Results Review, 11 November 2014
Kingsoft (3888 HK)
Neutral (Maintained)
Technology - Software & Services
Market Cap: USD2,805m
Target Price:
Price:
HKD18.88
HKD18.36
Macro
Risks
Poor 3Q14 Should Have Been Priced In
Growth
Value
Kingsoft (3888 HK)
Relative to Hang Seng Index (RHS)
35.0
196
33.0
184
31.0
172
29.0
160
27.0
148
25.0
136
23.0
124
21.0
112
15.0
100
90
80
70
60
50
40
30
20
10
76
May-14
Jan-14
Sep-14
88
Jul-14
100
17.0
Mar-14
19.0
Nov-13
Vol m
Price Close
0
0
.
2
0
0
Kingsoft’s 3Q14 non-GAAP earnings of CNY102.6m (-43% YoY) were .
0
largely expected by the market as the company issued a profit warning 0
previously. We cut by 15% both our FY14-15F non-GAAP earnings 0
estimates mainly on higher operating expenses. Given the mark-tomarket valuation decrease in CMI and our lower earnings forecasts, we
cut our SOP-based TP to HKD18.88 (from HKD26.30), implying an 18x
FY15F P/E vs its peers’ 19x and a 2.8% upside. Maintain NEUTRAL.


Source: Bloomberg
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
177m/22.6m
38.6
2.8
16.9 - 32.3
55
1,184

36.1
12.6
6.1

Management
Tencent
FIL
Share Performance (%)
YTD
1m
3m
6m
Absolute
(17.9)
0.0
(23.5)
(16.6)
12m
1.7
Relative
(19.4)
(2.4)
(20.7)
(24.8)
(2.3)
3Q14 earnings decline as expected. Kingsoft’s 3Q14 revenue
increased 55% YoY and 14% QoQ to CNY852m, in line with our and
consensus forecasts. Cheetah Mobile (CMI) (CMCM US, NR) posted
strong revenue growth of 153% YoY and 26% QoQ, while WPS revenue
showed a 6% YoY decline due to fewer new contract wins. 3Q14 nonGAAP earnings declined 43% YoY and 37% QoQ to CNY103m, largely
below our and consensus forecasts. 3Q14 NPM was 8.4% (vs
16.5%/32.0% in 2Q14/3Q13), as Kingsoft aggressively invested in its
mobile business. However, as Kingsoft issued a profit warning two
weeks ago stating that its 3Q14 operating profit would be significantly
lower YoY, we believe the large decline in profit and record-low operating
profit margin (OPM) had been largely expected and priced in. In 3Q14,
Kingsoft recorded a CNY194m one-off gain on disposal of Kuaipan.
Key business updates: i) Kingsoft will launch two mobile games in
4Q14, ii) the company plans to invest heavily in the enterprise cloud
business and expects significant growth in cloud revenue in FY15 from a
low base, iii) mobile monthly active users (MAU) of CMI increased 19%
QoQ to 341m and mobile MAU of WPS reached 59m, and iv) mobile
revenue contributed 24% of total CMI revenue in the quarter.
Earnings changes and outlook. We lower our FY14/FY15/FY16 nonGAAP earnings forecasts by 15%/15%/12% mainly on higher marketing
and research and development (R&D) expenses. We expect FY14 nonGAAP earnings to decline 16% while topline to grow 51%. We expect
FY15 revenue to grow 45% and non-GAAP earnings to grow 67% on
recovering margins.
Maintain NEUTRAL with a lower HKD18.88 TP (from HKD26.30). Our
SOP-based TP (see Figure 4) implies an 18x FY15F P/E vs its peers’
19x average and 0.5x FY15 PEG (3-year CAGR 35%) vs its peers’ 0.7x.
The decrease in our TP is mainly due to: i) the mark-to-market valuation
decrease in CMI, and ii) downward revisions in our earnings forecasts.
Dec-12
Dec-13
1,411
2,173
3,283
4,766
6,226
Reported net profit (CNYm)
433
671
706
763
1,516
Recurring net profit (CNYm)
461
694
582
975
1,712
Recurring net profit growth (%)
35.7
50.5
(16.1)
67.4
75.5
Yujie Li +852 2103 5680
Recurring EPS (CNY)
0.41
0.60
0.50
0.84
1.47
[email protected]
DPS (CNY)
0.09
0.09
0.10
0.11
0.21
Recurring P/E (x)
35.7
24.0
28.8
17.3
9.9
P/B (x)
6.59
4.95
4.25
3.66
2.87
P/CF (x)
24.1
15.0
15.6
11.1
6.9
0.6
0.7
0.7
0.7
1.5
EV/EBITDA (x)
30.0
18.9
25.6
12.5
5.9
Return on average equity (%)
18.7
22.8
19.2
17.8
28.9
Shariah compliant
Forecasts and Valuations
Total turnover (CNYm)
Dividend Yield (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


2

.
2
0
.
2




Source: Company data, RHB
Dec-14F Dec-15F Dec-16F
net cash net cash net cash net cash net cash
(18.4)
(2.2)
Powered by EFATM Platform
15.2
1
Kingsoft (3888 HK)
10 November 2014
Figure 1: Quarterly results
FYE Dec 31 (CNYm)
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
Actual
Actual
Actual
Actual
Actual
Actual
Actual
RHB
Online games
266.7
270.5
271.0
287.7
294.9
307.5
304.2
319.9
-1.1%
12.2%
354.4
CMI
126.0
149.0
176.0
249.8
292.8
353.6
446.0
548.6
26.1%
153.4%
394.1
13%
64.2
77.0
104.1
131.2
87.9
89.4
102.0
136.6
14.2%
-2.0%
128.6
-21%
13.5%
54.6%
877.0
-3%
WPS & others
Total revenue
456.9
496.5
551.1
668.8
675.6
750.5
852.2
1,005.0
YoY change
56.1%
54.0%
50.8%
55.3%
47.9%
51.2%
54.6%
50.3%
3Q14
QoQ
3Q14
YoY
RHB
3Q14
Actual vs Consensus
Actual vs
RHB
Consensus
-14%
Cost of revenue
(61.6)
(66.0)
(79.8)
(89.7)
(106.6)
(116.3)
(140.3)
(168.8)
20.7%
75.9% (135.9)
Gross profit
395.3
430.5
471.3
579.1
569.0
634.2
711.8
836.2
12.2%
51.0%
YoY change
62.7%
52.9%
46.9%
52.9%
44.0%
47.3%
51.0%
44.4%
57.2%
Gross profit margin
86.5%
86.7%
85.5%
86.6%
84.2%
84.5%
83.5%
83.2%
84.5%
R&D costs
(115.2) (136.2) (169.6)
741.1
(175.5)
(196.3)
(222.7)
(272.6)
(311.6)
22.4%
60.7% (258.7)
5%
(71.8)
(78.4)
(165.0)
(157.3)
(166.3)
(229.5)
(262.3)
38.0%
192.6% (201.7)
14%
Admin expenses
(45.5)
(43.8)
(50.6)
(52.4)
(66.3)
(66.9)
(74.5)
(93.5)
11.5%
Other op costs
(10.1)
(5.1)
(0.0)
8.0
(0.2)
1.5
(16.0)
SBC
(10.1)
(19.5)
(15.2)
(16.6)
(20.6)
(57.1)
(65.4)
(66.3)
14.5%
330.1%
15.2
5.2
19.0
6.5
1.9
1.1
17.4
5.0
1480.4%
-8.7%
-42.5%
-59.6%
47.3%
(83.3)
-11%
(1.0) -1139.4% 33227.1%
(1.0)
1558%
(43.9)
297%
156.9
-55%
162.0
159.3
176.4
184.1
130.1
123.9
71.2
106.5
YoY change
93.3%
46.5%
60.9%
64.9%
-19.7%
-22.3%
-59.6%
-42.1%
-11.1%
Operating margin
35.5%
32.1%
32.0%
27.5%
19.3%
16.5%
8.4%
10.6%
17.9%
24.5
26.7
25.0
28.8
34.2
39.1
43.7
49.6
11.9%
75.0%
36.4
20%
JV & associates
0.9
(0.5)
(1.2)
1.8
(3.1)
(1.6)
(4.2)
(3.5)
165.1%
259.9%
(3.1)
37%
Fair value gains
-
0.2
(2.0)
(8.6)
(0.1)
(0.1)
(3.1)
2667.0%
58.2%
-
Gain on disposal and others
0%
49%
4.4
Operating profit
-
713.7
83.8%
(67.6)
Net finance income
0%
3%
-4%
Selling expenses
Other gains
851.9
59.1%
154.2
-54%
217.3
41%
47.5
-
-
-
116.8
-
199.0
-
PBT
234.9
185.9
198.3
206.0
277.8
161.2
306.6
152.6
90.1%
54.6%
190.3
61%
Tax
(23.7)
(15.8)
(20.6)
(11.0)
(23.3)
(36.0)
(20.3)
(27.5)
-43.6%
-1.6%
(34.3)
-41%
10.1%
8.5%
10.4%
5.4%
8.4%
22.3%
6.6%
18.0%
15.2
24.8
14.4
28.7
8.2
7.1
55.7
20.6
687.1%
287.7%
13.1
326%
195.9
145.3
163.3
166.3
246.2
118.1
230.5
104.6
95.2%
41.2%
143.0
61%
163.4
41%
123.8%
29.8%
51.1%
33.0%
25.7%
-18.7%
41.2%
-37.1%
NPM - reported
42.9%
29.3%
29.6%
24.9%
36.4%
15.7%
27.1%
10.4%
Net Profit - non-GAAP
162.3
162.8
178.7
190.2
158.2
162.6
102.6
159.0
-43%
174.5
-41%
YoY change
71.7%
30.9%
50.0%
54.5%
-2.5%
-0.2%
-42.6%
-16.4%
1.2%
NPM - non-GAAP
35.5%
32.8%
32.4%
28.4%
23.4%
21.7%
12.0%
15.8%
20.4%
Effective tax rate (%)
MI
Net profit - reported
YoY change
-
18.0%
-12.4%
16.3%
-36.9%
-42.6%
179.0
Source: Company, RHB
See important disclosures at the end of this report
2
Kingsoft (3888 HK)
10 November 2014
Figure 2: Earnings changes
FYE Dec 31 (CNYm)
CNYm
FY14F
Original
FY15F
New
Change
Original
FY16F
New
Change
Original
New
Change
Online games
1,323.7
1,226.5
-7.3%
1,675.9
1,401.0
-16.4%
1,965.5
1,579.7
CMI
1,509.4
1,641.0
8.7%
2,407.3
2,862.6
18.9%
3,420.6
4,060.0
18.7%
460.3
415.8
-9.7%
606.5
502.5
-17.1%
709.5
586.4
-17.3%
3,293.4
3,283.3
-0.3%
4,689.6
4,766.1
1.6%
6,095.5
6,226.1
2.1%
WPS and others
Total revenue
Cost of Revenue
Gross profit
(512.2)
(532.1)
2,781.2
2,751.2
Gross profit margin
84.4%
83.8%
R&D costs
(974.9)
(1,003.3)
Selling expenses
(758.0)
(815.4)
Admin expenses
(308.6)
(0.6)
Other expenses
3.9%
(680.0)
(792.5)
16.5%
(1,064.7)
24.8%
5,242.2
5,161.5
-1.5%
86.0%
82.9%
3.2%
(1,556.5)
(1,601.4)
2.9%
14.9%
(898.0)
(1,052.1)
17.2%
-4.5%
(538.8)
(524.9)
-2.6%
1.0%
(12.0)
(12.2)
4,009.6
3,973.6
85.5%
83.4%
2.9%
(1,314.9)
(1,356.9)
7.6%
(918.7)
(1,055.5)
(301.2)
-2.4%
(437.3)
(417.5)
(15.7)
2377.1%
(16.3)
(16.5)
1,147.4
892.2
-22.2%
24.5%
18.7%
Operating profit
580.3
431.7
Operating margin
17.6%
13.1%
Share-based expenses
-1.1%
-25.6%
-0.9%
(853.4)
-19.6%
2,055.5
1,766.6
33.7%
28.4%
1.9%
-14.1%
(171.1)
(209.5)
22.4%
(198.4)
(258.9)
30.5%
(211.8)
(235.4)
11.1%
Other income
12.3
25.4
106.1%
23.4
23.8
1.6%
30.5
31.1
2.1%
Fair value gains
(0.2)
(3.3)
1428.1%
-
-
-
-
n.a.
n.a.
Finance income
210.0
240.6
14.6%
252.7
252.7
0.0%
315.6
315.6
0.0%
Finance costs
(65.8)
(74.1)
12.6%
(53.8)
(54.6)
1.5%
(37.4)
(38.2)
2.2%
JC and associate
(11.2)
(12.4)
10.1%
(16.4)
(16.4)
0.0%
(21.5)
(21.5)
0.0%
Gain on disposal
116.8
315.8
-
-
-
-
PBT
829.8
898.3
Tax
(129.7)
(107.2)
n.a.
1,330.0
(239.4)
n.a.
1,073.9
2,312.3
(193.3)
(393.1)
2,022.6
(343.8)
Effective tax rate
0.2
11.9%
0.2
18.0%
0.2
Minority Interests
47.1
91.6
105.5
117.8
144.6
162.6
Net profit - reported
653.0
699.5
985.1
762.8
1,774.6
1,516.1
NPM - reported (%)
19.8%
21.3%
21.0%
16.0%
29.1%
24.4%
1,950.5
1,711.5
32.0%
27.5%
Net profit - non-GAAP
685.8
582.4
NPM - recurring (%)
20.8%
17.7%
EPS - reported (CNY)
0.561
0.601
EPS - non-GAAP (CNY)
0.590
0.501
7.1%
-15.1%
-22.6%
-15.0%
n.a.
17.0%
-14.6%
1,147.8
975.1
24.5%
20.5%
-12.2%
7.1%
0.847
0.656
-22.6%
1.525
1.303
-14.6%
-15.1%
0.987
0.838
-15.0%
1.677
1.471
-12.2%
Source: Company data, RHB
See important disclosures at the end of this report
3
Kingsoft (3888 HK)
10 November 2014
Figure 3: Annual P&L
FYE Dec 31 (CNYm)
FY12
FY13
FY14F
FY15F
FY16F
Online games
851.4
1,095.9
1,226.5
1,401.0
1,579.7
CMI
267.2
700.8
1,641.0
2,862.6
4,060.0
WPS & others
292.6
376.5
415.8
502.5
586.4
Total revenue
1,411.2
2,173.3
3,283.3
4,766.1
6,226.1
38.3%
54.0%
51.1%
45.2%
30.6%
(792.5)
(1,064.7)
YoY change
Cost of revenue
(186.9)
(297.1)
(532.1)
Gross profit
1,224.2
1,876.2
2,751.2
3,973.6
5,161.5
YoY change
40.3%
53.3%
46.6%
44.4%
29.9%
Gross profit margin
86.8%
86.3%
83.8%
83.4%
82.9%
R&D costs
(385.4)
(596.5)
(1,003.3)
(1,356.9)
(1,601.4)
Selling expenses
(234.1)
(382.8)
(815.4)
(1,055.5)
(1,052.1)
Admin expenses
(148.0)
(192.2)
(301.2)
(417.5)
(524.9)
Other op costs
(23.0)
(7.3)
(15.7)
(16.5)
(12.2)
SBC
(48.5)
(61.4)
(209.5)
(258.9)
(235.4)
Other gains
28.6
45.9
25.4
23.8
31.1
Operating profit
413.9
681.9
431.7
892.2
1,766.6
YoY change
24.9%
64.7%
-36.7%
106.7%
98.0%
Operating margin
29.3%
31.4%
13.1%
18.7%
28.4%
Net finance income
89.3
105.0
166.5
198.1
277.4
JV & associates
8.6
1.1
(12.4)
(16.4)
(21.5)
Fair value gains
16.0
(10.4)
(3.3)
-
-
-
47.5
315.8
527.8
825.1
898.3
Gain on disposal and others
PBT
Tax
1,073.9
2,022.6
(61.4)
(71.2)
(107.2)
(193.3)
(343.8)
11.6%
8.6%
11.9%
18.0%
17.0%
33.8
83.1
91.6
117.8
162.6
Net profit - reported
432.6
670.7
699.5
762.8
1,516.1
YoY change
33.2%
55.1%
4.3%
9.1%
98.8%
NPM - reported
30.7%
30.9%
21.3%
16.0%
24.4%
Net Profit - non-GAAP
461.1
694.0
582.4
975.1
1,711.5
YoY change
35.7%
50.5%
-16.1%
67.4%
75.5%
NPM - non-GAAP
32.7%
31.9%
17.7%
20.5%
27.5%
Effective tax rate (%)
MI
Source: RHB, Company
See important disclosures at the end of this report
4
Kingsoft (3888 HK)
10 November 2014
Figure 4: Sum-of-parts valuation table
FY15F EPS (CNY)
FY15F P/E target (x)
KS's NAV (CNY) /share NAV (HKD)/share Holding company TP(HKD)
Stake
discount
Games
0.337
12
100.00%
4.05
5.14
5.14
WPS
0.058
16
78.50%
0.73
0.93
0.93
Ticker
Market Cap (USDm)
CMCM US
2,790
CMI
NAV (USD) /share
47%
Market Cap (USDm)
Xunlei*
Cloud
670
FY15 Revenue
(CNYm)
FY15F EV/Revenue
target (x)
100
30
Net cash per share - end-2Q14
1.13
8.74
40%
5.24
NAV (USD) /share
10%
0.06
0.45
0.45
1.88
2.39
2.39
3.73
4.74
4.74
22.37
18.88
NAV (CNY) /share
72.94%
FY15F EPS(CNY)
Total
0.838
Upside
Implied FY15F P/E -non-GAAP (x)
2.8%
17.7
As of November 10, 2014
Current price (HK$)
PEG (x)
13-16 recurring EPS CAGR
18.36
0.5
35%
* WPS FY13-16 earnings growth CAGR is estimated to be approximately 20%, the FY15F P/E target of 16x implies 0.8x FY15 PEG
Source: Company data, RHB
See important disclosures at the end of this report
5
Kingsoft (3888 HK)
10 November 2014
Figure 5: Peer comparison
Company
Ticker
Kingsoft Corp
3888 HK
HSI
CSI300
Price Mkt cap 3-mth avg
PER
PER
PER EPS FY1 EPS FY2
(US$m) t/o (US$m) Hist (x) FY1 (x) FY2 (x)
YoY%
YoY%
18.36
2,805
24.3
3-Yr EPS PEG
Cagr (%)
(x)
Div yld
Hist (%)
Div yld
FY1 (%)
P/BV
FY1 (x)
24.0
28.9
17.2
(16.8)
67.4
34.7
0.5
0.7
0.7
2.5
23,749
10.3
11.0
10.2
(6.5)
7.9
3.5
2.9
3.8
3.6
1.3
2,566
11.1
10.4
9.0
7.1
15.2
n.a.
n.a.
2.3
2.9
1.5
38.4
37.7
19.1
55.1
23.7
6.5
0.7
2.6
1.2
4.7
Adjusted sector avg
Online games
Boyaa Interactiv
7.00
683
2.4
12.7
13.9
10.3
(8.8)
35.5
19.2
0.5
2.7
2.2
2.8
Changyou.Com-Adr CYOU US
434 HK
22.41
1,206
3.9
4.4
N/A
N/A
N/A
N/A
(31.7)
N/A
N/A
0.0
1.3
Forgame Holdings
484 HK
16.86
276
0.9
N/A
233.5
17.9
N/A
N/A
N/A
N/A
N/A
N/A
1.2
Igg
8002 HK
3.88
685
6.6
64.2
9.4
7.5
N/A
N/A
N/A
N/A
1.9
1.6
2.9
Netdragon Webs
777 HK
13.52
888
2.1
45.4
18.1
17.1
150.9
5.3
41.6
0.4
3.0
1.9
1.1
Netease Inc-Adr
NTES US
91.80
11,996
35.7
16.2
14.8
13.0
9.9
14.0
11.9
1.1
2.3
1.7
3.0
Perfect Worl-Adr
PWRD US
20.51
1,016
8.0
11.3
9.1
8.1
23.8
12.8
14.7
0.5
2.3
2.3
1.2
Shanda Games-Adr GAME US
6.45
1,734
3.1
6.7
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
23.0
49.8
12.3
43.9
16.9
11.2
0.6
2.4
1.6
1.9
Average
Portals
Baidu Inc-Sp Adr
BIDU US
236.54
82,933
745.1
48.3
36.3
26.4
33.2
37.2
36.0
0.7
N/A
0.0
9.6
Sina Corp
SINA US
41.02
2,733
71.9
60.3
61.3
32.9
(1.6)
86.4
44.3
0.7
N/A
0.0
1.5
Sohu.Com Inc
SOHU US
50.34
1,937
20.8
N/A
N/A
N/A
N/A
N/A
(259.2)
N/A
N/A
0.0
1.6
54.3
48.8
29.7
15.8
61.8
(59.6)
0.7
N/A
0.0
4.2
Average
Internet security
Avg Technologies
AVG US
F-Secure Oyj
FSC1V FH
19.77
1,042
5.6
16.8
10.5
10.2
60.2
2.9
22.1
0.5
N/A
N/A
23.8
1.88
372
0.2
17.1
17.1
15.7
0.0
9.1
10.9
1.4
3.1
3.7
Qihoo 360 Te-Adr
3.7
QIHU US
71.29
8,977
260.4
86.4
29.4
17.9
193.8
63.9
88.4
0.2
N/A
0.0
8.8
Symantec Corp
SYMC US
24.97
17,233
123.5
19.4
13.1
12.3
47.5
6.8
19.5
0.6
2.4
2.4
2.9
Trend Micro Inc
4704 JP
3,690.00
4,539
23.3
25.0
24.5
23.5
2.1
4.3
3.0
N/A
3.4
2.6
3.5
Vasco Data Intl
VDSI US
26.63
1,056
14.1
95.1
34.7
29.2
173.9
19.0
39.5
0.7
N/A
N/A
5.1
Check Point Soft
CHKP US
74.67
14,245
65.3
22.4
20.2
18.4
10.7
9.8
N/A
N/A
N/A
0.0
3.9
Fortinet Inc
FTNT US
27.10
4,468
44.9
100.4
57.3
46.0
75.2
24.5
37.9
1.2
N/A
0.0
6.8
47.8
25.8
21.6
70.4
17.5
31.6
0.8
3.0
1.5
7.3
Average
Source: Bloomberg, RHB
See important disclosures at the end of this report
6
Kingsoft (3888 HK)
10 November 2014
Financial Exhibits
Profit & Loss (CNYm)
Total turnover
Cost of sales
Gross profit
Dec-12
Dec-13
Dec-14F
Dec-15F
1,411
2,173
3,283
4,766
(187)
1,224
(297)
1,876
(532)
2,751
(792)
3,974
Dec-16F
6,226
(1,065)
5,161
Gen & admin expenses
(148)
(192)
(301)
(418)
(525)
Selling expenses
(234)
(383)
(815)
(1,056)
(1,052)
Other operating costs
(1,203)
(1,608)
(1,818)
(428)
(619)
Operating profit
414
682
432
892
1,767
Operating EBITDA
502
781
550
1,041
1,959
Depreciation of fixed assets
(61)
(65)
(76)
(90)
Amortisation of intangible assets
(28)
(34)
(43)
(59)
Operating EBIT
414
682
432
892
Net income from investments
9
1
98
129
Interest expense
(9)
Exceptional income - net
16
Pre-tax profit
(111)
(82)
1,767
(12)
(16)
(21)
241
253
316
(24)
(74)
(55)
(38)
37
319
-
-
528
825
905
1,074
2,023
Taxation
(61)
(71)
(107)
(193)
Minority interests
(34)
(83)
(92)
(118)
Profit after tax & minorities
433
671
706
763
1,516
Reported net profit
433
671
706
763
1,516
Recurring net profit
461
694
582
975
1,712
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
414
682
432
892
1,767
Depreciation & amortisation
88
99
118
149
192
Change in working capital
67
187
61
294
216
Other operating cash flow
93
70
372
129
275
662
1,037
982
1,465
2,451
Interest received
98
129
241
253
316
Interest paid
(9)
(24)
(74)
(55)
(38)
Tax paid
(68)
(32)
(71)
(146)
(297)
Cash flow from operations
683
Capex
(63)
(112)
(161)
(231)
15
(46)
(24)
(37)
(44)
(48)
(158)
(185)
(268)
(350)
(102)
(109)
(114)
(124)
(247)
(81)
(60)
Interest income
(344)
(163)
Source: Company data, RHB
Cash flow (CNYm)
Operating profit
Operating cash flow
Other investing cash flow
Cash flow from investing activities
Dividends paid
Shares repurchased
Increase in debt
Other financing cash flow
Cash flow from financing activities
Cash at beginning of period
Total cash generated
Implied cash at end of period
(157)
102
(238)
1,111
1,173
109
1,113
1,078
(116)
1,517
(424)
2,431
(307)
(742)
114
124
247
(116)
(424)
(742)
2,039
2,435
4,501
5,278
6,103
396
2,066
777
825
1,339
2,435
4,501
5,278
6,103
7,442
Source: Company data, RHB
See important disclosures at the end of this report
7
Kingsoft (3888 HK)
10 November 2014
Financial Exhibits
Balance Sheet (CNYm)
Total cash and equivalents
Inventories
Accounts receivable
Other current assets
Total current assets
Total investments
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
2,435
4,557
5,278
6,103
7,442
17
4
36
54
73
130
185
310
450
588
282
287
304
329
354
2,864
5,032
5,928
6,937
8,458
61
135
143
154
165
414
427
470
552
666
Intangible assets
68
114
138
175
219
Total other assets
234
95
79
115
150
Total non-current assets
777
772
830
996
1,200
3,641
5,804
6,758
7,933
9,657
414
16
16
16
16
23
32
58
86
115
Other current liabilities
495
740
963
1,429
1,813
Total current liabilities
932
789
1,036
1,530
1,944
Total long-term debt
-
-
90
90
90
Tangible fixed assets
Total assets
Short-term debt
Accounts payable
Other liabilities
Total non-current liabilities
34
1,185
1,217
1,259
1,301
34
1,185
1,306
1,349
1,390
Total liabilities
966
1,974
2,342
2,879
3,334
Share capital
271
210
210
210
210
Retained earnings reserve
2,244
3,170
3,755
4,394
5,662
Shareholders' equity
2,515
3,380
3,966
4,604
5,873
160
450
450
450
450
-
-
-
-
Minority interests
Other equity
1
Total equity
2,676
3,831
4,416
5,055
6,323
Total liabilities & equity
3,641
5,804
6,758
7,933
9,657
Source: Company data, RHB
Key Ratios (CNY)
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Revenue growth (%)
38.3
54.0
51.1
45.2
30.6
Operating profit growth (%)
24.9
64.7
(36.7)
106.7
98.0
Net profit growth (%)
33.2
55.1
5.3
8.0
98.8
EPS growth (%)
30.1
53.1
4.3
7.6
98.8
Bv per share growth (%)
16.8
33.1
16.4
16.1
27.6
Operating margin (%)
29.3
31.4
13.1
18.7
28.4
Net profit margin (%)
30.7
30.9
21.5
16.0
24.4
Return on average assets (%)
13.0
14.2
11.2
10.4
17.2
Return on average equity (%)
18.7
22.8
19.2
17.8
28.9
(75.6)
(89.4)
(91.9)
(96.6)
(98.4)
DPS
0.09
0.09
0.10
0.11
0.21
Recurrent cash flow per share
0.60
0.97
0.93
1.30
2.09
Net debt to equity (%)
Source: Company data, RHB
See important disclosures at the end of this report
8
Kingsoft (3888 HK)
10 November 2014
SWOT Analysis
 Strong and well-established R&D team, which is wellknown in China
 Barriers to entry
are low
 Has a strong brand name in China and across the
world
 PC game
market is
slowing down
 Leveraging on
its popular and
well-known
security
software to
penetrate new
internet
platforms such
as browsers
and mobile
apps
 Mobile internet
 Mobile investments may not generate returns as the
company expected
P/E (x) vs EPS growth
P/BV (x) vs ROAE
73%
30
50%
20
27%
P/E (x) (lhs)
Jan-16
Jan-15
Jan-14
Jan-13
0
3%
Jan-12
10
EPS growth (rhs)
Source: Company data, RHB
-20%
26%
5
22%
4
18%
3
13%
2
9%
1
4%
0
0%
P/B (x) (lhs)
Jan-16
40
31%
6
Jan-15
97%
35%
7
Jan-14
50
8
Jan-13
120%
Jan-12
60
Return on average equity (rhs)
Source: Company data, RHB
Company Profile
Kingsoft is a well-established online PC games and software developer and operator. The company’s major game, JX Online III, is an
extension of its well-known JX series, while its antivirus and internet security software are popular among government entities,
corporations and individuals in China. Leveraging on its popular security software, Kingsoft has now expanded into mobile applications,
which are highly ranked on both Apple (APPL US, NR) and Google’s (GOOG US, NR) app stores.
See important disclosures at the end of this report
9
Kingsoft (3888 HK)
10 November 2014
Recommendation Chart
Price Close
25.0
26.3
23.7
30.8
37.5
20.6
20.6
5.6
23.8
13.7
30.0
5.7
7.3
4.6
5.9
4.3
3.6
4.2
4.6
5.2
5.6
5.5
6.3
7.4
8.5
Recommendations & Target Price
na
35.0
20.0
15.0
10.0
5.0
Buy
0.0
Nov-09
Neutral
Feb-11
Sell
Trading Buy
May-12
Take Prof it
Not Rated
Aug-13
Source: RHB, Bloomberg
Date
Recommendation
2014-08-20
Neutral
Target Price
26.3
Price
23.3
2014-05-29
Neutral
23.7
23.0
2014-03-20
Buy
37.5
32.1
2014-02-21
Buy
30.8
26.4
2013-11-13
Buy
23.8
19.0
2013-11-07
Trading Buy
20.6
18.2
2013-08-28
Buy
20.6
15.6
2013-05-27
Buy
13.7
11.7
2013-03-20
Buy
7.3
6.9
2013-03-12
Buy
7.3
6.6
Source: RHB, Bloomberg
See important disclosures at the end of this report
10
RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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10th Floor,
Sathorn Square Office Tower
98, North Sathorn Road,Silom
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DMG & Partners Securities Pte Ltd and their associates, directors,Bangrak,
and/or employees
may have positions in, and may effect transactions in the securities
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covered in the report, and may also perform or seek to perform broking and
other corporate finance related services for the corporations whose securities
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are covered in the report. This report is therefore classified as a non-independent
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As of 9 November 2014, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary
positions in the subject companies, except for:
a)
As of 9 November 2014, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except
for:
a)
DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N)
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