金山軟件-“辦公軟件+游戲”雙驅動-220922（英文版）（22頁）.pdf

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1、 See the last page for disclaimer Page 1 of 22 Equity Research Equity Research Report Company Report 股股票票研研究究 公公司司報報告告 證證券券研研究究報報告告 計算機行業計算機行業 金山軟件金山軟件 Computer Sector Kingsoft(03888 HK)Company Report:Kingsoft(03888 HK)Daniel Tao 陶選(86755)2397 6885 公司報告：金山軟件(03888 HK).hk 22 September 2022 Strong Gro

2、wth of Office Software and Gaming Business;Initiate With Accumulate“辦公軟件+游戲”雙驅動，首予“收集”評級 We initiate Kingsoft(the Company)with a rating of Accumulate and a target price of HK$27.80.We forecast the Companys 2022-2024 basic EPS to be RMB0.105/RMB0.229/RMB0.432,respectively.Office software is leading t

3、he way and gaming innovation continues.The Company has strong competitive advantages in domestic productivity software and is the pioneer of productivity software localization for government and enterprises;Jianxia series(劍俠系列)are loved by many players,and the Company continues to explore new games

4、to drive growth.We believe that demand for digital office of government and enterprises and the revenue growth brought by mobile games will exceed expectations.With the trend of localization of office software for the government and huge market demand from enterprises,we think that revenue growth of

5、 office software business will exceed expectations;We believe that Jianxia series is still a rarity with its high quality in Wuxia(武俠)games,and it will be easier to attract more players with mobile games.Catalysts:Digital office budgets of government departments increase;the Company develops a popul

6、ar Jianxia series mobile game.Major Risks:1)The recovery of information technology application innovation sector does not meet expectations;2)the payment ratio of individual users drops;3)the market acceptance of new games does not meet expectations;4)risk of declining market acceptance of Jianxia s

7、eries.我們首次覆蓋金山軟件（“公司”）并給予我們首次覆蓋金山軟件（“公司”）并給予 27.80 港港元的目標價元的目標價以及以及“收集”的投資評級“收集”的投資評級。我們預測公司 2022-2024 年基本每股盈利為人民幣 0.105 元/人民幣 0.229 元/人民幣0.432 元。辦公軟件獨領風騷，游戲業務辦公軟件獨領風騷，游戲業務持續推新持續推新。公司在國產辦公軟件領域有較強優勢，為政企客戶辦公軟件國產化的先鋒；劍俠 IP 產品獲得大眾玩家喜愛，并且公司不斷探索新類型打開增長空間。我們認為我們認為政企數字化辦公需求和手游帶來的收入增長有望超預期政企數字化辦公需求和手游帶來的收入增長

8、有望超預期。受益于政府部門辦公軟件國產化的明顯趨勢以及龐大的企業級市場需求，我們認為辦公軟件業務的收入增長有望超預期；我們認為劍俠系列的高質量使其仍是武俠游戲中的稀缺品，手游化后將更容易吸引更多玩家。催化劑催化劑：政府部門獲得更多的數字化辦公預算；公司開發出爆款劍俠系列手游。主要風險主要風險：1）信創產業恢復不達預期；2）個人用戶付費率下降；3）新游戲市場接受度不達預期；4）劍俠系列市場接受度下降的風險。Rating:Accumulate Initial 評級：收集收集 (首次覆蓋)6-18m TP 目標價:HK$27.80 Revised from 原目標價:Share price 股價:H

9、K$22.900 Stock performance 股價表現 (40.0)(30.0)(20.0)(10.0)0.010.020.030.0Sep-21Dec-21Mar-22Jun-22Sep-22%of returnHSI IndexKingsoft Change in Share Price 股價變動 1 M 1 個月 3 M 3 個月 1 y 1 年 Abs.%絕對變動%-5.7-22.6-23.2 Rel.%to HS Index 相對恒指變動%2.1-8.9 1.9 Avg.Share price(HK$)平均股價（港元）23.4 26.1 29.0 Source:Bloombe

10、rg,Guotai Junan International.Table_Year End Turnover Net Profit EPS EPS PER BPS PBR DPS yield ROE 年結 收入 股東凈利 每股凈利 每股凈利變動 市盈率 每股凈資產 市凈率 每股股息 股息率 凈資產收益率 12/31(RMB m)(RMB m)(RMB)(%)(x)(RMB)(x)(RMB)(%)(%)2020A 5,594 10,045 7.348 n.a.2.6 17.968 1.1 0.168 0.9 52.2 2021A 6,371 395 0.289(96.1)64.6 18.088 1

11、.0 0.098 0.5 1.6 2022F 7,629 144 0.105(63.7)190.8 18.231 1.1 0.052 0.3 0.6 2023F 9,343 314 0.229 118.1 87.5 18.487 1.1 0.069 0.3 1.2 2024F 11,581 590 0.432 88.6 46.4 18.910 1.1 0.108 0.5 2.3 Shares in issue(m)總股數(m)1,370.2 Major shareholder 大股東 Jun LEI 22.6%Market cap.(HK$m)市值(HK$m)31,377.6 Free flo

12、at(%)自由流通比率(%)77.4 3 month average vol.3 個月平均成交股數(000)4,517.9 FY22 Net gearing(%)FY22 凈負債/股東資金(%)Net Cash 52 Weeks high/low(HK$)52 周高/低(HK$)39.200/19.520 FY22 Est.NAV(HK$)FY22 每股估值（港元）55.0 Source:the Company,Guotai Junan International.See the last page for disclaimer Page 2 of 22 22 September 2022 K

13、ingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report CONTENTS 1.Investment Thesis.3 2.Earnings Forecasts and Valuation.4 2.1 Earnings Forecasts.4 2.2 Valuation.7 3.Kingsoft:Software Veteran for Years.9 3.1 The Company is now driven by office software and gaming business.9 3.2 The

14、management members are all leaders in the industry.10 4.Office Software Business:Continuous Growth in B2C，Opening Up New Space in B2B.11 4.1 Microsoft still leads in office software but diversity is emerging.11 4.2 Complete Product Portfolio，Localization and ITAI Opening up New Space for B2B.13 5.Ga

15、ming Business:Jianxia IP Leads;Exploring More Diversity.16 5.1 The gaming industry is plateauing but structural opportunities exist.16 5.2 Gaming,as another pillar for the Company,is evolving with Jianxia series and new game types.17 6.Major Risks.20 Financial Statements and Ratios.21 aVqUcVcZoYjWsW

16、9YbRaO9PtRrRmOnPkPpPyRlOoMoM8OpOpQvPrNpOuOsOqR See the last page for disclaimer Page 3 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report 1.Investment Thesis Office software is leading the way with gaming business producing new products.As early as the l

17、ast century,Kingsoft(the Company)has made great efforts in office software and once dominated the Chinese market.Currently,it is the trailblazer in the field of domestic office software with great competitive advantages.Monthly active users(MAU)of its major products have exceeded 500 million,and it

18、is a pioneer in the localization of office software for government and enterprise users;In terms of gaming,the Jianxia series(劍俠系列)has a history of more than 20 years,witnessing the gaming industry going from single-player to online gaming,then to mobile gaming.Through continuous self-updating,the C

19、ompany has won favor from masses of players.Meanwhile,it is constantly exploring possibilities of developing new types of games to increase revenue potential.Government and enterprise digital office demand and information technology application innovation sector(信創信創,or ITAI)open up growth potential

20、.Over the years,China has continuously introduced policies on government information security and the use of copyrighted software.The Company is a leading figure in this market by virtue of its core product WPS Office and has accumulated a large customer base over the years.On the other hand,with th

21、e development of cloud computing and the reshaping of office habits,digitalization,mobilization and collaboration of office technology has created huge demand.The Companys creation of a digital office platform around WPS Office can help enterprise users carry out digital transformation.At the same t

22、ime,the Company is strengthening its ecosystem partnership to support digital office trends.We believe that revenue growth of office software business will exceed market expectations under the trend of localization and the use of copyrighted software.We expect revenue growth brought by Jianxia serie

23、s mobile games to exceed expectations.Due to a lack of attractive games and new anti-addiction regulations,the demand side of the overall domestic games market shows signs of slowing down in both number of players and ARPU.However,we believe that there are still structural opportunities in this huge

24、 market,and the Company can still improve number of players and ARPU by releasing high-quality games.Some market views predict that Jianxia series will be overshadowed by new games of competitors or that players will stop playing by themselves just because they lose interest.However,we believe that

25、Jianxia series high-quality production and constantly updated game content over the years makes it a scarce gem among Wuxia games.After expansion in mobile games,we believe that the Jianxia series will be more accessible for more Wuxia game lovers,so that revenue growth of the gaming business will e

26、xceed market expectations.Catalysts:Budgets of provincial governments increase;the Company develops popular mobile games.Major risks:1)The recovery of information technology application innovation sector does not meet expectations;2)the payment ratio of individual users declines;3)the acceptance of

27、the new games market does not meet expectations;4)risk of decreasing market acceptance of Jianxia series.See the last page for disclaimer Page 4 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report 2.Earnings Forecasts and Valuation 2.1 Earnings Forecasts

28、We forecast revenue of Kingsoft from 2022-2024 to be RMB7,629 million/RMB9,343 million/RMB11,581 million,respectively,equivalent to yoy growth of 19.7%/22.5%/23.9%.Our revenue forecasts are primarily based on the following reasons:1)For office software and services revenue historical data and foreca

29、sts,we used data from Kingsoft Office(688111.SH)instead of data from the Company,where the areas are highlighted in orange in Table 1,as the difference between the two is less than 1%.We expect revenue from office software and services to increase by 18.5%/27.8%/31.9%from 2022-2024,respectively,and

30、the growth rate in 2022 will decrease by 26.1 ppt compared with that of last year.We forecast that:The growth rate of personal subscription revenue from 2022-2024 will be 37.8%/32.8%/30.4%,respectively,mainly because the Companys core product WPS Office continues to be upgraded and improved,and we a

31、re optimistic about growth of individual users.Revenue from domestic institutional subscription and related service business will grow at rate of 50.0%/55.0%/60.0%from 2022-2024,respectively,mainly due to the Companys active promotion of institution license model to subscription model and demand for

32、 digital office technology from enterprises.The institution license business will grow at rate of 5.0%/10.0%/15.0%from 2022-2024,respectively,mainly considering that the expansion of ITAI customers was slow in 1H22 due to repeated local Covid epidemic resurgences and other factors,and that revenue d

33、eclined by 11.0%yoy.We expect that the business will improve in 2H22 as the epidemic situation gradually stabilizes.We forecast that the growth rate of online marketing business revenue from 2022-2024 will be-44.4%/-33.0%/-21.8%,respectively,primarily considering that the Companys strategic contract

34、ion of the business will improve user experience.2)We forecast that the growth rate of revenue from online games and others business from 2022-2024 will be 21.0%/17.0%/15.0%,respectively,considering:In terms of computer games,Jianxia Qing Yuan Online 3(劍俠情緣網絡版叁,or Jian OL 3),as the core game,is stil

35、l stable in contributing revenue,and it held its 13th anniversary celebration in August 2022,which we expect will bring more players.In terms of mobile games,Jian OL 1:Return(劍網 1：歸來),which was launched in 2H21,and Jianxia Shijie 3(劍俠世界 3，or Jian 3),which was released at the end of 2021,won great ma

36、rket praise.Among them,Jian 3 once ranked first in the free list of iOS App Store and was publicly tested on all platforms in August 2022.We expect that the revenue contribution of these two new games will be reflected in 2022;For games that are awaiting launch,Fengbao Moyu 2(風暴魔域 2,or Moyu 2)alread

37、y has been given a serial number from the National Press and Publication Administration,and is expected to be launched at the end of 2022;its revenue contribution will be reflected in 2023-2024.In addition,the Company has another two non-Jianxia mobile games:Project Snow(塵白禁區)and Bijie(彼界)awaiting a

38、pproval.Due to the high base and the sharp slowdown in the number of domestic game players and ARPU growth,we expect that the growth of the Companys games business will also moderate.See the last page for disclaimer Page 5 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(0388

39、8 HK)Company Report Table-1:Earnings Forecasts for The Company RMB mn 2020A 2021A 2022F 2023F 2024F-Revenue Office software and services(data from the Company)2,257 3,265-Revenue Office software and services(data from Kingsoft Office)*2,261 3,280 3,870 4,945 6,523-YoY 43.3%44.6%18.5%27.8%31.9%-Sale

40、and subscription of software and related services 1,916 2,956 3,699 4,830 6,433 Personal subscription 1,016 1,465 2,019 2,681 3,495 Domestic institutional subscription and related service 362 446 669 1,038 1,660 Domestic institutional licensing 465 962 1,011 1,112 1,278-Online marketing services 341

41、 308 171 115 90 Revenue Online games and others 3,337 3,107 3,759 4,398 5,058 YoY 19.3%-6.9%21.0%17.0%15.0%Revenue-Total 5,594 6,371 7,629 9,343 11,581 YoY 28.0%13.9%19.7%22.5%23.9%Gross Profit 4,677 5,214 6,261 7,726 9,682 Gross Profit Margin 83.6%81.8%82.1%82.7%83.6%Operating Profit 1,855 1,361 1,

42、807 2,126 2,660 Operating Margin 33.2%21.4%23.7%22.8%23.0%Profit/(loss)attributable to Owners of the Company 10,045 395 144 314 590 Net Margin 179.6%6.2%1.9%3.4%5.1%Net income for continuing operations(Non-IFRS)1,443 601 483 697 1,013 Net margin for continuing operations(Non-IFRS)25.8%9.4%6.3%7.5%8.

43、7%Basic EPS(RMB)7.35 0.29 0.10 0.23 0.43 Source:the Company,Kingsoft Office,Guotai Junan International.Table-2:Earnings Forecasts for Kingsoft Office RMB mn 2020A 2021A 2022F 2023F 2024F Revenue 2,261 3,280 3,870 4,945 6,523 YoY 43.1%45.1%18.0%27.8%31.9%Gross profit 1,983 2,851 3,367 4,317 5,701 Gro

44、ss profit margin 87.7%86.9%87.0%87.3%87.4%R&D expenses 711 1,082 1,296 1,706 2,348 R&D expenses as%of revenue 31.4%33.0%33.5%34.5%36.0%Selling and marketing expenses 483 695 832 1,038 1,292 Selling and marketing expenses as%of revenue 21.4%21.2%21.5%21.0%19.8%Administrative expenses 213 326 348 435

45、554 Administrative expenses as%of revenue 9.4%9.9%9.0%8.8%8.5%Net profit 887 1,069 1,339 1,699 2,186 Net Margin 39.2%32.6%34.6%34.4%33.5%Source:Kingsoft Office,Guotai Junan International.See the last page for disclaimer Page 6 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(

46、03888 HK)Company Report Table-3:Earnings Forecasts for Online Games and Others RMB mn 2020A 2021A 2022F 2023F 2024F Revenue 3,337 3,107 3,759 4,398 5,058 YoY 19.3%-6.9%21.0%17.0%15.0%Gross Profit 2,694 2,364 2,894 3,408 3,980 Gross Profit Margin 80.7%76.1%77.0%77.5%78.7%R&D expenses 945 1,246 1,316

47、1,517 1,694 R&D expenses as%of revenue 28.3%40.1%35.0%34.5%33.5%Selling and marketing expenses 356 370 376 440 506 Selling and marketing expenses as%of revenue 10.7%11.9%10.0%9.5%9.3%Administrative expenses 241 244 323 378 435 Administrative expenses as%of revenue 7.2%7.9%8.6%8.3%8.0%Operating profi

48、t(after tax)1,091 481 840 1,025 1,286 Operating profit margin(after tax)32.7%15.5%22.4%23.3%25.4%Source:the Company,Guotai Junan International.Table-4:Key Revenue Assumptions Segment 2020A 2021A 2022F 2023F 2024F Sale and subscription of software and related services -Personal subscription Accumulat

49、ed paying individual subscribers(mn)19.6 25.4 31.2 35.9 39.5 YoY 63.2%29.3%23.0%15.0%10.0%ARPU(RMB)51.8 57.8 64.7 74.7 88.5 YoY-8.4%11.5%12.0%15.5%18.5%-Domestic institutional subscription and related service YoY N.A.23.4%50.0%55.0%60.0%-Domestic institutional licensing YoY-6.3%107.1%5.0%10.0%15.0%O

50、nline marketing services Monthly active devices of the key product(mn)-WPS for PC 185 219 252 295 351 YoY 20.1%18.4%15.0%17.0%19.0%-WPS for mobile 282 321 353 381 404 YoY 13.7%13.8%10.0%8.0%6.0%ARPU(RMB)0.7 0.6 0.3 0.2 0.1 YoY-26.7%-20.9%-50.0%-40.0%-30.0%Source:the Company,Kingsoft Office,Guotai Ju

51、nan International.We forecast net profit attributable to shareholders from 2022-2024 will be RMB144 million/RMB314 million/RMB590 million,respectively,representing yoy growth of-63.7%/118.3%/88.3%,and the corresponding net margin will be 1.9%/3.4%/5.1%,respectively.Our forecasts are based on the fol

52、lowing:1)We forecast that the gross margin of the Company in 2022 will be 82.1%,yoy growth of 0.3 ppt.We forecast that gross margin of office software business will be stable in 2022,with a yoy increase of 0.1 ppt,and gross margin of gaming business will increase by 0.9 ppt yoy,mainly reflecting the

53、 increase in ARPU after the launch of new games.We expect that the gross margin of the Company will grow steadily from 2023-2024;2)We expect that the R&D expense as a percentage of revenue will remain at around 35%from 2022-2024,reflecting the Companys continuous,sufficient and stable investment to

54、maintain the competitiveness of office software and gaming business,and sales expense as a percentage of revenue will remain at about 16%,which is consistent with historical levels;3)We estimate that the loss from associates in 2022-2024 will be RMB1,823 million/RMB1,796 million/RMB1,740 million,yoy

55、 change of 40.1%/-1.5%/-3.1%,respectively,mainly reflecting the loss from Kingsoft Cloud.In 1H22,according to the quarterly report of Kingsoft Cloud,its net loss reached RMB1,365 million,a yoy increase of 126.5%.See the last page for disclaimer Page 7 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)T

56、able_PageHeader Kingsoft(03888 HK)Company Report 2.2 Valuation We used SOTP to calculate the value of the Company in 2022 to be RMB42,258 million,corresponding to a target price of HK$27.80;after considering a 10%discount for the Company,and we set our investment rating as Accumulate.Our valuations

57、are as follows:1)Office software:We selected A-share listed software companies such as Glodon,Yonyou and Guotai Epoint as comparable companies and the average 2022 PER is 41.5x.Considering the trend of localization of office software and the Companys leading position in the market,we give a 48.0 x 2

58、022 PER,corresponding to market value of RMB33,865 million.2)Gaming:We selected game companies listed on the Stock Exchange of Hong Kong,such as Tencent,NetDragon,and CMGE,as comparable companies,with an average 2022 PER of 10.8x.Considering the uncertainty of new game titles,we consider a 2022 PER

59、of 9.0 x for the Company,with a corresponding market value of RMB5,106 million.3)Cloud computing:We use the consensus from Bloomberg that revenue in 2022 will be RMB9,365 million,and then selected Tencent,UCloud and QingCloud as comparable companies.The average 2022 PSR in 2022 is 2.8x.Considering t

60、he contraction of Kingsoft Clouds CDN business and effect of the losses,we will give a 0.9x 2022 PSR,and the corresponding market value is RMB3,287 million.Table-5:The Companys Valuation Using SOTP Entity Type Revenue 2022F Net Profit 2022F PE(x)2022E PS(x)2022E Market Value Ownership Share Market V

61、alue attributable to the Company Kingsoft Office Subsidiary 3,870 1,339 48.0 64,260 52.7%33,865 Seasun Subsidiary 3,759 840 9.0 7,564 67.5%5,106 Sub Total 7,629 2,179 71,824 38,971 Kingsoft Cloud Associate 9,365*0.9 8,429 39.0%3,287 Total 42,258 Source:the Company,Kingsoft Office,Bloomberg,Wind,Guot

62、ai Junan International.*Note:Revenue data for Kingsoft Cloud comes from Bloomberg consensus.Table-6:Peers Comparison Company Ticker Currency Last Price PE(x)PS(x)PB Market Cap 22F 23F 24F 22F 23F 24F 22F Local Currency(mn)Gaming Company Kingsoft Corp Ltd 03888 HK HKD 22.900 96.6 37.2 23.9 3.7 3.0 2.

63、7 1.1 31,364 Tencent Holdings Ltd 00700 HK HKD 286.000 21.5 17.9 14.9 4.3 3.8 3.4 2.7 2,716,211 Netdragon Websoft Holdings 00777 HK HKD 14.740 5.5 4.4 3.9 0.9 0.8 0.7 0.9 7,938 Cmge Technology Group Ltd 00302 HK HKD 1.680 6.7 5.0 4.2 1.1 0.8 0.7 0.6 4,540 Zengame Technology Holding 02660 HK HKD 1.51

64、0 2.2 2.0 1.8 0.8 0.8 0.7 0.7 1,525 Qingci Games Inc 06633 HK HKD 5.940 11.5 6.5 n.a.3.9 2.0 n.a.2.0 3,747 Igg Inc 00799 HK HKD 2.880 n.a.18.3 12.4 0.7 0.6 0.6 1.9 3,388 Netease Inc-Adr NTES US USD 79.760 17.7 15.4 13.9 3.8 3.4 3.1 4.7 52,386 Simple Average 23.1 13.3 10.7 2.4 1.9 1.7 1.8 Weighted Av

65、erage 22.1 18.0 14.9 4.3 3.8 3.4 2.7 Software Company Beijing Kingsoft Office 688111 CH CNY 210.890 77.9 58.1 44.0 24.6 18.6 14.3 11.1 98,411 Glodon Co Ltd 002410 CH CNY 46.700 56.4 41.8 32.6 7.9 6.5 5.4 9.0 54,572 Beijing Thunisoft Corp Ltd 300271 CH CNY 6.380 26.6 14.2 11.3 1.3 1.2 1.0 0.8 5,261 Y

66、onyou Network Technology 600588 CH CNY 18.290 93.8 63.3 44.2 6.0 4.9 4.0 6.2 63,836 Shanghai Baosight Software 600845 CH CNY 39.420 32.0 24.3 18.9 4.7 3.7 3.0 7.1 68,664 Zhewen Interactive Group 600986 CH CNY 4.850 16.2 13.1 11.7 0.4 0.4 0.4 1.5 6,467 Guotai Epoint Software 688232 CH CNY 46.730 23.9

67、 18.2 14.4 4.5 3.6 2.8 2.7 15,246 Simple Average 46.7 33.3 25.3 7.1 5.6 4.4 5.5 Weighted Average 62.5 45.3 33.8 11.6 9.0 7.1 8.1 See the last page for disclaimer Page 8 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report Cloud Computing Company Kingsoft C

68、loud Holdings-Adr KC US USD 1.950 n.a.n.a.n.a.0.4 0.3 0.3 0.4 475 Ucloud Technology Co Ltd 688158 CH CNY 12.290 n.a.n.a.n.a.1.6 1.4 1.2 2.1 5,623 Qingcloud Technologies 688316 CH CNY 29.810 n.a.n.a.n.a.2.5 1.9 1.5 3.9 1,398 Tencent Holdings Ltd 00700 HK HKD 286.000 21.5 17.9 14.9 4.3 3.8 3.4 2.7 2,7

69、16,211 Simple Average 21.5 17.9 14.9 2.2 1.9 1.6 2.3 Weighted Average 21.4 17.9 14.9 4.3 3.8 3.4 2.7 Overall Average 30.4 21.5 17.0 3.9 3.1 2.6 3.2 Overall Weighted Average 35.4 27.0 21.2 6.7 5.5 4.6 4.5 Source:Bloomberg.Figure-1:Kingsofts Historical PE Graph Figure-2:Kingsofts Historical PB Graph 0

70、50100150200250Sep-20Nov-20Jan-21Mar-21May-21Jul-21Sep-21Nov-21Jan-22Mar-22May-22Jul-22Sep-22Average-1 SD+1 SD 00.511.522.533.54Sep-20Nov-20Jan-21Mar-21May-21Jul-21Sep-21Nov-21Jan-22Mar-22May-22Jul-22Sep-22Average-1 SD+1 SD Source:Bloomberg.Source:Bloomberg.See the last page for disclaimer Page 9 of

71、22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report 3.Kingsoft:Software Veteran for Years 3.1 The Company is now driven by office software and gaming business Kingsoft has been established for more than 30 years and witnessed the ups and downs of Chinas soft

72、ware industry.The Company originally evolved from Kingsoft Hong Kong.Qiu Bojun(求伯君)joined Kingsoft in 1988,which was generally regarded as the starting point of the Company,and the epoch-making product WPS1.0 was launched the next year.Because WPS solved the pain point of typing is easy but printing

73、 is difficult at that time,it quickly occupied the market and opened the prelude to Chinese office software and Microsoft(MS)had not entered the Chinese market yet.In 1994,the predecessor of Seasun(西山居),Kingsoft Game(金山游戲),was established,and two years later,it released the first commercial computer

74、 game in mainland China,marking the Companys entry into the gaming industry.So far,the Company has formed a business model of Office software+Gaming,laying the cornerstone for the Companys future growth.Reviewing the Companys business development,we divide it into three stages:1)Before 2000,the Comp

75、any competed with Microsoft and faced rampant piracy of its software.During this stage,the Companys main task was to form basic product competitiveness and quickly occupy the market.Initially,WPS was built on the DOS system and was highly praised when it made its debut with its market share once clo

76、se to monopoly status.However,because the Company thought that the Windows system would quickly replace DOS,it shifted its research and development efforts accordingly to develop a Windows-based software named Pangu(盤古)which included word processing,spreadsheets,electronic dictionaries and other fun

77、ctions.Contrary to what the Company had expected,the market did not accept Pangu and DOS had not been rapidly replaced by Windows.As a result,in 1995,the Companys sales were less than one third of that in 1994.In order to support the continuity of business,in 1997,the Company advanced to the gaming

78、industry and launched Jianxia Qing Yuan(劍俠情緣),which later became the representative of Wuxia games,and meanwhile developed WPS based on the Windows 97 operating system to regain market share.At this time,Microsoft had occupied the Chinese market with the strategy of bundled sales of Windows 97 and i

79、ts office software.In the face of Microsofts competition and low PC penetration rate,coupled with rampant piracy,the Companys solution was to constantly step up its research and development of products that could compete with Microsoft,and launch the Red Copyright Storm(紅色正版風暴)to significantly reduc

80、e the price of software to mitigate the influence of pirated software.At this stage,although the Company experienced a short period of strategic mistakes,fierce competition from Microsoft and widespread piracy,its office software products and games had been well known in the market,which helped shap

81、e its competitiveness;2)From 2000 to 2010,the Company seized the opportunity to provide productivity software for the Chinese government to ensure national information security,and gaming business continued to launch high-quality products.At the beginning of 2000,Microsoft relaxed its attack on soft

82、ware piracy in an effort to strengthen the market share of its products and achieve the goal of becoming the industry standard.WPS,which had gradually reclaimed its market influence on the one hand reshaped its product competitiveness by rewriting codes,and on the other hand it seized the National H

83、igh-tech R&D Program(863 計劃)and the Core Electronic Devices,High-end Generic Chips and Basic Software Program(“核高基”重大專項)to obtain research funds.Therefore,WPS has become the first choice for independent and controllable office software and it also announced in 2007 that the version for individuals w

84、ould be free permanently.In terms of gaming,the Company entered the online gaming market in 2003 and launched the star product Jianxia Qing Yuan Online Edition(劍俠情緣網絡版,or Jian OL),which gained massive popularity.WPSs cost performance ratio,together with opportunities brought by the national informat

85、ion security strategy,and Jian OLs market recognition,represented the Companys two core business pillars which had formed a stronghold in their own territory.3)After 2010,the Company focused on going mobile and providing services.With the rise of smartphones and cloud computing,the world has entered

86、 the era of mobile internet and as-a-service(即服務).The Company has adopted corresponding strategies:in 2011,WPS released a mobile version,and in the same year,Seasun also announced its mobile strategy.In 2012,Kingsoft Cloud,which was a subsidiary of Kingsoft until 2020,was founded,marking the Company

87、s formal entry into cloud computing business and its further transformation into providing services.At the same time,Kingsoft Cloud also provided technical support for the Companys office software business and gaming business.From 2013,the Companys subsidiary,Kingsoft Office,to which its office soft

88、ware business belongs,started to promote a subscription-based model in order to initiate its transformation to a service-oriented company.In the future,we believe that See the last page for disclaimer Page 10 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company R

89、eport the Company will further implement the service-oriented strategy to cultivate the markets acceptance of the subscription model.Figure-3:Kingsoft Office and Seasun Are Two Major Businesses of the Company Ki ngsof t1988:Kingsoft was established in Zhuhai1998:Lenovo became a shareholder and Kings

90、oft was restructured2005:Kingsoft Japan was established to further expand the international market2007:Listed on the Hong Kong Exchange2008:Established a wholly-owned subsidiary in Malaysia to expand overseas territory again2010:Kingsoft Security merged with Keniu Image（可牛影像）to establish Kingsoft Ne

91、twork(the predecessor of Cheetah Mobile)2011:Reached strategic investment cooperation with Tencent to jointly create reliable network security solutions for users2012:Kingsoft Cloud was found as an independent subsidiary and formally entered the cloud computing2014:Kingsoft Network changed its name

92、to Cheetah Mobile and listed on New York Stock Exchange2017:Cheetah Mobile became an associated company and no longer consolidated2020:Kingsoft Cloud becomes an associated company and listed on NASDAQ1989:Qiu Bojun,founder of Kingsoft,launched WPS1.02001:WPS won the National Science and Technology P

93、rogress Award and became a national software representative2005:WPS Office 2005 was released2007:WPS entered the Japanese market2011:WPS Mobile version was released2012:WPS passed major special acceptance of He Gao Ji（“核高基”重大專項）2015:WPS+one-stop cloud office was released2017:the number of WPS Office

94、 PC and mobile users exceeded 100 million;Thai version released in Bangkok in May2018:release new products such as WPS Office 2019 and Kingsoft Docs2019:WPS Office macOS version was released1994:Kingsoft Game(the predecessor of Seasun)was established1996:Released Zhongguancun Revelation（中關村啟示錄）,the

95、first commercial game in mainland China,marking that Kingsoft officially entered the gaming industry1997:the single-player version of Jianxia Qing Yuan,Chinas iconic martial arts game,was released2000:Jianxia Qing Yuan 2 achieved a sales volume of 200,000 sets2003:The online version of Jianxia Qing

96、Yuan was released,marking entry into the online gaming2006:Entered Vietnam,Malaysia,Cambodia and other countries to develop overseas markets2009:Release of Jian OL 32011:Completed the MBO and announced the mobile strategy2013:Obtained strategic financing of US$20 million from Xiaomi2017:K7 Studio wa

97、s established,Tencent invested US$143 million in Seasun,and Jian OL 3 was remaked for public beta2021:Jian OL 1:Return and Jian 3 were releasedSubsidiary(52.7%)Subsidiary(67.5%)Associate(47.5%)Associate(39.0%)Source:the Company,Kingsoft Office,Seasun,Kingsoft Cloud,Cheetah Mobile,Guotai Junan Intern

98、ational.Figure-4:Preliminary Version of WPS Office Figure-5:The Company Was an Early Entrant into the Gaming Industry Source:51CTO,Guotai Junan International.Source:Seasun,Guotai Junan International.3.2 The management members are all leaders in the industry The management team of the Company are als

99、o leaders in Chinas software industry,helping the Company to pass through economic cycles.During the initial stages of its establishment,the Company gathered elites in the Chinese software industry,such as the founder of the Company,Qiu Bojun,who was honored as the No.1 Programmer in China,as well a

100、s the the founder of Xiaomi,Lei Jun.In addition,the Company also has Zou Tao,the head of development of Kingsoft PowerWord(金山詞霸)(now CEO of the Company and chairman of Kingsoft Office),Zhang Qingyuan,the core technician who developed WPS2005(now the COO of Kingsoft Office Zhuhai),and Guo Weiwei,the

101、producer of Jian OL 3(now the CEO of Seasun).The management members had helped shape the industry and served in the Company for many years,making them a relatively stable team force.See the last page for disclaimer Page 11 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(0388

102、8 HK)Company Report 4.Office Software Business:Continuous Growth in B2C，Opening Up New Space in B2B 4.1 Microsoft still leads in office software but diversity is emerging Looking back on the history of Microsoft Office,we believe that the easy use of the software and the monopoly position of Windows

103、 were key to Microsofts to lead the industry.In 1996,Microsoft upgraded Windows 95 for the second time,which was Windows 95 OSR2(OSR:OEM Service Release),also known as Windows 97.When Windows 97 once again occupied the market by virtue of Microsofts monopoly position,Microsoft announced that MS Word

104、 would be used in combination with Windows 97,making use of the scale effect of the operating system to allow users also to become familiar with its office software in order to share the advantages brought by its strong market presence,and actively cultivate user loyalty to Microsoft.This is similar

105、 to the way Microsoft used Internet Explorer(IE)to gain market share over Netscape.Microsofts operating system bundled in IE,which was free to use,and thereby Microsoft attracted a large number of Netscape users to switch to IE.For individual users,the practicability,cost and compatibility of produc

106、tivity software are key factors to consider when choosing products.Reviewing the history of Microsoft Office products,we found that the upgrade cycle is around 2-3 years,from the previous offline version of MS Office to the current Microsoft 365,which is based on subscription;we have summarized its

107、characteristics as follows:1)the user interface is developing towards simplicity and appealing appearance;2)continual increase in smoothness of use;3)constant polishing of functions.The key is to build around the core of making productivity software productive for users,which is also the core appeal

108、 of this type of software.The number of Microsoft 365 consumer subscriptions reached 59.7 million in the fourth quarter of Microsofts fiscal year 2022,yoy growth rate of 15.0%.Figure-6:Growth of Office 365 Commercial Has Been Stabilizing Figure-7:Consumer Subscribers of Microsoft 365 Has Been Increa

109、sing 0%5%10%15%20%25%30%35%40%45%1QFY172QFY173QFY174QFY171QFY182QFY183QFY184QFY181QFY192QFY193QFY194QFY191QFY202QFY203QFY204QFY201QFY212QFY213QFY214QFY211QFY222QFY223QFY224QFY22Office 365 commercial seat growth Source:Microsoft,Guotai Junan International.Note:The fiscal year of Microsoft ends in Jun

110、e.Source:Microsoft,Guotai Junan International.Note:The fiscal year of Microsoft ends in June.0%5%10%15%20%25%30%0102030405060701QFY172QFY173QFY174QFY171QFY182QFY183QFY184QFY181QFY192QFY193QFY194QFY191QFY202QFY203QFY204QFY201QFY212QFY213QFY214QFY211QFY222QFY223QFY224QFY22Microsoft 365 consumer subscr

111、ibersYoYmn See the last page for disclaimer Page 12 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report Table-7:Microsoft Office Has Been Evolving Every 2-3 Years Version Feature DOS Based on DOS,there was no graphical interface,no mouse,and it was diffic

112、ult to use by inputting code.Office(Early Version)Based on Windows,such as Office 2.0/3.0/4.0,starting to support using mouse and interface buttons,greatly improving editing efficiency.Office 95 The interface started to be systematized and standardized.Office 97 Adopted more humanized design,and the

113、 presentation on the computer was consistent with that printed,basically realizing what you see is what you get.Office 2000 Combined with the most advanced network functions at that time,many Chinese related function designs were added according to Chinese characteristics.Office XP Similar to Office

114、 2000,there was no obvious upgrade to attract consumers.Office 2003 The interface has been greatly beautified,and focusing on adding some detailed functions,such as reading layout,document comparison and tracking revision,had become a popular version of Office in history.Office 2007 The Ribbon inter

115、face was enabled for the first time.The document format was brand-new XML(such as docx,xlsx,and pptx),but it cannot be read by previous versions.Microsoft later introduced a compatibility package to solve this problem.Office 2010 The interface was more mature,with richer SmartArt templates,more Powe

116、rPoint animations,etc.,greatly improving the usability.Office 2013 Used a new and more advanced interface to continue to optimize details,such as inserting network pictures,editing PDF documents directly,etc.Office 2016 There were few upgrades,and users cannot perceive the difference from the previo

117、us version.Office 2019 More seamless to use the previous version.Office 2021 More concise design,new collaboration mode,dark mode and other details upgrade.Office 365(now Microsoft 365)Adopted a subscription model and enjoyed software update service anytime Source:Sina Technology,Microsoft,Guotai Ju

118、nan International.Table-8:Subscription Fees of WPS Office Still Have Room to Grow Compared with Microsoft 365 Product Use Version Subscription Fee Microsoft 365 Home Family RMB498/year or RMB50/month Personal RMB398/year or RMB39/month Business（small-to-median firms,international version）Basic RMB43

119、/month/user（Annual commitment）Apps for business RMB60/month/user（Annual commitment）Standard RMB90/month/user（Annual commitment）Premium RMB159/month/user（Annual commitment）Enterprise（Large firms）E3 RMB260/month/user（Annual commitment）E5 RMB391/month/user（Annual commitment）F3 RMB58/month/user（Annual c

120、ommitment）WPS Office(Membership)Personal WPS RMB89/year/user Docer RMB89/year/user Super Member（WPS+Docer）RMB179/year/user Kingsoft Docs RMB89/year/user Enterprise WPS-Digital Office Platform According to different versions:RMB168 RMB860/year/user Source:Microsoft,Kingsoft Office,Guotai Junan Intern

121、ational.The non-exclusive nature of office software enables other players to gain sufficient market share through differentiation along with the strong position of Microsoft.It is common for users to use software from multiple vendors because most of the formats of different office software are comp

122、atible with each other.For example,besides WPS Office,there is Google G Suite(Google Docs)of Google and Yongzhong Office of Yongzhong Software.They all have unique market positions through differentiated products:Google Docs focuses on online collaboration on mobile terminals,with free-to-use and co

123、nvenience as its main features;WPS is also free for personal use with a subscription fee option for value-added services,See the last page for disclaimer Page 13 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report much cheaper than that for Microsoft.On t

124、op of that,WPS can process PDF files with more flexibility and has many AI functions(such as image processing,assisted writing and OCR),which are liked by many users.Therefore,in the consumer market,helping users solve their pain points and improving efficiency of office work are key to obtain marke

125、t share.Table-9:WPS Office Is Compatible with More Platforms and Standards than its Peers Category Items for Comparison WPS Office 2019 Microsoft Office 2019 Google Docs Component Key Module word,spreadsheet,presentation,PDF word,spreadsheet,presentation word,spreadsheet,presentation Platform Window

126、s Linux MacOS Android iOS Web CPU X86、ARM、Loongson（龍芯）、Phytium（飛騰）、Zhaoxin（兆芯）、Sunway（申威）X86 X86 Domestic OS NeoKylin（中標麒麟）、KylinOS（銀河麒麟）、Deepin（深度）、NewStart（新支點）and etc.Standard OOXML Strong compatibility Creator of the standard Normal compatibility PDF Read and edit UOF Creator of the standard OFD

127、 Official document Cloud service Multi-user collaborative editing File Storage Worldwide Worldwide Only available outside China Privatization deployment Online resources Millions of document templates,icons,fonts,pictures,charts and other materials Basic template Basic template Secondary development

128、 Secondary development Local secondary development/Web secondary development Local secondary development Web secondary development AI AI PPT beautification,proofreading,auxiliary writing,image processing,OCR PPT beautification,translation PPT beautification Source:the Company,Guotai Junan Internatio

129、nal.4.2 Complete Product Portfolio,Localization and ITAI Opening up New Space for B2B Focusing on the strategy of multi-screen,cloud,content,AI,collaboration,the Company has formed a product portfolio of client office+online collaborative office.The main office products of the Company are as follows

130、:1)WPS Office,the core product,and its main components are word,presentation and spreadsheet processing software,which are offered through WPS Office desktop version(for Windows/Mac/Linux)and mobile version(for Android/iOS),covering most mainstream operating systems and compatible with other mainstr

131、eam office software such as Microsoft Office;2)Kingsoft Docs,an online office product for individual users,is based on HTML5 and also covers multiple mainstream platforms.Users can conduct online viewing,managing and editing of documents,and cooperative office work through browsers,WeChat and QQ.Kin

132、gsoft Docs is flexible and convenient and is compatible with WPS files.Users can choose to use WPS for heavy editing or Kingsoft Docs for light editing according to their needs.According to the Statistical Report on the Development of Internet in China,issued by China Internet Network Information Ce

133、nter,as of December 2021,the number of people using online office software in China reached 469 million,with yoy growth of 35.7%,accounting for 45.4%of the total Internet users,nearly half of the whole user population,and thus still has room for improvement;3)Kingsoft Digital Office Platform(金山數字辦公平

134、臺),an online collaborative office solution developed by the Company for enterprise users,mainly includes WPS,Kingsoft Docs,and Kingsoft Collaboration(金山協作),which is delivered through mediums such as public cloud,hybrid cloud,private access,etc.,empowering large enterprises and organizations.In addit

135、ion to the above products,the Company also provides software and See the last page for disclaimer Page 14 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report services such as Kingsoft PowerWord and Docer（稻殼）.Figure-8:The Companys Major Office Products Sou

136、rce:the Company,Guotai Junan International.The Companys business model is subscription(individuals and institutions)+Licenses(institutions)+traffic monetization(online marketing).For individual consumers,the Companys strategy is similar to other internet companies;it adopts the model of free basic f

137、unctions+membership for value-added services(WPS membership,Docer membership and super membership)+traffic monetization.The Company offers basic free functions in its software to gain market share.When the Company accumulates a certain amount of users,it monetizes its services by offering value-adde

138、d services and through advertising.For institutions,under the subscription model,the Company signs annual or multi-year contracts,within the period agreed in the contract,institutions can use the Companys products according to the number of terminals or number of users agreed in the contract and enj

139、oy product upgrades and technical support.Under the license model,the Company grants institutional customers a certain number of licenses for a certain version of the product,which also includes a certain period(usually one year)of upgrade service.If the upgrade or service guarantee expires,customer

140、s need to purchase again.For the online marketing business,the Company mainly provides marketing services for advertisers within its products and official websites.According to the different billing methods,the online marketing business is generally divided into four types:CPS(cost per sale),CPT(cos

141、t per time),CPA(cost per action)and CPC(cost per click).However,in order to provide productivity software users with better experience,the Company carried out strategic contraction for the online marketing business under the premise of ensuring business stability.In 1H22,online marketing revenue acc

142、ounted for only 7%of the Companys total revenue,down 8 ppt yoy,while subscription revenue from individuals and institutions accounted for 69%,up 14 ppt yoy.We believe that the reduced online marketing revenue shows the Companys emphasis on improving users experience,so as to attract more users and i

143、mprove the payment ratio.Figure-9:Revenue from Subscriptions Has Been Climbing Figure-10:Revenue from Subscriptions is Becoming Increasingly Important 3936801,3781,9128661,23735649646596247142038140441940622813405001,0001,5002,0002,5003,0003,50020182019202020211H211H22SubcriptionInstitution licenseO

144、nline marketing servicesRMB mn Source:Kingsoft Office,Guotai Junan International.Note:Subscription includes consumers and institutions.Source:Kingsoft Office,Guotai Junan International.35%43%61%58%55%69%31%31%21%29%30%23%34%26%19%12%15%7%0%20%40%60%80%100%20182019202020211H211H22SubcriptionInstituti

145、on licenseOnline marketing services See the last page for disclaimer Page 15 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report 0%5%10%15%20%25%30%35%40%02004006008001,0001,20020182019202020211H22R&DYoYRMB mnHigh intensity investment in R&D helped the Co

146、mpany to continuously improve individual userss payment ratio and ARPU.In June 2022,the monthly active users(MAU)of the major products of Kingsoft Office(excluding Kingsoft Docs)reached 570 million,up 13.8%yoy.WPS Office PC version and mobile version recorded yoy growth of 16.6%and 12.8%.In 1H22,acc

147、ording to data from China Academy of Information and Communications,shipments of smartphones in China fell by 21.7%yoy.For PCs,according to Canalys,shipments of PCs in China fell yoy by 1%and 16%in 1Q22 and 2Q22,respectively.Under the current weak market conditions where numbers of newly shipped mob

148、ile devices and PC devices have been declining,we believe that the Companys newly added users will be negatively affected,however,the Company can focus on increasing the penetration rate in the existing market.In 1H22,the cumulative number of paid individual users was 28.56 million,with a payment ra

149、tio of 5.0%,up 0.6 ppt yoy,and the corresponding individual user ARPU was RMB32.9,up 7.7%yoy.Compared with the annual subscription fee of Microsoft 365 for individual consumers,which is RMB398 per year,the annual subscription fee of WPS Office costs only RMB89 yuan.Due to continuous high R&D investm

150、ent of the Company(R&D expenses as a percentage of the Companys total revenue was maintained at more than 30%almost every year),the Companys software will be improved to better meet users needs,thus we believe that the ARPU still has much room for improvement.Figure-11:MAU of Key Products and Paymen

151、t Ratio Are Rising Figure-12:ARPU of Consumers Subscription Is Expected to Continue Increasing 0%5%10%15%20%25%30%35%0100200300400500600Dec-18Dec-19Dec-20Dec-21Jun-22MAU of the key product MAU YoYPayment ratioRMB mn 0%2%4%6%8%10%12%14%16%18%20%01020304050607080901002020A2021A2022F2023F2024FARPUYoYRM

152、BSource:the Company,Guotai Junan International.Note:MAU of key products takes into account active users of WPS Office and Kingsoft PowerWord on all platforms,not including Kingsoft Docs.Source:the Company,Guotai Junan International.Figure-13:Kingsoft Office Invests Heavily in R&D Source:Kingsoft Off

153、ice,Guotai Junan International.See the last page for disclaimer Page 16 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report In terms of institutional business,the Company seized the opportunity of localization and ITAI.Since 2000,China has been promoting

154、the use of copyrighted software and information security by introducing relevant policies.For example,in the Notice on Promoting the Use of Copyrighted Software by Central Enterprises in 2013,it mentioned that after three years of efforts,we will fully use copyrighted software in central enterprises

155、 by the end of 2015.The Company has always been the leader in the institutional productivity software market:by the end of 2020,the Companys office products had served 62 of the 65 ministries and commissions of the State Council,33 of 34 provincial governments,and more than 400 municipal and county

156、governments and central enterprise markets.Similarly,the Company also serves numerous large enterprises.In 1H22,the Companys digital office platform added 1,838 government and enterprise customers,driving the revenue of the digital office platform to increase by 51%yoy.Considering the Companys leadi

157、ng position in government and enterprises through 30 years of investment and development,and the trend of information security requirements of the government coupled with the digital transformation needs of enterprises,it is difficult for competitors to expand their market share and thereby we belie

158、ve that the Company will remain highly competitive in the future and subscription revenue will continue to rise rapidly.5.Gaming Business:Jianxia IP Leads;Exploring More Diversity 5.1 The gaming industry is plateauing but structural opportunities exist The growth rate of domestic games revenue has b

159、een slowing down.According to GPC(中國音數協游戲工委),industry game revenue in the Chinese market in 2021 was RMB296.5 billion,up 6.4%yoy,14.3 ppt lower than the growth rate in 2020.This was mainly due to the introduction of new anti-addiction regulations in 2021 and the lack of popular games,which made grow

160、th of the number of game players to be saturated.Data shows that the number of game players in 2021 reached 666 million,increasing by only 0.6%yoy.In 2021,most of game revenue came from mobile games,accounting for 76.1%of the total revenue,which was the main area for game companies to compete.Growth

161、 of mobile games ARPU also slowed.ARPU data in 2021 was RMB344 yuan,up 7.3%yoy,slowing down 19.2 ppt compared with growth in 2020.Role-playing games(RPG)are the main source of revenue.Although total number of players and ARPU growth declined,there are still structural opportunities in the gaming mar

162、ket.In 2021,for mobile games,ARPG(action role-playing Game)/MMORPG(massive multiplayer online role-playing game),where the Companys Jianxia series belongs,dominated revenue contribution,with a share of nearly 20%,and MOBA(multiplayer online battle arena)games took second place with a share of 15%.We

163、 believe that with the introduction of more popular games,there is still room for mobile games revenue to grow by increasing ARPU,and role-playing games will benefit from being the largest category.Figure-14:Game Revenue in China Slowed Down in 2021 Figure-15:Mobile Game Revenue Slowed Down From Pre

164、vious Rapid Growth 0%5%10%15%20%25%01002003004002014 2015 2016 2017 2018 2019 2020 2021Game revenueYoYRMB bn Source:GPC,Guotai Junan International.Source:GPC,Guotai Junan International.0%20%40%60%80%100%0501001502002502014 2015 2016 2017 2018 2019 2020 2021Mobile game revenueYoYRMB bn See the last p

165、age for disclaimer Page 17 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report Figure-16:Number of Game Players Plateaued in 2021 Figure-17:Number of Mobile Game Players and ARPU Are Slowing Down Growth Source:GPC,Guotai Junan International.Source:GPC,Guo

166、tai Junan International.Figure-18:ARPG/MMORPG Ranked First in 2021 Mobile Game Revenue Source:GPC,Guotai Junan International.5.2 Gaming,as another pillar for the Company,is evolving with Jianxia series and new game types The gaming business is another core area for the Company.Seasun,the Companys ga

167、mes business subsidiary,was established as early as 1995.With Jianxia series as its iconic product,Seasun has experienced the full cycle of the gaming industry,from single-player games to online games,then to mobile games.In 2021,revenue from gaming business was RMB3,107 million,down 6.9%yoy,account

168、ing for 48.8%of total revenue.This was mainly due to the late launch of the important new games Jian 3 and Jian OL 1:Return(劍網 1：歸來),and most of the revenue will be reflected in 2022:in 1H22,gaming revenue increased by 27.6%yoy,reflecting the markets positive attitude towards these new titles.010020

169、030040050060070020142015201620172018201920202021Number of mobile game playersARPU(RMB)mn0%1%2%3%4%5%6%7%8%9%10%01002003004005006007002014 2015 2016 2017 2018 2019 2020 2021Number of game playersYoYmn19.6%15.0%14.1%11.8%10.0%29.6%ARPG/MMORPGMOBAShootingTurn-based RPGSLGOthers See the last page for di

170、sclaimer Page 18 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report Figure-19:The Companys Game Revenue Showed Healthy Growth in 1H22 Figure-20:Game Business Still Counts for about Half of the Total Revenue-30%-20%-10%0%10%20%30%40%50%05001,0001,5002,000

171、2,5003,0003,5004,0002018 2019 2020 20211H19 1H20 1H21 1H22Online games and othersYoYRMB mn 0%10%20%30%40%50%60%70%80%2018 2019 2020 20211H19 1H20 1H21 1H22Online games and others as%of total revenueSource:the Company,Guotai Junan International.Source:the Company,Guotai Junan International.Over the y

172、ears,Seasun has insisted on developing games by itself,and it continues to refine the Jianxia series into better games.Seasuns games are all self-developed,mainly divided into the Jianxia series and other non-Jianxia games,with PC games and mobile games being developed together.Seasun released Jian

173、OL in 2003,marking its official entry into the online gaming industry.As a result of the good reputation accumulated in the Companys single-player games era,the online version was loved by many players once it was launched.At present,the major PC game,Jian OL 3,a 3D MMORPG game,debuted in 2009.Seasu

174、n has made drastic changes to the story plot and the way of playing compared with previous versions,laying the foundation for the current version of Jian OL 3.It is worth noting that Jian OL 3 has adopted a pay-to-play subscription-based model among many other free games,which shows Seasuns confiden

175、ce in the competitiveness of this game.Seasun,on the other side,launched its own strategy towards mobile games and began to release mobile games in 2011.In 2016,it jointly launched Jianxia Qing Yuan(New)(新劍俠情緣)with Tencent,which is still contributing revenue after six years in operation.At the end o

176、f 2021,Seasun introduced Jian 3 and Jian OL 1:Return,among them,Jian 3 once topped the free games chart on the iOS App Store.We expect that both games will become growth drivers for Seasun in 2022.Looking back on the development of Seasun,we believe that its persistence in self-development,willingne

177、ss to change and ability to keep up with industry trends are key to the long-term vitality of the Jianxia series.Table-10:Game Products Developed by Seasun Category Platform Title Time of Release Developer Operator Distributor Pay-to-Play Jianxia Series PC Jian OL 3（劍網（劍網3）2009 Seasun Seasun Seasun

178、Yes Jian OL 3:Yuanqi（劍網3：緣起）2021 Seasun Seasun Seasun JIanxia 2 Waizhuan（劍俠貳外傳）2009 Seasun Seasun Seasun Jianxia Shijie（劍俠世界）2008 Seasun Seasun Seasun Jian OL 2（劍網2）2005 Seasun Seasun Seasun Jian OL（劍網1）2003 Seasun Seasun Seasun Mobile Jian 3（劍俠世界（劍俠世界3）2021 Seasun Seasun Seasun Jianxia Qing Yuan(Ne

179、w)（新劍俠情緣）（新劍俠情緣）2016 Seasun Tencent Tencent Jian OL 3:Zhijian Jianghu（劍網3：指尖江湖）2019 Seasun Tencent Tencent Jian OL:Return（劍網1：歸來）2021 Seasun Seasun Seasun Jian OL 3 Zhijian Duiyi（劍網3指尖對弈）2020 Seasun Seasun Seasun Jianxia Shijie（劍俠世界）2016 Seasun Seasun Seasun Yes Jianxia Shijie 2（劍俠世界2）2018 Seasun Se

180、asun Seasun Non-Jianxia Series PC Fankong Xingdong（反恐行動）2009 Seasun Seasun Seasun Chunqiu Q Zhuan（春秋Q傳）2006 Seasun Seasun Seasun Mobile Shuangxiang（雙相）(Mobile/PC)Upcoming Seasun Seasun Seasun I and My Cat（我和我的貓）Upcoming Seasun Seasun Seasun Girl Caf Gun 2（雙生視界）2019 Seasun Bilibili Bilibili Yunchang

181、Yuyi（云裳羽衣）2018 Seasun Tencent Tencent Source:Seasun,Tencent,Guotai Junan International.See the last page for disclaimer Page 19 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report In the next year or two,we suggest focus on the performance of Jian OL 3+Ji

182、an 3+New Type.Jian OL 3 is the economic backbone of Seasun when it comes to computer games.Currently,it mainly maintains its competitiveness by continuously releasing new content.Although mobile games have become increasingly popular,we believe that Jian OL 3 can still maintain strong performance wi

183、th its high-quality content and good reputation.In terms of mobile games,Jian 3 received an excellent ranking and contributed strong cash flow soon after its release.Therefore,we think its contribution to the Companys revenue in 2022 is worth looking forward to.In addition,Seasun is also exploring g

184、ames other than the Jianxia series,such as Girl Caf Gun 2(少女咖啡槍 2：雙生視界)operated by Bilibili(嗶哩嗶哩),and Shuangxiang(雙相),a free game developed by SEED Lab,as well as Project Snow and Bijie,which are expected to be launched in 2022 or 2023.We believe that Seasun,with strong research and development capa

185、bilities,is also full of imagination in terms of future growth.Figure-21:Jian Xia Shi Jie 3 Gained a Good Ranking on iOS Source:Qimai Data,Guotai Junan International.Figure-22:Jian Xia Shi Jie 3 Was Recommended in the iOS App Store Figure-23:Jian Xia Qing Yuan(New)and Jian Xia Shi Jie 3 Are Contribu

186、ting Notable Cash Inflow 024681012141618201Q202Q203Q204Q201Q212Q213Q214Q211Q222Q22Jian Xia Qing Yuan(New)Jian Xia Shi Jie 3USD mn Source:Apple App Store,Guotai Junan International.Source:Qimai Data,Guotai Junan International.Table-11:The Company is Focusing on Introducing Mobile Games Title Platform

187、 Type Expected Time of Release Fengbao Moyu 2（風暴魔域 2）Mobile MMORPG 2022 Project Snow（塵白禁區）Mobile TPS 2022-2023 Bijie（彼界）Mobile RPG/SLG 2022-2023 Source:the Company,Guotai Junan International.01002003004005006007008002021-12-29 2022-02-02 2022-03-09 2022-04-13 2022-05-18 2022-06-22 2022-07-27 2022-08

188、-31Game(free)Game-Action(free)Game-RPG(free)See the last page for disclaimer Page 20 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report 6.Major Risks Office software business：1)The recovery of ITAI sector is not as expected:In 1H22,ITAI sector was negati

189、vely impacted due to repeated outbreaks of the local Covid-19 epidemic.If recovery is slow in the future,it will affect license business revenue.2)Risk of decline in payment ratio of individual users:If the Companys products cannot continuously develop functions that can attract users to pay or user

190、s to switch to other productivity software,the payment ratio will decline,affecting revenue of individual subscription business.Gaming business：1)The market acceptance of new games is not as expected:most of the new games reserved by the Company are mobile games which are non-Jianxia ones.The Compan

191、ys exploration in other types of games may not reach the heights of the Jianxia series.After the launch of new games,the Company may not reach sufficient popularity or the payment ratio may be low,which will affect gaming business revenue.2)Risk of declining market acceptance of Jianxia series:Jianx

192、ia series is the core revenue driver for the Companys gaming business.If the Company cannot maintain enough players by introducing new gaming content,players will be attracted to other games from other companies,or the payment ratio of players may decline due to lack of attractiveness of gaming cont

193、ent,all of which will affect gaming business revenue.See the last page for disclaimer Page 21 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report Financial Statements and Ratios Table_IncomeStatement Income Statement Year end 31 Dec(RMB m)2020A 2021A 2022

194、F 2023F 2024F Revenue-Office software and services 2,257 3,265 3,870 4,945 6,523 Revenue-Online games and others 3,337 3,107 3,759 4,398 5,058 Total Revenue 5,594 6,371 7,629 9,343 11,581 Cost of revenue(917)(1,157)(1,368)(1,618)(1,899)Gross profit 4,677 5,214 6,261 7,726 9,682 R&D expenses(1,656)(2

195、,328)(2,612)(3,223)(4,043)Sales and marketing expenses(838)(1,065)(1,208)(1,478)(1,797)General and administration expenses(454)(570)(672)(813)(989)Share-based compensation costs(179)(219)(340)(384)(422)Other income 311 391 411 329 263 Operating Profit 1,855 1,361 1,807 2,126 2,660 Finance income 438

196、 416 358 359 368 Finance costs(108)(143)(162)(182)(203)Other gains,net 155 842 432 475 380 Share of profits and losses of JV and associates(271)(1,333)(1,860)(1,838)(1,788)Profit Before Tax 10,516 1,143 574 940 1,417 Income Tax(271)(190)(96)(157)(236)profit After Tax 10,245 953 479 784 1,181 Non-con

197、trolling Interest(200)(558)(335)(470)(590)Shareholders Profit/Loss 10,045 395 144 314 590 Basic EPS 7.348 0.289 0.105 0.229 0.432 Cash Flow Statement Year end 31 Dec(RMB m)2020A 2021A 2022F 2023F 2024F Profit before tax 11,592 1,143 574 940 1,417 D&A 490 212 227 248 277 Net finance income(172)(273)(

198、195)(177)(165)Others(9,745)756 756(881)(84)Change in working capital 901 601 415 1,025 1,290 Interest received 90 82 96 89 89 Tax paid(165)(301)(202)(253)(323)Cash from Operating Activities 2,991 2,220 1,670 992 2,502 Payments for PPE(488)(289)(260)(234)(210)Payments for intangible assets(5)(14)(8)(

199、9)(10)Others(7,082)(1,303)(903)565(652)Cash from Investing Activities(7,575)(1,605)(1,171)322(872)Dividends paid to owners of the parent(238)(228)(134)(72)(94)Dividends paid to non-controlling interests(161)(173)(178)(183)(189)Others 2,275(79)(71)(80)(70)Cash from Financing Activities 1,876(480)(383

200、)(335)(352)Net Changes in Cash(2,708)135 117 980 1,277 Cash at Beg of Year 7,330 4,455 4,553 4,535 5,354 FX change(167)(37)(136)(161)(193)Cash at End of Year 4,455 4,553 4,535 5,354 6,438 Source:the Company,Guotai Junan International.Balance Sheet Year end 31 Dec(RMB m)2020A 2021A 2022F 2023F 2024F

201、Right-of-use assets 505 489 513 539 566 PPE 1,185 1,259 1,384 1,523 1,675 Investments in associates 12,752 12,131 12,737 13,374 14,043 Others 871 1,006 1,058 1,102 1,150 Total Non-current Assets 15,313 14,884 15,693 16,538 17,433 Inventories 19 19 19 20 20 Trade receivables 772 839 923 1,016 1,117 P

202、repayments,other receivables and other assets 967 1,692 1,861 1,489 1,042 Financial assets at fair value through profit or loss 3,911 2,902 3,192 3,512 3,863 Deposits with original maturity of over three months 9,594 11,637 11,555 11,502 11,753 Cash&Cash Equivalents 4,455 4,553 4,535 5,354 6,438 Oth

203、ers 13 9 10 12 13 Total Current Assets 19,732 21,652 22,096 22,903 24,246 Total Assets 35,044 36,535 37,788 39,441 41,679 Trade and other payables 1,449 1,850 2,120 2,387 2,757 Contract liabilities 1,476 2,003 2,404 2,885 3,462 Lease liabilities 53 51 46 41 37 Others 266 192 211 232 256 Total Curren

204、t Liabilities 3,244 4,096 4,781 5,545 6,512 Contract liabilities 98 144 187 243 316 Lease liabilities 170 154 139 125 113 Others 1,108 1,100 997 904 821 Total Non-current Liabilities 3,573 3,647 3,684 3,751 3,852 Total Liabilities 6,816 7,743 8,465 9,296 10,364 Share capital 5 5 5 5 5 Share premium

205、account 2,762 2,491 2,615 2,746 2,883 Treasury shares(11)(15)(15)(15)(15)Equity component of convertible bonds 469 469 469 469 469 Other reserves 21,439 21,835 21,906 22,126 22,569 Total Shareholders Equity 24,665 24,784 24,980 25,331 25,911 Minority Interest 3,563 4,008 4,343 4,814 5,404 Total Equi

206、ty 28,228 28,792 29,324 30,144 31,315 Financial Ratios 2020A 2021A 2022F 2023F 2024F Gross profit margin(%)84 81.8 82.1 82.7 83.6 Operating profit margin(%)33 21.4 23.7 22.8 23.0 Net profit margin(%)180 6.2 1.9 3.4 5.1 ROA(%)34 1.1 0.4 0.8 1.5 ROE(%)52 1.6 0.6 1.2 2.3 Current ratio(x)6 5.3 4.6 4.1 3

207、.7 Quick ratio(x)6 5.3 4.6 4.1 3.7 Debt to equity ratio(%)0 0.1 0.1 0.1 0.1 Net gearing(%)Net Cash Net Cash Net Cash Net Cash Net Cash See the last page for disclaimer Page 22 of 22 22 September 2022 Kingsoft 金山軟件(03888 HK)Table_PageHeader Kingsoft(03888 HK)Company Report Company Rating Definition T

208、he Benchmark:Hong Kong Hang Seng Index Time Horizon:6 to 18 months Rating Definition Buy 買入 Relative Performance15%;or the fundamental outlook of the Company or sector is favorable.Accumulate 收集 Relative Performance is 5%to 15%;or the fundamental outlook of the Company or sector is favorable.Neutral

209、 中性 Relative Performance is-5%to 5%;or the fundamental outlook of the Company or sector is neutral.Reduce 減持 Relative Performance is-5%to-15%;or the fundamental outlook of the Company or sector is unfavorable.Sell 賣出 Relative Performance 5%;or the fundamental outlook of the sector is favorable.Neutr

210、al 中性 Relative Performance is-5%to 5%;or the fundamental outlook of the sector is neutral.Underperform 跑輸大市 Relative Performance-5%;Or the fundamental outlook of the sector is unfavorable.DISCLOSURE OF INTERESTS(1)The Analysts and their associates do not serve as an officer of the issuer mentioned i

211、n this Research Report.(2)The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report.(3)Except for SF REIT(02191 HK),JINSHANG BANK(02558 HK),BANKOFZHENGZHOU(06196 HK),XPENG-W(09868 HK),Guotai Junan and its group companies do not

212、hold equal to or more than 1%of the market capitalization of the issuer mentioned in this Research Report.(4)Guotai Junan and its group companies have had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months.(5)Guotai Junan and its group c

213、ompanies are not making a market in the securities in respect of the issuer mentioned in this Research Report.(6)Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report.There is no officer of the issuer mentioned in t

214、his Research Report associated with Guotai Junan and its group companies.DISCLAIMER This Research Report does not constitute an invitation or offer to acquire,purchase or subscribe for securities by Guotai Junan Securities(Hong Kong)Limited(Guotai Junan).Guotai Junan and its group companies may do b

215、usiness that relates to companies covered in research reports,including investment banking,investment services,etc.(for example,the placing agent,lead manager,sponsor,underwriter or invest proprietarily).Any opinions expressed in this report may differ or be contrary to opinions or investment strate

216、gies expressed orally or in written form by sales persons,dealers and other professional executives of Guotai Junan group of companies.Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guo

217、tai Junan.Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report,Guotai Junan does not guarantee the accuracy and completeness of the information and data herein.This Research Report may contain some forward-looking estimates and forecas

218、ts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation,so uncertainty may contain.Investors should understand and comprehend the investment objectives and its related risks,and where necessary consult their own financial ad

219、visers prior to any investment decision.This Research Report is not directed at,or intended for distribution to or use by,any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution,publication,availability or use would be contrary to applicable law or

220、 regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.2022 Guotai Junan Securities(Hong Kong)Limited.All Rights Reserved.27/F.,Low Block,Grand Millennium Plaza,181 Queens Road Central,Hong Kong.Tel.:(852)2509-9118 Fax:(852)2509-7793 Website:.hk