HAITONG INT'L released a research report stating that it has initiated coverage on KINGSOFT (03888) with an "outperform" rating, expecting the revenues for 2024, 2025, and 2026 to be 10.192 billion, 12.271 billion, and 14.829 billion yuan respectively, with year-on-year growth rates of 19.4%, 20.4%, and 20.8%; the net income attributable to shareholders is expected to be 0.873 billion, 1.645 billion, and 2.335 billion yuan respectively, with year-on-year growth rates of 80.5%, 88.5%, and 41.9%; earnings per share are projected to be 0.65, 1.23, and 1.75 yuan, with a target price of 46.85 Hong Kong dollars.

The report states that KINGSOFT is a leading software and internet service company in China. After implementing the "mobile internet transformation" Global Strategy, the company has formed a strategic platform centered on interactive Entertainment and office software, with Cloud Computing Service and AI as new directions. The core Business is divided into two major sectors: office software and services, and Online Games, corresponding to its holding subsidiaries Beijing Kingsoft Office Software, Inc, Xishanju, and KINGSOFT. Beijing Kingsoft Office Software, Inc maintains stable Operation, adhering to the "multi-screen, cloud, content, collaboration, AI" strategy, focusing on research and development in the fields of AI and collaboration, empowering individuals and Institutions with technological innovation, providing users with a one-stop AI office experience, and promoting new productive forces in the office realm. The Online Games business continues to iterate on the classic "Swordsman" series while actively expanding into new categories.

In addition, the institution believes KINGSOFT's deep cooperation with companies led by Lei Jun is expected to continuously release synergy effects in the future. On November 19 of last year, the company's non-wholly-owned subsidiary KOSC signed an advertising service agreement with Xiaomi Singapore, whereby KOSC will provide overseas advertising services for Xiaomi Singapore and its clients through an application. All advertising traffic from KOSC's overseas application will be directed to Xiaomi Singapore, while Xiaomi Singapore will pre-install the WPS Office Android application for free on its overseas mobile devices (including all series of phones and tablets). Consequently, KOSC's advertising share revenue is expected to be 2.97 million USD in 2024, with a minimum advertising share revenue of 4 million USD in 2025, and a suggested annual share revenue cap of 8 million USD in 2025 (if the total annual advertising revenue exceeds 10 million USD, KOSC's share would be 40%).

The institution expects that with the acceleration of the AI commercialization contribution by KINGSOFT and the continuous release of demand from Trustworthy Innovation, the revenue from the office business will see a quicker growth rate, estimating that the revenue growth rates for the company’s office business from 2024 to 2026 will be 12.09%, 20.28%, and 22.93% respectively; regarding the gaming business, the company is creating the classic "Swordsman" series while continuously innovating and expanding. Since the launch of "Swordsman Online 3: Unbounded" in June last year, it has performed beyond expectations, achieving high growth in gaming business revenue. Additionally, new games "Limitless Machine" and "Swordsman Love Story: Zero" are expected to launch this year, contributing to the continued growth of the gaming business.

The institution expects the revenue growth rates for the company’s gaming business from 2024 to 2026 will be 28.02%, 20.59%, and 18.8% respectively. Regarding gross margin, the institution estimates that the company's overall gross margin will remain stable, with gross margins of 82.44%, 82.85%, and 83.31% from 2024 to 2026.