20180523-交银国际证券-金山软件-03888.HK-1Q18_in_line；_JX_III_launch_in_late_3Q18_5页_554kb

Kingsoft Corp (3888 HK) Summary

Core Content

This document provides an analysis of Kingsoft Corp (3888 HK) for the first quarter of 2018 (1Q18) and outlook for the rest of 2018. It includes financial performance, business segments, valuation, and investment ratings.

1Q18 Performance

• Total Revenue: RMB1.26bn, up 4% YoY, down 8% QoQ, slightly above BOCOM's forecast of RMB1.23bn.
• Non-GAAP Net Profit: RMB157m, down 51% QoQ and 59% YoY, 2% above BOCOM's estimate.
• Key Business Segments:
  • WPS Business: Revenue exceeded expectations due to strong growth in VAS (Value-Added Services) revenue, which grew nearly triple-digit YoY. WPS's 100m MAU (Monthly Active Users) helped drive content value-added services.
  • Cloud Services: Revenue increased by 56% YoY to RMB419m, driven by growing usage in mobile video and internet sectors. Xiaomi contributed less than 25% of total cloud revenue.
  • Gaming Business: Performance was weaker than expected, with revenue declining by 16% QoQ and 23% YoY. The decline is attributed to the natural decline of old games and the slow recovery of JX III PC revamped version. Mobile games also saw a decline in monthly average paying accounts by 17% QoQ and 22% YoY.

2018 Outlook

• Gaming Business: Expected to recover in 2H18 due to the launch of new mobile games (e.g., Yunshangyuyi, JX Online II mobile, JX Online III mobile) around August/September. Revenue growth is projected at 21% YoY, mainly driven by mobile games.
• WPS/Cloud Business: Expected to maintain momentum with projected YoY growth of 38% for WPS and 59% for cloud services.
• Valuation Adjustments: Due to the gaming business headwinds, BOCOM lowered its 2018E revenue and profit estimates by 2%. The target price was revised from HK$35.00 to HK$34.00, implying 29x and 23x P/E for 2018E and 2019E respectively.
• Stock Rating: Maintain Buy, as the stock's total return is expected to exceed the corresponding industry over the next 12 months.

Financial Highlights

P&L Forecasts

Investment Rating

• Stock Rating: Buy
• Rating System:
  • Buy: The stock's total return is expected to exceed that of the corresponding industry over the next 12 months.
  • Market Perform: The analyst expects the industry coverage universe to be in line with the relevant broad market benchmark.
  • Outperform: The analyst expects the industry coverage universe to be attractive relative to the relevant broad market benchmark.

Analyst Certification

• The authors of the report declare that their views reflect their personal opinions and that no part of their compensation is related to the recommendations.
• No insider information was used in the preparation of the report.
• The authors have not traded in the stock covered in the report within 30 calendar days prior to the report's issue.

Disclosure of Business Relationships

• BOCOM International has investment banking relationships with several companies, including Orient Securities, Everbright Securities, and Guolian Securities.
• Some entities hold more than 1% of equity securities of the listed companies mentioned.

Disclaimer

• The report is confidential and for private circulation only.
• No part of the report may be copied, stored, or redistributed without prior written consent.
• The report may contain conflicts of interest due to potential ownership or business relationships.
• BOCOM International does not guarantee the accuracy or completeness of the information provided.
• The views and recommendations in the report may change without notice.