KINGSOFT(03888) 国海证券·2024-11-20 08:54Investment Rating - The report maintains a "Buy" rating for Kingsoft Corporation (3888 HK) [1] Core Views - Kingsoft achieved strong revenue growth in Q3 2024, with total revenue reaching RMB 2 915 billion (YoY +41 5%, QoQ +17 8%) and net profit attributable to shareholders of RMB 413 million (YoY +1351 1%, QoQ +5 1%) [1][3] - The company's gaming business showed remarkable growth, with revenue reaching RMB 1 708 billion (YoY +77 7%, QoQ +32 8%), driven by the success of "JX3" and "JX3 Boundless" [3] - Office software and services revenue reached RMB 1 207 billion (YoY +9 9%, QoQ +1 6%), supported by AI-powered product innovations and domestic subscription growth [3] Financial Performance - Gross profit reached RMB 2 454 billion (YoY +46 4%, QoQ +20 2%), with a gross margin of 84 2% (YoY +2 8pct, QoQ +1 7pct) [3] - Operating expenses improved significantly, with sales expense ratio at 12 5% (YoY -8 9pct, QoQ -2 8pct), R&D expense ratio at 29 5% (YoY -3 1pct, QoQ -0 4pct), and administrative expense ratio at 5 7% (YoY -3 4pct, QoQ -0 6pct) [3] - The company's market capitalization stood at HKD 39 013 70 million as of November 19, 2024 [3] Office Software Business - Kingsoft continued to optimize WPS AI, launching WPS AI 2 0 with four new assistants to enhance user experience and subscription conversion [3] - The company expanded its SaaS transformation with WPS 365, targeting large-scale private enterprises and local state-owned enterprises [3] - AI innovations included text companion, AI Docs intelligent document library, and the WPS Lingxi AI assistant, further advancing the AI office ecosystem [3] Gaming Business - "JX3 Boundless" exceeded expectations in terms of returning users, while the annual expansion pack for "JX3" introduced new features that enhanced player engagement [3] - The sci-fi mecha game "JXJ" completed its first public test in August, generating significant global interest with nearly 3 million pre-registrations and ranking 17th on Steam's wishlist [3] - The mobile game "JXQZ Zero" has obtained its license and is planned for release next year [3] Valuation and Forecast - The report raises revenue forecasts for FY2024-2026 to RMB 10 3/11 6/12 8 billion, with net profit attributable to shareholders expected to reach RMB 1 45/1 81/2 05 billion [6] - The target price is set at RMB 36 (HKD 39), based on a SOTP valuation method, implying a target market capitalization of RMB 47 5 billion [6] - The company's PE ratio is projected to be 25/20/18x for FY2024-2026, with EPS of RMB 1 1/1 4/1 5 [6]