金山软件（3888）第一季度业绩弱于预期；期待即将推出的新游戏

2023A2024A2025E8,534.010,318.011,228.012,003.0685.01,720.01,737.01,942.0 2026E Thomas Chong * | Equity Analyst852 3743 8016 | thomas.chong@jefferies.comZoey Zong * | Equity Analyst852 3743 8163 | zoey.zong@jefferies.com The Long View: KingsoftInvestment Thesis / Where We Differ•Kingsoft has over 30 years of operating history, with a strong gamefranchise in theJX Onlineseries from its Westhouse game studio. Weexpect the PC version ofJX IIIto be fairly stable, and growth to be drivenby the mobile version ofJX IIIand new titles.•We expect the Cloud and WPS segments to enjoy rapid growth in the longrun, although the Cloud industry is in the early stages and WPS has a lowpaying ratio currently.•We are positive on the company's three business segments: gamingbusiness to become a cash cow; improving fundamentals in KingsoftCloud; and secular growth story for WPS on a low paying ratio.Base Case,HK$42.8, +21%•Kingsoft is migrating to the next phase ofgrowth, with revenue growth drivers to comefrom the Cloud and WPS in the long run.•Weexpectcontinuedfundamentals on increasing scale and a morerational competitive landscape, with the goalof coming close to EBITDA breakeven towardthe end of the year.•PT of HK$42.8 based on SOTP valuation.Sustainability MattersTop Material Issue(s): 1) Employment:Employees are key contributors to value creation in theindustry, and greater workforce diversity is important for innovation.2) Information security andprivacy protection:Kingsoft emphasizes the importance of enforcing effective information securityand privacy protection measures, as well as maintaining compliance with data privacy protectionrequirements.Company Target(s): 1)Optimize cybersecurity management throughout the product life cycle, seekingto reduce the overall risk related to network and information security.2)Improve the cybersecuritytraining system on a continuing basis.3)Continue to optimize the recruitment process, activelycreate an open and fair job-hunting environment, and constantly build a diversified and inclusive talentdatabase, effectively protecting the labor rights of all employees.Qs to Mgmt: 1)What are you investing in to protect users’ and players’ data?2)How do you increasecompetitiveness in acquiring and retaining high quality employees?Please see important disclosure information on pages 7 - 12 of this report.This report is intended for Jefferies clients only. Unauthorized distribution is prohibited. improvementin Upside Scenario,HK$51, +44%•Stronger-than-expected performance of newgame launches.•Strong performance of Cloud and WPS.•Operating margin is better than expected onsolid cost control.•PT of HK$51 based on SOTP valuation. Downside Scenario,HK$26, -27%•Weaker-than-expected performance of newgame launches.•Strong competition in Cloud and WPSsegments.•Operating margin is lower than expected onpoor execution.•PT of HK$26 based on SOTP valuation.Catalysts•Earlier-than-expected launch of JX II andstrong performance.•Stronger-than-expected grossing from mobilegameJX III.•Stronger-than-expected WPS adoption. 2 (C)Online games.These include (1) Kingsoft considers passion and hard work are important inorder to sustain the longevity of JX franchise; (2) It pursues three strategies which include highquality games, expansion of game genres (not just about martial arts) and overseas expansion;(3) For JX3 Online, its MAU and ARPU remain healthy. The sequential revenue decline in 1Q isa normal trend due to peak season in 4Q on expansion packs. The game is in the market for16 years since it was released in 2019. It is confident to operate the game in the long run; (4) Itfocuses not only on classic JX series but also concentrate on new genres such as anime-styleand sci-fi games. For flagship title, JX3 Online benefits from content upgrades in Apr; (5) In termsof game pipeline, it will release Fate of Sword: Zero (sequel to JX series) in 2Q and Mecha BREAK(sci-fi mech) in summer. For Mecha BREAK, it is expected to be released in Jul and more updateswill be provided in Jun. It is in process of refining issues such as bugs, game balance/durability,experience and tournaments after testing in Mar.Valuation and risks.We maintain our Buy rating with an adjusted SOTP-based PT of HK$42.8(HK$43.3 previously), factoring in the latest business developments post results. Risks include(1) weaker-than-expected performance of new game launches; (2) slower-than-expected growthin Cloud and WPS segments; and 3) operating margin coming in lower than expected on heavier-than-expected spending.Please see important disclosure information on pages 7 - 12 of this report.This report is intended for Jefferies clients only. Unauthorized distribution is prohibited. Exhibit 1 - 3888 HK: Income Statement.Income Statement (3888 HK)RMBmnTotal RevenueYoY % changeCost of revenueGross profitGross marginSales and marketing expenseGeneral and administrative expenseResearch and development expenseOperating ProfitYoY % changeOperating mar