KINGSOFT(03888) 交银国际证券·2024-08-28 03:37Investment Rating - The report maintains a Buy rating for Kingsoft Corporation (3888 HK) with a target price of HKD 30.00, representing a potential upside of 46.0% from the current closing price of HKD 20.55 [1] Core Views - Kingsoft's Q2 2024 revenue increased by 13% YoY to RMB 2.47 billion, with adjusted operating profit up 14% YoY to RMB 880 million, driven by better-than-expected gaming performance [1] - Gaming revenue grew 20% YoY, while WPS revenue growth slowed to 6% YoY due to the transition of B2B business to SaaS model [1] - The launch of JX3: Infinite mobile game in June 2024 achieved over 11 million daily active users, with 62% being returning players, expected to drive significant revenue growth in Q3 2024 [1] - WPS upgraded its AI strategy with the release of WPS AI 2.0 in July 2024, enhancing user experience and stickiness for both individual and enterprise customers [1] Financial Performance Summary - Q2 2024 revenue breakdown: Gaming contributed RMB 1.286 billion (+20% YoY), while WPS contributed RMB 1.188 billion (+6% YoY) [5] - Adjusted operating profit margin improved to 35% in Q2 2024, up from 32% in Q1 2024 [5] - WPS's contract liabilities increased by 24% YoY, indicating a solid foundation for long-term growth despite the short-term slowdown in revenue growth [1] Business Segment Analysis - WPS revenue growth slowed to 6% YoY in Q2 2024, compared to 17% YoY in Q1 2024, due to the SaaS transition [1] - WPS subscription revenue breakdown: Personal subscriptions grew 20% YoY, while institutional licensing and subscriptions declined by 2% and 27% YoY, respectively [1] - Gaming revenue growth was driven by mobile games, partially offset by a decline in JX3 PC game revenue due to a high base in the previous year [1] Future Outlook - The report expects gaming revenue to accelerate in Q3 2024, driven by the strong performance of JX3: Infinite and the upcoming expansion pack in October 2024 [1] - Full-year gaming revenue is expected to achieve double-digit growth, supported by the strong performance of mobile games [1] - WPS's AI upgrades and SaaS transition are expected to enhance long-term growth prospects, despite short-term revenue headwinds [1] Financial Forecasts - 2024E revenue forecast adjusted to RMB 9.668 billion, a 2% decrease from the previous forecast of RMB 9.882 billion [4] - 2025E revenue forecast adjusted to RMB 10.586 billion, a 6% decrease from the previous forecast of RMB 11.304 billion [4] - Adjusted operating profit margin is expected to improve to 35% in 2025E, up from 31% in the previous forecast [4]