Summary of Kingsoft Corp and Kingsoft Office Conference Call Company Overview - **Company**: Kingsoft Corp Ltd (3888.HK) and Beijing Kingsoft Office Software Inc (688111.SS) - **Industry**: IT Services and Software in Asia Pacific Key Points Price Target Adjustments - Kingsoft Corp's price target reduced from HK$33.00 to HK$28.00 [1] - Kingsoft Office's price target reduced from Rmb190.00 to Rmb172.00 [1] Game Segment Performance - Game revenue expected to decline by 15% in 2026 due to transformation challenges following the unsuccessful launch of "Mecha Break" and normalization of "JX3" [2] - The new title "Goose Goose Duck" has a strong user base with 3 million daily active users (DAU) and aims to reach 5 million DAU by summer through marketing initiatives and content upgrades [2] - Early monetization stages indicate potential for significant increases in average revenue per paying user (ARPPU) in the future [2] Software Segment Insights - Overall software business is stable, with AI expected to positively impact software that embraces it, while legacy SaaS may be negatively affected [3] - Daily token consumption for Kingsoft Office rose 12 times to 0.2 trillion per day as of December 2025 [3] - Concerns about a 16.5% headcount increase in 2025, which may lead to negative operating leverage [3] - Valuations for 2026 estimated at over 52x P/E and 16x P/S are considered outliers in the global SaaS market [3] Cloud Segment Developments - 2026 capital expenditure projected at Rmb10 billion, more than double year-over-year [4] - Strong demand for AI computing power is leading to price increases for new contracts, exceeding cost inflation [4] - Rising pricing power among cloud players reflected in increased customer prepayments [4] - Kingsoft expects cloud margins to reach 20% [4] Financial Forecasts - Adjusted EPS forecasts for 2026-28 revised by -4.1% to +1.4% due to lower operating profit from games and narrowed losses from associates [5] - A deeper holdco discount of 45% applied due to lackluster business outlook and shareholder return improvements [5] Revenue and Profit Projections - Online game revenue expected to decline by 28% in 2025 and 10% in 2026, with a recovery of 15% in 2027 [9] - Software and services revenue projected to grow by 16% annually from 2025 to 2027 [9] - Net profit for Kingsoft Corp expected to decrease from Rmb2,004 million in 2025 to Rmb1,366 million in 2026, before recovering to Rmb1,633 million in 2027 [8] Risk and Valuation Insights - Current 2026e P/E valuation of 23x is viewed as fair against a normalized net profit CAGR of 21% for 2026-29 [19] - Risks include disappointing software localization and failure to improve payment ratios for WPS [29] Consensus Ratings - Consensus rating distribution shows 75% overweight, 25% equal-weight, and 0% underweight [19] Conclusion - Kingsoft Corp faces challenges in its gaming segment but shows potential in software and cloud services. The adjustments in price targets reflect a cautious outlook amid mixed performance across its business segments.