Summary of Kingsoft Office (688111.SS) 2Q25 Earnings Call Company Overview - **Company**: Kingsoft Office (KO) - **Ticker**: 688111.SS - **Sector**: Technology Key Financial Results - **1H25 Revenue Growth**: 10% year-on-year (y-y) - **1H25 Earnings Growth**: 4% y-y - **2Q25 Revenue Growth**: 14% y-y, up from 6% in 1Q25 - **2Q25 Earnings Change**: -3% y-y - **WPS Software Growth**: 27% y-y in 2Q25, compared to -21% in 1Q25 - **Gross Profit Margin (GPM)**: 85.0% in 1H25, up 0.1 percentage points y-y; 84.1% in 2Q25, down 0.9 percentage points y-y - **Operating Profit Margin (OPM)**: 21.7% in 1H25, down 1.6 percentage points y-y; 19.3% in 2Q25, down 3.2 percentage points y-y - **Target Price**: CNY 337, implying 27x FY26F Price/Sales (P/S) and 75.5x FY26F Earnings Per Share (EPS) of CNY 4.5 - **Current Trading**: 73x FY26F EPS Segment Performance - **WPS Individual Segment**: Revenue growth of 8% y-y; paying users in China increased by 10% y-y to 41.8 million - **WPS 365 Segment**: Revenue growth of 62% y-y - **WPS Software Contribution**: 20% of total revenue in 1H25 - **Monthly Active Users (MAU)**: WPS AI MAU reached 29.51 million, up from 19.68 million as of end-2024 - **Active Device Growth**: WPS Office Monthly Active Device (MAD) increased by 8.6% y-y to 651 million; Daily Active Device (DAD) grew by 12.3% y-y to 305 million Strategic Focus - **Investment in AI**: Company prioritizes adding AI subscribers and increasing usage over immediate monetization - **Future AI Solutions**: Anticipated improvements from WPS 3.0 and WPS 'Lingxi' Agent expected to drive user growth - **Market Development**: DeepSeek's recently launched large language model (LLM) DS-V3.1 may stimulate further AI application development in China Risks and Opportunities - **Downside Risks**: Weaker-than-expected demand in the China market, slower development of WPS AI and subscription business, increasing competition in the SaaS market - **Upside Risks**: Stronger-than-expected demand in the China market, faster development of WPS AI penetration, rapid advancements in large language models in China Conclusion - **Rating**: Maintained as Buy - **Market Sentiment**: Despite mixed results, the company shows potential for growth driven by AI initiatives and user engagement strategies This summary encapsulates the key points from the earnings call, highlighting the financial performance, strategic focus, and market outlook for Kingsoft Office.