due to impairment provisions for the investment in **Kingsoft Cloud**[19](index=19&type=chunk) - Profit attributable to owners of the parent for **Q3 2023** was **RMB 28.5 million**, successfully turning from loss to profit[22](index=22&type=chunk) [Liquidity and Financial Resources](index=12&type=section&id=Liquidity%20and%20Financial%20Resources) As of September 30, 2023, the Group maintained a strong cash position of RMB 19.748 billion, a healthy 23% gearing ratio, and faced foreign exchange risk from RMB 3.7 billion in non-RMB deposits - As of the quarter-end, the Group's total cash resources (including cash, bank balances, and certain financial assets) amounted to **RMB 23.149 billion**[24](index=24&type=chunk) - The gearing ratio (total liabilities/total assets) was **23%**, indicating a sound financial position[24](index=24&type=chunk) - The Group holds **RMB 3.7 billion** in non-RMB denominated deposits, posing foreign exchange fluctuation risk[25](index=25&type=chunk) [Cash Flow Analysis](index=13&type=section&id=Cash%20Flow%20Analysis) This quarter saw net cash used in operating activities of RMB 552 million, a contrast to prior periods, with capital expenditure increasing to RMB 160 million - For the three months ended September 30, 2023, net cash used in operating activities was **RMB 552 million**[26](index=26&type=chunk) - Capital expenditure for the quarter was **RMB 159.7 million**, a **51% YoY increase**[27](index=27&type=chunk) [Management Overview and Outlook](index=14&type=section&id=Management%20Overview%20and%20Outlook) [Management Commentary](index=14&type=section&id=Management%20Commentary) Management reported steady Q3 core business development, with Kingsoft Office advancing AI and collaboration strategies, and online games maintaining vitality through new content and successful launches - Kingsoft Office Group focuses on "AI" and "collaboration" strategies, investing in independent R&D of small and medium models, and forming strategic partnerships with Alibaba Cloud and iFlytek[28](index=28&type=chunk) - In online games, "Jian Wang 3" launched a new expansion, "Jian Xia World: Origin" had a successful open beta, and the mobile version "Jian Wang 3: Wujie" has obtained its license, with a planned launch in the first half of next year[28](index=28&type=chunk) [Future Outlook](index=15&type=section&id=Future%20Outlook) The company plans continued R&D investment in core businesses, with Kingsoft Office focusing on AI and collaboration, and online games on developing and operating high-quality titles for sustainable growth - In the future, Kingsoft Office will focus on **AI** and **collaboration** to re-architect office software; the online game business will continue to develop high-quality titles and operate them long-term[29](index=29&type=chunk) - The company will steadfastly continue to invest in core business R&D to enhance core competitiveness and achieve high-quality sustainable development[29](index=29&type=chunk)

Financial Performance - The total revenue for the first half of 2023 reached RMB 4,163.8 million, a 12.9% increase compared to RMB 3,687.2 million in the same period of 2022[12]. - The company reported a net profit of RMB 605.7 million for the first half of 2023, compared to RMB 335.9 million in the same period of 2022, marking an increase of 80.2%[12]. - Operating profit for the first half of 2023 was RMB 1,136.0 million, representing a 23.8% increase from RMB 918.2 million in the first half of 2022[12]. - Total revenue for Q2 2023 reached RMB 2,193.5 million, a year-on-year increase of 20% and a quarter-on-quarter increase of 11%[18]. - Gross profit for Q2 2023 was RMB 1,831.8 million, reflecting a 25% year-on-year growth, with a gross margin of 84%[19]. - The profit attributable to the company's owners for H1 2023 was RMB 249.5 million, compared to a loss of RMB 42.1 million in the same period last year[44]. User Metrics - The number of cumulative paying users increased by 16% year-on-year to 33.24 million as of June 30, 2023, up from 28.56 million in 2022[8]. - The monthly active devices for key products reached 584 million in June 2023, a 2% increase from 570 million in June 2022[8]. Research and Development - Research and development costs for the first half of 2023 were RMB 1,326.7 million, an increase from RMB 1,250.5 million in the first half of 2022[12]. - R&D expenses for Q2 2023 amounted to RMB 665.7 million, a 4% increase year-on-year[20]. - The company plans to invest approximately RMB 1,900 million in the Wuhan park construction to enhance R&D capabilities, expected to be operational by 2025[57]. Cash and Assets - Cash and bank deposits as of June 30, 2023, amounted to RMB 21,684.5 million, representing 62% of total assets, with a debt-to-asset ratio of 26%[46]. - The company's total assets as of June 30, 2023, amounted to RMB 29,159,025,000, reflecting an increase from RMB 28,794,566,000 at the beginning of the year[138]. - Total non-current assets as of June 30, 2023, were RMB 8,683,650 thousand, compared to RMB 8,348,124 thousand at the end of 2022[133]. Shareholder Information - Major shareholders include Color Link Management Limited with 12.83% ownership (174,818,191 shares) and Tencent Holdings Limited with 7.84% ownership (106,784,515 shares) as of June 30, 2023[102]. - As of June 30, 2023, the total number of shares held by Lei Jun is 308,157,048, accounting for 22.61% of the issued share capital[62]. Stock Options and Incentives - The company has implemented a share option scheme in 2011, which has no options available for grant as of June 30, 2023[71]. - The total number of unexercised stock options as of June 30, 2023, is 5,500,000 shares, with an exercise price of HKD 31.69[76]. - The company aims to attract and retain talent through the 2021 stock option plan and the share award plan[74][80]. Financial Liabilities - The company's debt-to-asset ratio increased to 26% as of June 30, 2023, compared to 24% at the end of 2022[117]. - The company reported a total comprehensive income of RMB 793,541 thousand for the six months ended June 30, 2023, compared to RMB 631,874 thousand in the same period of 2022[130]. Revenue Breakdown - Revenue from office software and services was RMB 1,120.8 million, up 21% year-on-year, driven by sustained growth in personal and institutional subscription businesses[18]. - Revenue from online games and other businesses was RMB 1,072.6 million, an 18% year-on-year increase, primarily due to the continued updates and user experience improvements of "Jian Wang 3"[18]. - Revenue from software and related services sales and subscriptions reached RMB 2,099,933 thousand, up from RMB 1,715,271 thousand in the previous year, indicating a growth of about 22.4%[169]. Employee Information - The company has a total of 7,086 full-time employees as of June 30, 2023, a decrease from 7,174 employees as of June 30, 2022[106]. - Total salary costs for the six months ended June 30, 2023, amounted to RMB 1,865.2 million, compared to RMB 1,715.5 million for the same period in 2022, reflecting an increase of approximately 8.7%[106]. Tax and Compliance - The company reported a total tax expense of RMB 1,471 thousand for the six months ended June 30, 2023, down from RMB 2,304 thousand in the same period of 2022[155]. - The company is currently evaluating its risks related to the OECD's Pillar Two tax reforms, which may impact future financial reporting and tax liabilities[155].

Kingsoft Corporation Limited (OTCPK:KSFTF) Q2 2023 Earnings Conference Call August 22, 2023 7:00 AM ET Company Participants Francie Lu - Investor Relations Tao ZOU - Executive Director and Chief Executive Officer Yi LI - Acting Chief Financial Officer Conference Call Participants Xiaodan Zhang - CICC Linlin Yang - GF Securitites Hao Yang - Founder Securities Operator Good day and thank you for standing by. Welcome to the Q2 2023 Kingsoft Corporation Earnings Conference Call. At this time, all participants a ...