3Q22: Results In Line; Solid WPS Supports Revenue Growth
Kingsoft’s 3Q22 results were in line. Revenue grew by 22% yoy to Rmb1.85b, in line with the street’s estimates. Gross margin contracted by 2.4ppt yoy to 79.8%, in line with the street’s expectations. Kingsoft’s IFRS net loss came in at Rmb6055m, due to the one-off impairment of Kingsoft Cloud. If we strip out the non-recurring items, net profit would have been Rmb325m, up 65% yoy. Maintain BUY with a target price of HK$31.00.
- Online games segment growth accelerated. Kingsoft Corp’s (Kingsoft) online games
segment’s revenue growth decelerated to 18% yoy at Rmb832m (vs 2Q22: 31%, 3Q21: –
31%) in 3Q22. Top-line growth ramped up compared to the same period last year due to
revenue contribution from mobile titles released in 4Q21, such as JX World III and JX I: Gui
Lai, but was partially offset by decreased revenue from existing games. We forecast online
games revenue to grow at 20% yoy in full-year 2022, as 2021 was a low base (due to the
lack of new game launches). Operating margin for the full year is guided to improve by 1-
2ppt compared to 21.4% in 2021.
- WPS Office segment. Revenue growth of the Writer, Presentation and Spreadsheets Office
(WPS Office) segment revenue grew 22% to Rmb1005m and GPM/NPM declined 3.7/7.8ppt
yoy to 85%/29%, better than our expectations. The improvement in top-line growth is
attributed to the continued growth from individual and institutional subscription businesses.
WPS recorded 43%/47% yoy revenue growth in ToC/ToB subscription businesses.
- Margin performance. Overall, total opex as a percentage of total revenue edged down
slightly to 62% in 3Q22 from 63% in 3Q21, which the company attributed to the expanded
scale of promotion for the JX World III mobile game.