20220609-招银国际-Encouraging_margin_improvement_9页_1mb

CMB International Global Markets | Equity Research | Company Update Summary

Core Content Overview

This report provides an analysis of Kingsoft Cloud (KC US), highlighting its financial performance, operating model, and valuation. The key focus is on the company's recent FY1Q22 results, margin improvements, and future growth prospects.

Key Financial Highlights

FY1Q22 Results

• Revenue: RMB2,174mn, up 20% YoY and down 18% QoQ, beating both CMBI and consensus estimates.
• Public Cloud Revenue: RMB1,381mn, down 1% YoY and 10% QoQ.
• Enterprise Cloud Revenue: RMB793mn, up 89% YoY and down 30% QoQ.
• Gross Margin (GPM): 3.7%, up 2.6 pct pts QoQ and down 2.7 pct pts YoY.
• Adj. EBITDA Margin: -7.0%, improving from -10.5% in FY4Q21.
• Net Loss: RMB553mn, in line with forecasts but below consensus estimates.

Earnings Revisions

• Revenue (FY22E): Revised down by 7% to RMB9,473mn.
• Gross Profit (FY22E): Revised up by 8% to RMB477mn.
• Adj. EBITDA (FY22E): Revised up by 75% to RMB-336mn.
• Net Profit (FY22E): Revised down by 2% to RMB-1,716mn.
• EPS (FY22E): Revised down by 2% to RMB-7.05 per share.

Financial Forecasts (FY22E - FY24E)

P/S and Other Metrics

• P/S (FY22E): 1.2x
• P/B (FY22E): 0.8x
• ROE (%): -18% (FY22E)
• Net gearing (%): Net cash (FY22E)

Operating Model Insights

• Revenue Breakdown:
  • Public Cloud: 62% of total revenue in FY22E.
  • Enterprise Cloud: 38% of total revenue in FY22E.
• Growth Drivers:
  • Strong growth in non-CDN business (61.2% YoY).
  • Cost of revenue decreased by 20% QoQ to RMB2.1bn.
• Cost Components:
  • IDC costs: RMB1,110mn, down 16% QoQ.
  • Depreciation and amortization costs: RMB1,068mn (FY22E).
  • Staff costs: RMB1,203mn (FY22E).
  • Other costs: RMB2,309mn (FY22E).

Valuation and Investment Recommendation

• Target Price: US$7.26 (revised from US$7.87), based on 1.2x FY22E P/S.
• Current Price: US$4.95.
• Upside Potential: +46.6%.
• Investment Recommendation: Maintain BUY.
• Catalysts:
  • US$100mn share repurchase program.
  • HK dual listing progress.

Peer Comparison

Share Performance

• Market Cap (HK$ mn): 1,206
• Avg 3 mths t/o (HK$ mn): 33.78
• 52w High/Low (HK$): 41.14 / 2.50
• Total Issued Shares (mn): 244

Shareholding Structure

• Kingsoft Group (3888 HK): 42.5%
• Xiaomi (1810 HK): 13.4%
• Mr. Jun LEI: 13.4%

Share Performance Trends

Key Operating Metrics

• Public Cloud:
  • No. of premium customers: 223 (FY22E).
  • Net dollar retention rate: 70% (FY22E).
  • Avg. revenue per premium customer: RMB26.0mn (FY22E).
• Enterprise Cloud:
  • No. of premium customers: 230 (FY22E).
  • Avg. revenue per premium customer: RMB15.4mn (FY22E).

Summary

The report highlights that Kingsoft Cloud delivered strong FY1Q22 results, with revenue growth of 20% YoY and improved gross margin. The company is proactively downsizing its lower-margin CDN business, which is expected to drive margin improvement. Despite the impact of lockdowns on FY2Q22E, the core cloud business remains resilient. The company's operating model is under review, with a focus on public and enterprise cloud services. The valuation is based on a 1.2x P/S multiple, and the investment recommendation remains BUY. Key catalysts include the share repurchase program and dual listing progress.