KINGSOFT(03888) 交银国际证券·2024-11-20 06:41Investment Rating - The report maintains a Buy rating for Kingsoft Corporation (3888 HK) with a target price of HKD 33 00, implying a potential upside of 13 0% from the current closing price of HKD 29 20 [1][4] Core Views - Kingsoft's Q3 2024 performance exceeded expectations, driven by strong growth in gaming revenue, with total revenue increasing by 42% YoY to RMB 2 92 billion and adjusted operating profit surging by 168% YoY to RMB 1 20 billion [1] - The gaming segment saw a significant YoY/QoQ growth of 78%/33%, primarily due to the success of JX3: Infinite and the October update for JX3, which boosted user engagement and revenue [2] - WPS revenue grew by 10% YoY, with personal subscriptions increasing by 17% YoY, while B2B SaaS transformation impacts are gradually diminishing [2] - The report forecasts a 30% YoY growth in gaming revenue for 2024, with new game releases in 2025 expected to sustain healthy growth trends [2] - WPS is expected to focus on AI+ collaboration, with AI product upgrades and feature optimizations enhancing user stickiness and paid conversions [2] Financial Model Updates - Revenue forecasts for 2024E, 2025E, and 2026E have been revised upwards by 6%, 7%, and 6% respectively, with gaming revenue expected to grow by 13%, 16%, and 14% over the same periods [3] - Adjusted operating profit margins are projected to improve, reaching 35%, 36%, and 37% for 2024E, 2025E, and 2026E respectively [3] - Adjusted net profit margins are expected to rise to 26%, 24%, and 25% for 2024E, 2025E, and 2026E, reflecting strong profitability [3] Industry and Peer Comparison - Kingsoft is categorized under the gaming sector, with peers such as Tencent Holdings (700 HK) and NetEase (NTES US) also holding Buy ratings [11] - The report covers a broad range of internet and education companies, with notable Buy ratings for companies like Baidu (BIDU US), Bilibili (BILI US), and Pinduoduo (PDD US) [11] Financial Performance Overview - Kingsoft's Q3 2024 revenue reached RMB 2 92 billion, with gaming and other business revenue contributing RMB 1 71 billion, up 78% YoY, and WPS revenue at RMB 1 21 billion, up 10% YoY [6] - Adjusted operating profit for Q3 2024 stood at RMB 1 20 billion, with an operating margin of 41%, up 19 percentage points YoY [6] - The company's gross margin improved to 84% in Q3 2024, up 3 percentage points YoY, driven by higher gaming revenue and operational efficiencies [6]