KINGSOFT(03888) 广发证券·2024-11-22 06:31Investment Rating - The report maintains a "Buy" rating for Kingsoft Corporation (03888 HK) with a target price of HKD 41 60 per share [5] Core Views - Kingsoft reported strong Q3 2024 results with revenue of RMB 2 91 billion (+41 5% YoY) and operating profit of RMB 1 14 billion (+204% YoY) The operating margin improved to 39 3% (+21 0pct YoY +7 2pct QoQ) Adjusted net profit attributable to shareholders also showed significant growth [2] - The gaming segment contributed RMB 1 71 billion in Q3 2024 (+77 7% YoY +32 8% QoQ) driven by the resilience of "JX3" and the upcoming launch of "Jie Xian Ji" which has garnered global attention with nearly 3 million pre-registrations and a peak ranking of 17th on Steam's wishlist [3] - The office segment generated RMB 1 21 billion in Q3 2024 (+10 5% YoY) with WPS AI features driving C-end subscription revenue growth of 17 2% YoY The B-end business benefited from the recovery in the domestic institutional licensing market and the expansion of SaaS transformation [3] Financial Forecasts - Revenue is projected to grow to RMB 10 37 billion in 2024 and RMB 12 29 billion in 2025 with operating profit expected to reach RMB 3 52 billion and RMB 4 18 billion respectively Net profit attributable to shareholders is forecasted at RMB 1 58 billion in 2024 and RMB 2 21 billion in 2025 [3] - The gaming segment is expected to contribute RMB 5 17 billion in 2024 (+30 0% YoY) while the office segment is projected to generate RMB 5 20 billion (+14 2% YoY) [11] - The company's gross margin is forecasted to remain stable at around 82 9% in 2024 and 83 0% in 2025 with operating margins improving to 34 0% in both years [11] Business Highlights - Gaming: "JX3" continues to show strong performance with the mobile version "JX3 Wujie" exceeding user expectations and driving growth in both mobile and PC revenues New games such as "Jie Xian Ji" "JXQ Zero" and "JX World 4" are expected to launch in 2025 [3] - Office: WPS AI features including AI Docs and WPS Lingxi are enhancing the AI office ecosystem The launch of the WPS HarmonyOS version further supports the development of AI-driven office solutions [3] Valuation - The sum-of-the-parts (SOTP) valuation assigns a 12x PE multiple to the gaming business and a 35x PE multiple to the office business resulting in a fair value of HKD 41 60 per share [3][14]