Summary of Kingsoft Cloud 3Q25 Earnings Call Company Overview - **Company**: Kingsoft Cloud - **Sector**: Internet Infrastructure Services - **Headquarters**: Beijing, China - **Description**: Leading independent cloud service provider in China, offering cloud infrastructure services and products (IaaS and PaaS) and enterprise cloud solutions across various sectors including government, financial services, healthcare, media, games, and education [11][12] Key Financial Highlights - **3Q25 Revenue**: Rmb2.48 billion, up 31% YoY and 6% QoQ, exceeding consensus estimates by 1% [1][14] - **Adjusted EBITDA**: Rmb827 million, representing a 30% increase above consensus, with an adjusted EBITDA margin of 33.4%, up 23.5 percentage points YoY and 16.1 percentage points QoQ [1][14] - **Gross Profit Margin (GPM)**: 15.4% in 3Q25, an increase of 1 percentage point QoQ, attributed to economies of scale and a shift towards AI-related public cloud business [1][14] Revenue Breakdown - **Public Cloud Revenue**: Rmb1.75 billion, up 49% YoY and 8% QoQ, primarily driven by AI-related orders [2][14] - **AI Revenue**: Increased 7% QoQ to Rmb782 million, accounting for 45% of public cloud revenue in 3Q25 [2] - **Xiaomi and Kingsoft Ecosystem Contribution**: Grew 84% YoY to Rmb691 million [2] - **Enterprise Cloud Revenue**: Rmb726 million, up 2% YoY, with expectations for steady recovery in 4Q25 [2] Profitability and Cost Management - **GPM Improvement Outlook**: Management anticipates further GPM improvements driven by increased revenue from model inferencing services, which typically have better margins than model training services [3] - **Cost Control**: Stringent cost control measures have contributed to improved profitability, with stable operating expenses expected in the coming years [12] Future Outlook - **Growth Drivers**: High growth visibility driven by AI and demand from the Xiaomi ecosystem, with expectations for continued revenue growth from AI-related business in 4Q25 [12][21] - **Risks**: Potential risks include pricing pressure from competition, high customer concentration, and export restrictions on AI chips to China [21] Valuation and Investment Rationale - **Price Objective**: HKD 10.60, based on a 3x 12-month forward price-to-sales ratio, reflecting the average valuation of independent cloud service providers in China [20] - **Investment Rating**: Rated as "Buy" due to higher revenue growth visibility, improving business quality, and profitability [12] Important Metrics - **Net Income (Adjusted)**: Expected to improve from a loss of Rmb1,291 million in 2023 to a loss of Rmb248 million by 2027 [4][9] - **Free Cash Flow**: Projected to improve from a negative Rmb600 million in 2023 to a near breakeven by 2027 [4][9] - **Return on Equity (2025E)**: Expected to be -16.6% [7][9] Conclusion Kingsoft Cloud demonstrates strong revenue growth and improving profitability, driven by AI expansion and effective cost management. The company is well-positioned for future growth, although it faces risks from competition and market dynamics. The investment rationale supports a "Buy" rating, with a favorable price objective reflecting its growth potential.