Kingsoft Cloud Holdings Limited 金山云控股有限公司 (Incorporated in the Cayman Islands with limited liability) （於開曼群島註冊成立之有限公司） (Stock Code 股份代號: 3896) Date as postmarked Dear Non-Registered Holder(s) (Note 1) , Notification of publication of corporate communication on the websites We hereby notify you that the English and Chinese versions of the 2024 Annual Report (the "Current Corporate Communication") and Environmental, Social and Governance Report 2024 (the "2024 ESG Report") of Kingsoft Cloud Holdings Limited ( ...

Kingsoft Cloud Holdings Limited 金山雲控股有限公司 (Incorporated in the Cayman Islands with limited liability) 2. AMENDING YOUR CHOICE OF MEANS OF RECEIPT AND LANGUAGE OF CORPORATE COMMUNICATIONS If you would like to (i) receive the Current Corporate Communication in printed form; and/or (ii) change your means of receipt (in printed form or by electronic means through our website) and/or choice of language (English and/or Chinese) of all future Corporate Communications, please complete the enclosed change request fo ...

1 務實聚勢 築牢企業發展基石 錨定可持續發展坐標 循勢謀遠 支持創新 構建誠信發展生態 同心致遠 共饗企業發展碩果 穩定運營 打造值得信賴的雲服務 綠色行動 共築生態和諧家園 源頭管理 共建可持續供應鏈 立足自身 共繪公益慈善藍圖 目 錄 | CONTENTS | 關於本報告 | 01 | 董事長致辭 | 02 | 關於金山雲 | 03 | | --- | --- | --- | --- | --- | --- | --- | | | 01 務實聚勢 築牢企業發展基石 | | 02 循勢謀遠 錨定可持續發展坐標 | | 03 支持創新 構建誠信發展生態 | | | | 治理架構 | 09 | 董事會聲明 | 12 | 知識産權管理 | 16 | | | 董事會獨立性及多元化 | 09 | ESG 管治架構 | 12 | 廉潔建設 | 20 | | | 風險管理與内部控制 | 10 | 利益相關方溝通 | 13 | | | | | | | 重要性議題分析 | 14 | | | | | 04 穩定運營 打造值得信賴的雲服務 | | 05 同心致遠 共饗企業發展碩果 | | 06 綠色行動 共築生態和諧家園 | ...

Financial Performance - Revenue for the year ended December 31, 2024, was RMB 7,785,180, representing a 10.5% increase from RMB 7,047,461 in 2023[10] - Gross profit increased by 57.7% to RMB 1,340,926 in 2024, up from RMB 850,169 in 2023[10] - The net loss for 2024 was RMB 1,979,042, a decrease of 9.4% compared to a net loss of RMB 2,183,647 in 2023[10] - Adjusted gross profit for 2024 was RMB 1,357,794, with an adjusted gross margin of 17.4%, up from 12.2% in 2023[15] - The company reported a pre-tax loss of RMB 1,980,566 for 2024, which is an 8.5% improvement from the previous year's loss of RMB 2,165,688[10] - Adjusted EBITDA for 2024 reached RMB 638.9 million, a significant turnaround from a negative RMB 265.1 million in 2023, resulting in an EBITDA margin of 8.2%[26] - Total revenue for 2024 was RMB 7,785.2 million, representing a year-over-year increase of 10.5%[26] - Gross profit for 2024 was RMB 1,340.9 million, up 57.7% from RMB 850.2 million in 2023, with a gross margin improvement from 12.1% to 17.2%[26] - Adjusted operating loss for 2024 is projected to be RMB 1,739.0 million, down from RMB 2,108.6 million in 2023, with an adjusted operating loss rate improving from 15.5% to 5.5%[20][24] - The adjusted net loss for 2024 is expected to be RMB 825.3 million, with an adjusted net loss rate of 10.6%[18][20] - Operating loss for the year ended December 31, 2024, was RMB 1,739.0 million, a reduction from RMB 2,108.6 million in 2023, showing improved operational efficiency[39] - Net loss narrowed to RMB 1,979.0 million from RMB 2,183.6 million in 2023[45] Revenue Breakdown - Public cloud service revenue increased by 14.3% year-over-year to RMB 5,007.3 million, while industry cloud service revenue grew by 4.3% to RMB 2,777.8 million[26] - Public cloud services revenue increased to RMB 5,007.3 million in 2024, up from RMB 4,381.7 million in 2023, reflecting a growth of approximately 14.2%[39] - The number of premium public cloud service customers increased from 214 in 2023 to 219 in 2024, while the average revenue per premium customer decreased from RMB 20.1 million to RMB 19.7 million[23] Cost Management and Efficiency - The increase in gross profit was attributed to improved operational efficiency and cost management strategies implemented during the year[10] - The company is focusing on high-quality cloud services and strict cost control, leading to improved revenue structure and profitability[25] - Operating costs were RMB 6,444.3 million, a slight increase of 4.0% from RMB 6,197.3 million in 2023[42] Market Strategy and Future Outlook - The company plans to continue expanding its market presence and investing in new technologies to drive future growth[10] - Future guidance indicates a continued emphasis on revenue growth and profitability improvement in the upcoming fiscal year[10] - The company aims to enhance market influence by adopting a premium customer strategy in selected vertical industries[22] - The company aims to continue investing in technology R&D and enhance AI capabilities to meet the growing cloud demand driven by AI applications[31] Research and Development - Research and development expenses for 2024 were RMB 846.0 million, with a total of 1,188 R&D personnel as of December 31, 2024[35] - The company launched the Star Stream computing platform and upgraded its Galaxy Cloud operations platform, enhancing resource density and reducing cloud construction costs[33] Capital Expenditures - Capital expenditures for 2024 totaled RMB 4,124.7 million, significantly higher than RMB 1,964.7 million in 2023[30] Employee and Corporate Governance - The company had 12,335 employees as of December 31, 2024, with 82.4% in solution development and services[59] - The board includes independent directors with significant financial expertise, enhancing corporate governance[186] - The company has fully complied with all provisions of the corporate governance code during the reporting period[199] Related Party Transactions - The company entered into a framework agreement with Kingsoft Group to provide cloud services and receive property management and administrative services, effective until December 31, 2024[91] - The annual cap for cloud services provided by Kingsoft under the 2022 agreement is RMB 330.5 million, with actual transactions amounting to approximately RMB 296.8 million for the year ending December 31, 2024[94] - The company entered into a loan financing framework agreement with Kingsoft allowing for up to RMB 1.5 billion in loans, with actual withdrawals under secured loans amounting to approximately RMB 1 billion for the year ending December 31, 2024[95][96] Risks and Challenges - The company faces intense market competition, which could adversely affect its business and financial condition if it cannot compete effectively[70] - The company may face additional tax liabilities as determined by Chinese tax authorities, which could negatively impact its financial condition and investment value[136] - The company is subject to significant uncertainties regarding the interpretation and application of current and future Chinese laws and regulations, which may impact the enforceability of contractual arrangements[136] Acquisitions - The company acquired Camelot through a statutory merger under the Cayman Companies Law, with a total consideration of approximately RMB 1,223.5 million for the acquisition[158] - Approximately 73.7% of the Camelot consideration is expected to be settled through a combination of a one-time cash payment and cash installments before the end of 2025[159]

Customer Metrics - The total number of Premium Customers decreased from 537 in 2022 to 486 in 2023, with a slight recovery to 492 in 2024[533]. - Average revenues per Premium Customer decreased from RMB 14.9 million in 2022 to RMB 14.2 million in 2023, and further to RMB 14.0 million in 2024[542]. Revenue Performance - Public Cloud Services revenues were RMB 5,360,282 thousand in 2022, decreasing to RMB 4,381,741 thousand in 2023, but projected to rise to RMB 5,007,251 thousand in 2024, representing 64.3% of total revenues[544]. - Enterprise Cloud Services revenues were RMB 2,816,976 thousand in 2022, slightly declining to RMB 2,663,993 thousand in 2023, with a forecasted increase to RMB 2,777,777 thousand in 2024, accounting for 35.7% of total revenues[544]. - Revenues increased by 10.5% from RMB7,047.5 million in 2023 to RMB7,785.2 million (US$1,066.6 million) in 2024, driven by strong demand from AI business and enterprise cloud projects[559]. - Revenues from public cloud services rose by 14.3% from RMB4,381.7 million in 2023 to RMB5,007.3 million (US$686.0 million) in 2024, primarily due to AI business demand[560]. Profitability and Losses - Gross profit increased by 57.7% from RMB850.2 million in 2023 to RMB1,340.9 million (US$183.7 million) in 2024, with gross profit margin improving from 12.1% to 17.2%[563]. - Operating loss decreased by 17.5% from RMB2,108.6 million in 2023 to RMB1,739.0 million (US$238.2 million) in 2024, with operating loss margin improving from 29.9% to 22.3%[567]. - Net loss decreased by 9.4% from RMB2,183.6 million in 2023 to RMB1,979.0 million (US$271.1 million) in 2024, with net loss margin improving from 31.0% to 25.4%[574][575]. - The adjusted net loss for Kingsoft Cloud decreased from RMB 2.69 billion in 2022 to RMB 1.98 billion in 2024, indicating an improvement of about 26%[603]. - The adjusted EBITDA is projected to turn positive in 2024, reaching RMB 638.9 million, compared to a loss of RMB 755 million in 2022[603]. - The adjusted gross margin improved from 5.3% in 2022 to an estimated 17.2% in 2024, showing a significant increase of 224%[601]. Expenses - Research and development expenses were RMB 971,216 thousand in 2022, decreasing to RMB 784,807 thousand in 2023, and projected to rise to RMB 845,989 thousand in 2024[551]. - Research and development expenses increased by 7.8% from RMB784.8 million in 2023 to RMB846.0 million (US$115.9 million) in 2024, mainly due to rising personnel-related expenses[564]. - Operating expenses increased from RMB 2,680,952 thousand in 2022 to RMB 2,958,720 thousand in 2023, with a forecast of RMB 3,079,936 thousand in 2024[551]. - General and administrative expenses decreased by 21.2% from RMB1,060.0 million in 2023 to RMB834.9 million (US$114.4 million) in 2024, primarily due to reduced credit loss expenses[566]. Cash Flow and Financing - The company generated net cash from operating activities of RMB628.4 million (US$86.1 million) in 2024, contrasting with a net cash outflow of RMB169.1 million in 2023[619][620]. - Net cash used in investing activities was RMB3,620.4 million (US$496.0 million) in 2024, primarily due to the purchase of property and equipment amounting to RMB3,672.1 million (US$503.1 million)[623]. - The company recorded net cash generated from financing activities of RMB3,255.4 million (US$446.0 million) in 2024, mainly from short-term borrowings of RMB2,465.9 million (US$337.8 million)[626]. - Kingsoft Cloud's accumulated deficit reached RMB14,292.0 million (US$1,958.0 million) as of December 31, 2024, with net current liabilities of RMB2,318.6 million (US$317.7 million)[614][617]. - Kingsoft Cloud made a capital contribution of RMB 431.3 million (US$59.1 million) to its WFOEs in 2024[605]. - The company provided loans amounting to RMB 219 million (US$30 million) to the VIEs in 2024, while repaying RMB 50 million (US$6.9 million)[606]. Taxation and Regulatory - Kingsoft Cloud's PRC entities benefit from a preferential income tax rate of 15% as High New Technology Enterprises, which will continue until 2026 for several subsidiaries[595]. - The company is required to set aside at least 10% of its after-tax profits each year for statutory reserve funds, which limits the distributable profits available for dividends[611]. - Kingsoft Cloud's management believes the likelihood of incurring double taxation due to non-deductible transfers is remote, despite potential tax planning challenges[610]. Market and Competitive Landscape - The competitive landscape remains challenging, with increased competition potentially affecting the company's financial condition and results of operations[539]. - The company aims to enhance the quality and efficiency of existing products and solutions to retain and acquire new customers[534]. - The company plans to continue investing in technology and infrastructure to enhance product capabilities and expand resources[537]. Asset Management - The fair value of the Cloud service and solutions reporting unit as of September 30, 2024, was RMB4,205.0 million (US$576.1 million), exceeding its carrying amount by RMB1,169.9 million (US$160.3 million) or 39%[644]. - Impairment losses for long-lived assets associated with the public cloud asset group were recognized at RMB919.7 million (US$126.0 million) for the year ended December 31, 2024[651]. - The company entered into a non-cancelable one-year IDC service agreement with total contractual minimum purchase commitments of RMB600.0 million (US$82.2 million)[636]. - The remaining purchase commitment for IDC services as of December 31, 2024, was RMB252.9 million (US$34.6 million)[636]. - As of December 31, 2024, financial lease liabilities were RMB1,182.0 million (US$161.9 million), primarily related to electronic equipment and data center machinery[634]. Borrowings and Liabilities - As of December 31, 2024, short-term third-party borrowings amounted to RMB2,225.8 million (US$304.9 million) and long-term borrowings were RMB1,660.6 million (US$227.5 million), both with fixed annual interest rates ranging from 2.70% to 5.97%[631]. - Kingsoft Cloud has not declared or paid any dividends and intends to retain available funds for business operations and expansion[607]. - The company experienced net operating cash outflows in 2023, highlighting ongoing liquidity challenges despite improvements in cash generation in 2024[614][620]. - Kingsoft Cloud's future working capital and capital expenditures will be financed through cash generated from operations and potential additional financing, with a focus on maintaining prudent capital management[615]. - Capital expenditures for 2024 reached RMB4,124.7 million (US$565.1 million), with property and equipment purchases accounting for 99.7% of total capital expenditures[630].

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Investment Rating - The report maintains a "Buy" rating for the company [2] Core Insights - The company achieved a revenue of 2.2 billion HKD in Q4 2024, representing a year-on-year growth of 30%, with the adjusted operating profit turning positive for the first time at 24.37 million HKD, corresponding to a profit margin of 1.1% [7] - For the full year of 2024, the company reported a revenue of 7.8 billion HKD, a year-on-year increase of 10.5%, with an adjusted net loss of 830 million HKD, narrowing the loss margin by 8 percentage points [7] - The public cloud service revenue in Q4 2024 reached 1.4 billion HKD, growing 34% year-on-year, driven by a significant increase in AI cloud business revenue, which surged approximately 500% to 470 million HKD [7] - The industry cloud service revenue hit a historical high of 800 million HKD in Q4 2024, reflecting a 23% year-on-year growth, with continuous improvement in operational performance [7] - The company's gross margin improved to 19% in Q4 2024, with a full-year gross margin of 17%, an increase of 5 percentage points year-on-year [7] - The company benefits from strategic partnerships with Xiaomi and Kingsoft, with revenue from these collaborations growing 76% year-on-year in Q4 2024 [7] - Revenue forecasts for 2025 and 2026 have been raised to 9.867 billion HKD and 11.412 billion HKD, respectively, with a new forecast for 2027 set at 12.871 billion HKD [7] Financial Data and Earnings Forecast - Projected revenues (in million HKD) for the years 2023 to 2027 are as follows: 7,047 (2023), 7,785 (2024), 9,867 (2025E), 11,412 (2026E), and 12,871 (2027E) [6] - Adjusted net profit forecasts (in million HKD) for the same period are: -1,291 (2023), -825 (2024), -428 (2025E), -178 (2026E), and 173 (2027E) [6] - The projected earnings per share (in HKD) are: -0.36 (2023), -0.23 (2024), -0.11 (2025E), -0.05 (2026E), and 0.05 (2027E) [6]

Core Viewpoint - Kingsoft Cloud (KC.US) has shown impressive growth, with Q4 revenue reaching 2.23 billion yuan, a year-on-year increase of 30%, and has achieved overall profitability. The AI revenue has surged by 500% year-on-year, indicating a strong future growth trajectory for the company [1][2]. Group 1 - The strong growth in AI revenue is expected to drive Kingsoft Cloud's future performance, with institutions optimistic about its development [1][2]. - Kingsoft Cloud's partnership with Xiaomi and the framework agreement is projected to generate a total revenue of 11.3 billion yuan from 2025 to 2027 [1]. - The demand for computing power is increasing across various industries, driven by the deployment of large models, which will further enhance Kingsoft Cloud's growth prospects [1]. Group 2 - The anticipated increase in transaction amounts from Xiaomi's AIoT division is expected to exceed 50% in 2024, contributing over 500 million yuan annually to Kingsoft Cloud from 2025 to 2027 [2]. - Analysts predict that Kingsoft Cloud's AI business revenue will expand rapidly, while the non-AI business structure will stabilize [2]. - Citigroup has raised Kingsoft Cloud's target price to $21.5, indicating a potential upside of nearly 40% from the current stock price, reflecting a positive outlook for the company [2].

Summary of Kingsoft Cloud Conference Call Company Overview - **Company**: Kingsoft Cloud - **Founded**: 2012 - **Industry**: Cloud Computing - **Key Products**: Cloud storage, cloud security, big data, artificial intelligence, blockchain, edge computing - **Ownership**: Kingsoft Group (46.8%), Xiaomi (13.8%) - **Stock Listings**: Nasdaq (May 2020), Hong Kong (January 2023) [10][28] Financial Performance - **Q424 Revenue**: Rmb2.23 billion, up 30% YoY and 15% QoQ, exceeding expectations of 22% [2][3] - **Gross Margin**: Increased to 19% YoY, up 3 percentage points QoQ, surpassing the expected 17% [2] - **Operating Expenses**: Excluding impairment loss, fell by 13%, beating market expectations [2] - **Non-GAAP Operating Profit**: Positive for the first time at Rmb24.4 million due to higher gross profit margin and cost discipline [2] - **Non-GAAP Net Loss**: Narrowed to Rmb70 million from Rmb236.7 million in Q324 [2] Segment Performance - **Public Cloud Revenue**: Grew 34% YoY, driven by AI compute demand [2] - **Enterprise Cloud Revenue**: Increased by 23% YoY, supported by demand from public service and state-owned enterprises [2] AI Business Insights - **AI Revenue**: Rmb474 million, up 500% YoY, accounting for 34% of public cloud revenue [3] - **Future Expenditures**: Management anticipates AI-related expenditures (data center leasing, power, and server capex) could reach Rmb10 billion in 2025 [3] - **Ecosystem Revenue**: From Xiaomi and Kingsoft Group was Rmb490 million, up 76% YoY [3] - **Demand Pipeline**: Strong demand expected from Xiaomi and Kingsoft Group over the next three years as AI integrates into various products [3] Cost Management and Profitability - **Data Center Costs**: Reduced to 32% of Q424 revenues, down 7 percentage points QoQ due to resource optimization [3] - **Depreciation Costs**: Approximately 15.4% of revenues increased due to higher AI server depreciation [3] 2025 Outlook - **Management Confidence**: Adjusted operating profit expected to turn positive in 2025, with continued improvement in Q2-Q425 [4] - **Revenue Growth**: Anticipated slight deceleration in Q125 due to enterprise demand seasonality, but potential reacceleration from Q225 as AI capacity increases [4] Valuation and Market Sentiment - **Rating**: Under review with a price target of US$12.50 [6] - **Market Capitalization**: US$4.40 billion [7] - **Forecast Stock Return**: Expected to decline by 32.2% [9] - **Key Investor Debates**: Include sustainability of Xiaomi ecosystem demand, potential uplift in non-AI cloud services due to AI demand, and the possibility of equity financing for AI capex/opex [5] Risks and Challenges - **Downside Risks**: Include lower-than-industry revenue growth, failure to reach net income breakeven, general cloud demand weakness, and slower-than-expected AI development and enterprise adoption [12] Conclusion Kingsoft Cloud demonstrated strong growth in Q424, particularly in its AI segment, with management optimistic about future profitability and revenue growth. However, potential risks and market uncertainties remain, necessitating careful monitoring of the company's performance and market conditions.