20210223-招银国际-China_cloud_service_pure_play_8页_1mb

Kingsoft Cloud (KC US) Summary

Core Content

Kingsoft Cloud (KC US) is a leading cloud service provider in China, operating as a pure-play IaaS (Infrastructure as a Service) and PaaS (Platform as a Service) company. Founded in 2012 and listed on Nasdaq in May 2020, KC has shown strong growth, with a market share of 5.4% in the 2019 China IaaS + PaaS public cloud market. The company's growth is attributed to the adoption of multi-cloud strategies by internet companies, an increasing number of premium customers, and higher average selling prices (ASP) per customer due to product cross-selling.

KC has been expanding its customer base, with 80% of its new customers utilizing a multi-cloud approach. This indicates a diversification of its customer portfolio, reducing its reliance on Kingsoft Group. As of 2019, KC had 243 premium customers, and the average revenue per premium customer rose to RMB15.9 million. The net dollar retention rate for premium customers was 155%, demonstrating strong customer loyalty.

KC's financial performance has shown consistent improvement, with a gross margin turning positive in 3Q19 and reaching 6.5% in 3Q20. Management anticipates a 5 percentage point increase in gross margin in 2021. The company's cost structure has improved over time, with IDC costs as a percentage of revenue decreasing from 71% in 3Q19 to 66% in 3Q20, and depreciation costs dropping from 16% to 10% during the same period.

KC's valuation is currently at 9.2x consensus FY21E P/S, which is lower than the 14.7x average for IaaS providers, indicating potential for re-rating. The company is also noted as a rare independent IaaS provider in the market.

Key Financials

Revenue and Growth

• FY17A: RMB1,236 million
• FY18A: RMB2,218 million (+79% YoY)
• FY19A: RMB3,956 million (+78% YoY)
• FY20E: RMB6,567 million (+66% YoY)
• FY21E: RMB10,468 million (+59% YoY)

EBITDA and Profit

• FY17A: Adj. EBITDA of -RMB338 million
• FY18A: Adj. EBITDA of -RMB520 million
• FY19A: Adj. EBITDA of -RMB418 million
• FY20E: Adj. EBITDA of -RMB227 million
• FY21E: Adj. EBITDA of +RMB248 million

Net Income

• FY17A: -RMB1,320 million
• FY18A: -RMB1,749 million
• FY19A: -RMB1,161 million
• FY20E: -RMB942 million
• FY21E: -RMB728 million

EPS

• FY17A: -RMB1.66
• FY18A: -RMB2.20
• FY19A: -RMB1.31
• FY20E: -RMB3.98
• FY21E: -RMB2.88

Valuation and Market Position

• P/S (Price to Sales): 9.1x for FY21E
• EV/sales: Not specified
• Sales CAGR (FY19-22E): 61% for KC, significantly higher than the 24% average for IaaS companies
• P/S comparison: KC is trading at 9.2x, lower than the 14.7x average for IaaS providers and 30x for SaaS + PaaS companies
• Gross margin: Improved from 0.2% in FY19 to 6.5% in 3Q20, with an expected increase to +5% in FY21E

Shareholding and Performance

• Shareholding Structure:

  • Kingsoft Group: 43.6%
  • Xiaomi: 13.8%
  • Jun LEI: 13.8%

• Share Performance:

  • 1-month: +49.5%
  • 3-months: +90.7%
  • 6-months: +99.2%

• Market Cap: US$14,875 million

• Avg 3-months t/o: US$88.73 million

• 52-week High/Low: US$74.67 / US$17.01

Key Operating Metrics

• Premium customers (Public Cloud): 175 in 2019 (+25% YoY)
• Avg. revenue per premium customer (Public Cloud): RMB19.2 million (+32% YoY)
• Net dollar retention rate: 155% for premium customers
• Revenue mix:
  • Public Cloud: 87% of total revenue in 2019
  • Enterprise Cloud: 12% of total revenue in 2019

R&D and Operations

• R&D expenditure: 15% of revenue in 2019 (RMB595 million)
• R&D engineers: 1,150
• IDC costs: Reduced from 71% in 3Q19 to 66% in 3Q20
• Depreciation costs: Reduced from 16% in 3Q19 to 10% in 3Q20

CMBIS Ratings

• BUY: Stock with potential return of over 15% over next 12 months
• HOLD: Stock with potential return of +15% to -10% over next 12 months
• NOT RATED: Stock not rated by CMBIS

Analyst Certification and Disclosures

• The research analyst certifies that the views expressed in the report reflect their personal opinions.
• No transactions in the stock covered in this report were made within 30 calendar days prior to the report's release.
• The analyst will not trade in the stock within 3 business days after the report's release.
• CMBIS or its affiliates have investment banking relationships with the issuers covered in this report within the preceding 12 months.