Summary of Kingsoft Office (A) Conference Call Company Overview - **Company**: Kingsoft Office - **Sector**: PC Software - **Main Product**: WPS Office series, an alternative to Microsoft Office, compatible with various operating systems including Windows, Linux, MacOS, Android, iOS, and Harmony OS - **Monthly Active Devices**: 669 million as of Q3 2025 [11] Key Points Growth Outlook - **Upgrade to Buy**: Kingsoft Office's rating upgraded from Neutral to Buy due to a more positive growth outlook driven by: 1. Rapid growth of WPS 365 with client base expansion, including privately-owned enterprises (POEs) and local state-owned enterprises (SOEs) [1] 2. Recovery in WPS to-C business revenue with accelerated AI monetization domestically and strong overseas user growth [1] 3. Promising growth in WPS software business with increasing Xinchuang (import substitution) opportunities [1] Financial Estimates - **Earnings Estimates**: FY26-27E earnings estimates raised by 2% due to stronger-than-expected growth in WPS 365 and WPS software businesses [1] - **Price Objective**: Adjusted DCF-based price objective to RMB 408 from RMB 363, trading at 55x 12-month forward P/E, which is 1 standard deviation below its historical average [1] - **Revenue Growth**: Expected revenue CAGR of 20% from FY25-27E, compared to 14% for global SaaS peers [1][22] WPS 365 and Enterprise Adoption - **WPS 365 Upgrades**: Recent upgrades to a one-stop AI collaborative office platform are expected to accelerate enterprise adoption, enhancing collaboration and document management capabilities [2] - **Total Addressable Market (TAM)**: Estimated to grow at a CAGR of 31% from 2024-2030 for domestic office software among Chinese enterprises, excluding SMEs [14][15] Revenue Breakdown and Growth Projections - **Revenue Segmentation**: - WPS to-C (domestic) and WPS to-C (overseas) are expected to grow significantly, with overseas growth projected at 30-40% YoY [3][16] - WPS 365 is anticipated to contribute increasingly to total revenue, with a forecasted revenue breakdown showing a rise in contribution from 3% in FY23 to 19% by FY27 [20] - **Financial Metrics**: - FY26E revenue projected at RMB 7,222 million, with net income expected to reach RMB 2,612 million [4][34] Competitive Positioning - **Market Position**: WPS 365 is well-positioned against competitors due to its cloud-based architecture, which mitigates software piracy and integrates various productivity tools [14] - **User Acquisition**: The mobile-first distribution strategy is expected to enhance user acquisition and conversion rates, particularly in emerging markets [16] Valuation Metrics - **Valuation Comparison**: Kingsoft Office's implied FY26E Price/FCF of 45x is 50% higher than leading global SaaS companies, justified by its superior growth outlook and stronger free cash flow margin [1][22] - **P/E Ratio**: Currently trading at 58x, compared to a historical mean of 100x [27] Risks and Considerations - **Market Competition**: The competitive landscape in the office software market remains intense, with ongoing innovations required to maintain market share [12] - **Economic Factors**: Potential economic fluctuations could impact growth rates and user adoption [12] Conclusion Kingsoft Office is positioned for significant growth driven by its innovative WPS 365 platform and expanding market opportunities. The company's financial outlook is positive, supported by strong revenue growth projections and a favorable valuation compared to peers.