On November 18, Kingsoft opened 5% higher. Since then, with its subsidiary Jinshan Office officially listed in Science and Technology Innovation Board, Kingsoft staged a straight-line decline, which is now down nearly 6%, with an amplitude of up to 14%, with a market capitalization of only HK $23.9 billion.

Jinshan Office, a subsidiary of Jinshan Software Group, was listed on Science and Technology Innovation Board today, with an opening increase of more than 205%, with a market capitalization of 66 billion yuan and a valuation of more than 200 times. The market capitalization of the subsidiary is nearly 3 times that of the parent company, so why does Kingsoft fall, and why is the valuation of Jinshan office so high?

Why is the valuation of Jinshan office so high?

In the first three quarters of 2019, Jinshan Office had revenue of 1.042 billion yuan, net profit of 204 million yuan, medium-term net profit of 20%, net profit of 2.4% in the first three quarters and declining performance, but its market capitalization was as high as 60 billion and its price-to-earnings ratio was as high as 200. it currently ranks as the second largest market capitalization of Science and Technology Innovation Board, second only to Lanqi Technology, and stands out in a sector where most companies generally have a market capitalization of less than 10 billion. So why does Jinshan office have such a high valuation?

Jinshan office can be traced back to 21 years ago, that is, 1998. At that time, computers were developing rapidly all over the world, but the Chinese did not have their own Chinese processing software.

For more than a year since then, 24-year-old Qiu Bojun worked around the clock and finally wrote 122, 000 lines of code in assembly language. WPS1.0 was born and succeeded, ushering in the era of computer office in Chinese.

In 2005, WPS and Microsoft Corp parted ways, moving from the traditional software era to the Internet era, and announced that they were permanently free to users. In 2011, with the strong support of Lei Jun, WPS devoted itself to the transformation of mobile Internet.

Up to now, in the individual user market, Kingsoft Office provides office services to 330 million users in more than 220countries and regions around the world. Every day, more than 500m documents are created, edited and shared on the WPS platform, and more than 100m pieces of office materials are downloaded and used on the rice husk content platform every month.

Jinshan Office also serves 57.5% of the world's top 500 Chinese enterprises, 85.41% of central enterprises and 91.7% of national joint-stock commercial banks.

Performance

As of September 30, 2019, the total assets of Jinshan office was 1.966 billion yuan, an increase of 338 million yuan, or 20.79%, over the end of last year; the company's total liability was 555 million yuan, an increase of 115 million yuan, or 26.03%, over the end of last year.

The revenue of Jinshan Office from January to September 2019 was 1.042 billion yuan, an increase of 39.49% over the same period last year. The company's net profit fell in the previous September. From January to September 2019, the net profit attributable to the shareholders of the parent company and the net profit attributable to the shareholders of the parent company after deducting non-recurring profits and losses were 200 million yuan and 160 million yuan respectively, down 2.5% and 12.38% respectively from the same period last year.

The company said that the decline in net profit belonging to shareholders of the parent company in the same period was mainly due to the company's more investment in technology upgrading in 2019, resulting in a rapid increase in costs and R & D expenses, which increased by 222 million yuan from January to September 2019 compared with the same period last year.

The author inquired and found that take mid-2019 as an example. As of June 30, 2019, the company's net profit was 146.8957 million yuan, a decrease of 35.412 million yuan or 19.42% compared with the same period in 2018 (182.3077 million yuan). The year-on-year decline in net profit was mainly due to an increase of 11574.82 yuan in research and development expenses from January to June 2019 compared with the same period in 2018. If the increased R & D expenses are excluded, the company's net profit will increase by 44% compared with the same period last year.

In addition, the company's expenses are increasing, but the cash flow is stable. Sales expenses in 2018 were 216 million, up 39% from the same period last year; administrative expenses were 89 million, up 10.38% from the same period last year; and financial expenses were 428 million, up 20% from the same period last year. As for ROE, 19.77%, 23.17% and 26.84% were recorded in 16-18, respectively. The upward trend is mainly driven by debt ratio. Assets. In 18 years, accounts receivable was 227 million, up 28.79 percent over the same period last year; inventory was 1 million, up 1.16 percent over the same period last year. In debt. Accounts payable were 70 million, up 90.63% from the same period last year. The company has a good cash flow. By the end of June 2019, the company had a paper currency of 173 million yuan without any borrowing.

Leidi said that continuous years of investment in core technology research and development has helped Jinshan Office to form independent intellectual property rights, technical barriers and brand advantages. According to the Jinshan office prospectus, the company's R & D expenses have continued to account for more than 35% of revenue in the past three years. Not surprisingly, Jinshan Office will become the "highest proportion of research and development" Science and Technology Innovation Board company.

Lei Jun, chairman of Jinshan Group, XIAOMI Group and CEO, said: "Jinshan WPS is a company with a dream and a sense of mission. Having persisted in doing one thing for 31 years, and getting better and better, it has grown into a global leading office service provider and will strive to lead the global office software service market in the future.

In conclusion, as the leader of the subdivision industry, the loss-making Kingsoft also has a valuation of 160 times, and the valuation of Kingsoft Office 200 times does not seem to be too high.However, Yan Zhaojun, an international strategist at Sino-Thai, said that Jinshan Office is not recommended because of the imbalance between supply and demand of Science and Technology Innovation Board.

However, industry insiders said that Jinshan Office, as an established Internet enterprise, has a certain market background and a general prospect, its products are not very competitive, and all businesses are challenged, exceptNon-state forces push independent office, otherwise it is not recommended to pay attention to it.

Why did Jinshan Software with a market capitalization of 25 billion fall?

Jinshan office has just been listed, but the parent company has opened a plummeting mode. Jinshan Software last Thursday (14th) announced quarterly results to earn 36.061 million yuan, but can not save the stock price. By the close of morning trading, Kingsoft fell more than 8% at one point, with a market capitalization of only HK $24.4 billion, almost equivalent to Kingsoft's market capitalization of Kingsoft Office.

While the company started to fall sharply, it is the Chinese and foreign investment banks that are optimistic about Kingsoft. Among them, Citic Construction Investment released a report that Jinshan Software WPS achieved revenue of 1.05 billion yuan in the first three quarters, an increase of 38% over the same period last year and exceeding the company's full-year growth forecast of 35%. The bank expects the company to achieve revenue of 7.66 billion yuan and 10.86 billion yuan and net profit of-1.36 billion yuan and 450 million yuan from 2019 to 2020, so it is optimistic about the long-term development of the company and maintains its "buy" rating.

Fu Rui issued a report saying that the quarterly performance of Kingsoft exceeded expectations.Mainly online games and WPS business performed well, given a "buy" rating, the target price rose 23.3% to 22.2 yuan from 18 yuan.

Even if the Chinese and foreign investment banks are optimistic, Kingsoft has also opened a continuous decline. In fact, Kingsoft has fallen sharply since last Friday, and institutions unanimously interpret it as taking advantage of Kingsoft to make a profit by listing on the board and announcing its performance, while the valuation of Kingsoft is not low and the decline is normal.

Wen Jie, a wealth strategist at Everbright Sun Hung Kai, said that share prices have risen recently, reflecting positive factors, as investors seize the opportunity to lock in profits. This is often the case in Hong Kong stocks, especially when market sentiment is bad, which is different from the habit of chasing gains and losses in the mainland.

Yan Zhaojun, an international strategist at Sino-Thai, said that Jinshan Office in Science and Technology Innovation Board has risen sharply. Although Kingsoft achieved good results in the first three quarters, the growth of games and cloud revenue is lower than that of Tencent, and now the price-to-earnings ratio is higher than Tencent. Superimposed Jinshan Office has been listed good cash, there are capital profits.

Lin Zijun, executive director of the Financial Science and Technology Department of Linda Holdings, said that Kingsoft's current valuation is as high as 50 times, relative to BABA, Tencent, the valuation is not low, its decline is not surprising. The author found that Kingsoft dynamic price-to-earnings ratio is also as high as 164times, static price-to-earnings ratio has also reached 58 times, far higher than BABA, Tencent.

In addition, domestic investors have also staged a selling model before, further depressing share prices, while foreign investors are selling collectively today. Futu real-time data show that Credit Suisse sold 3.25 million shares, Goldman Sachs Group sold 850000 shares, Morgan Stanley sold 700000 shares.

Earlier, domestic investors sold off for four consecutive days, further depressing share prices. However, today, domestic investors bought more than 2 million shares again, while Bank of China International bought 800000 shares.