- 2024-10-01
- News
"Jinshan Group's Surge: Kingsoft Cloud Rallies by Nearly 27%"
On November 20th, the "Kingsoft family" sparked a strong upsurge in the market.
As of the close of trading, Kingsoft (03888. HK)Up 9.42 percent at HK$31.95; Kingsoft Cloud (03896. HK)The share price was even stronger, rising 26.72 percent to HK$3.13 per share. In addition, A-share listed Kingsoft Office (688111... SH)Also not to be outdone, shares closed up 3.25 percent at 288.07 yuan per share.
On the news front, during the busy earnings season, it's time for "Kingsoft family" companies to showcase their strength.
Overall, thanks to the increasing maturity of platform construction, the "Kingsoft family" achieved impressive performance in the third quarter of this year. Especially Kingsoft Software and Kingsoft Cloud in the Hong Kong stock market, not only did their revenue increase significantly, but their blood-making ability also steadily strengthened, with profit levels and gross margins both improving.
After the results were announced, in the secondary market, the "Kingsoft family" instantly became the focus of investors, with stock prices of many companies soaring.
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01 Kingsoft Software: Third Quarter Profits Gallop
In the third quarter of 2024, Kingsoft Software's performance greatly exceeded market expectations. During the reporting period, its total revenue reached 2.915 billion yuan, a year-on-year increase of 42%, and a sequential increase of 18%; the net profit attributable to the parent company was 413 million yuan, a significant year-on-year increase of 13.51 times, and a sequential increase of 5%; the gross margin was 84%, an increase of 3 percentage points from the same period last year, and an increase of 1 percentage point sequentially.
Among them, revenue from office software and services was 1.207 billion yuan, accounting for 41.4% of total revenue, a year-on-year increase of 9.88%, and a sequential increase of 1.61%. The growth of this business mainly comes from the increase in the domestic personal office subscription business of Kingsoft Office Group, mainly due to the increase in user stickiness and payment conversion rate. By introducing WPS AI 2.0 and four new assistants, productivity is improved and a more efficient creative experience is provided.
In terms of online games and other businesses, revenue was 1.708 billion yuan, accounting for 58.6%, a year-on-year increase of 77.66%, and a sequential increase of 32.81%. This is mainly due to the excellent performance of "Sword Net 3" and the successful launch of "Sword Net 3 Infinity" which increased the popularity of the game; other game projects also contributed to the company's significant revenue growth through active and effective operational measures.
BOCI Research reported that Kingsoft Software's better-than-expected third quarter performance was mainly due to the excellent performance of its online gaming business. The bank stated that the company expects the online gaming business to maintain good momentum in 2025, which will help offset the underperformance of office software revenue due to the weak overall macro environment. The bank believes that as expectations for government stimulus policies heat up, the company's office software remains an attractive long-term SaaS target, and the strong performance of the online gaming business in the current and next year is a positive to watch.
Morgan Stanley raised its revenue forecast for Kingsoft Software for 2024 to 2026 by 2%, 2.8%, and 1.7%, respectively, to reflect the group's gaming business surprising the market, and raised its operating profit forecast for 2024 to 2026 by 10.2%, 9.4%, and 6.4%, respectively.
Bank of America Securities also pointed out that, considering the positive performance of the gaming business and the launch of several new games next year, it correspondingly raised its profit forecast for Kingsoft Software for 2024 to 2026 by 2% to 3%, and raised its target price from 37 Hong Kong dollars to 38 Hong Kong dollars.
02 Kingsoft Cloud: Continuous Improvement in Profitability
In the third quarter of this year, Kingsoft Software's subsidiary focused on cloud computing— Kingsoft Cloud also had an impressive performance, making solid progress in revenue scale and profitability.
Financial reports show that in the third quarter of 2024, Kingsoft Cloud's total revenue was 1.89 billion yuan, a year-on-year increase of 16%. Among them, public cloud revenue was 1.175 billion yuan, a year-on-year increase of 15.6%; industry cloud revenue was 710 million yuan, a year-on-year increase of 16.7%.
The increase in Kingsoft Cloud's revenue is mainly due to the growth in revenue from Xiaomi and Kingsoft ecosystem and artificial intelligence-related customers, and the increase in demand for industry clouds, which was partially offset by the company's active reduction in the scale of low-profit content delivery network (CDN) services.
During the period, Kingsoft Cloud's AI business revenue increased to 362 million yuan, accounting for about 31% and 19% of public cloud and total revenue, respectively; at the same time, Kingsoft Cloud is fully committed to Xiaomi and Kingsoft ecosystem and has explored huge practical business opportunities from electric vehicles, LLM to WPS AI, and the company's revenue from the ecosystem increased by 36% year-on-year.
In terms of profitability, during the reporting period, Kingsoft Cloud's gross profit was 303.4 million yuan, a year-on-year increase of 54.6%. The gross margin was 16.1%, an increase of 4 percentage points from the same period last year; non-GAAP EBITDA was about 185 million yuan, turning a loss into profit year-on-year. The net loss was 1.061 billion yuan, compared with a loss of 789 million yuan in the same period last year, mainly due to a 920 million yuan impairment of long-term assets.
Looking forward to the fourth quarter of 2024, Kingsoft Cloud stated that, thanks to the two parallel drivers of public cloud and industry cloud, it is expected to achieve accelerated growth in total revenue in the fourth quarter; profitability is expected to continue to improve; in terms of operating profit and adjusted operating profit, it is also expected to achieve accelerated improvement.
CICC Research Report pointed out that, considering the contribution of AI business revenue exceeding expectations, it raised its revenue forecast for 2024/2025 by 2.0%/1.7% to 7.65 billion yuan/8.42 billion yuan; given that revenue growth and the release of operating leverage are faster than expected, it raised its adjusted EBITDA forecast by 15.8%/26.6% to 552 million yuan/1.18 billion yuan. Maintaining the outperform industry rating; considering the company's more optimistic growth and profit prospects, it raised its target price by 8% to 6.5 US dollars (based on a 1.4 times sales multiple in 2025), corresponding to a 50% upside.
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