Core Viewpoint - The report from Jefferies indicates that Kingsoft Corporation (03888) reported weaker-than-expected revenue and adjusted operating profit for the second quarter, primarily due to underperformance in online gaming, partially offset by the performance of its office software business [1] Group 1: Financial Performance - Kingsoft's second-quarter revenue and adjusted operating profit fell short of expectations [1] - The underperformance in online gaming was a significant factor in the disappointing results [1] - The office software business showed some resilience, helping to mitigate the overall impact [1] Group 2: Management Insights - Management highlighted that the new game "Mecha BREAK" did not meet expectations and may require additional time for optimization [1] - Targeted strategies are being implemented in the office software segment to better meet user and enterprise needs [1] Group 3: Analyst Rating and Price Target - Jefferies maintains a "Buy" rating for Kingsoft Corporation [1] - The target price has been adjusted down from HKD 42.8 to HKD 40 due to the weaker gaming performance [1]

Core Viewpoint - Kingsoft reported weak 1Q25 results, with revenue and net income missing estimates significantly, attributed to slowdowns in online gaming, office businesses, and unexpected declines in Kingsoft Cloud margins and profits, alongside high R&D expenses in AI and games [1][2]. Group 1: Financial Performance - 1Q25 revenue grew 9% YoY to RMB2.3 billion, missing BOCIe and consensus estimates by 9% and 6% respectively, primarily due to sluggish office business growth of 6% YoY [3]. - Gross profit margin (GPM) dipped 1.9 percentage points QoQ to 82.1%, also a miss, driven down by the games business which saw a GPM decline of 5.7 percentage points QoQ due to rising channel costs for new games [3]. - Operating profit margin (OPM) declined 13.9 percentage points QoQ, mainly due to increased R&D expenses, which rose by 9 percentage points QoQ [3]. - Net income remained flat YoY, missing BOCIe and consensus estimates by 36% and 31% respectively [3]. Group 2: Gaming Segment - Revenue from the gaming segment increased 14% YoY to RMB1,037 million but declined 20% QoQ, missing BOCIe estimates by 5% [4]. - The gaming business has been normalizing since the peak in 3Q24, attributed to lifecycle declines in older IP games and hit titles [4]. - Upcoming game Mecha BREAK is anticipated to be a potential catalyst, having peaked at 5th on Steam's global wishlist during testing, with a global release targeted for July 2025 [4]. Group 3: Office Segment and AI Monetization - Office revenue grew 6% YoY but declined 13% QoQ to RMB1,301 million, with WPS individual revenue rising 11% YoY to RMB857 million, driven by user base expansion [5]. - WPS 365 revenue surged 63% to RMB151 million, fueled by digitalization demand from private enterprises and local SOEs [5]. - The management is developing a foreign version of WPS for the overseas market, with updates expected in June 2025, but faces challenges in AI monetization due to the availability of free AI tools [5].