Kingsoft delivered robust 4Q24 results with online gaming and office growth at 17% and 26% YoY respectively together with narrowing cloud losses thanks to AI. Mgmt. guides a stable office business momentum with gaming pipeline progress on track in 2025. We believe the accelerating AI application will create significant opportunities for Kingsoft across office monetisation, game R&D, and cloud business profitability through collaboration with Xiaomi and other group companies in 2025. Maintain BUY with new target price of HK$50.2.
　　Key Factors for Rating
　　4Q24 results review: Revenue grew 21% YoY to RMB2.8bn with stable QoQ GPM at 83.9%, beating consensus driven by strong online gaming revenue and profitability. OPM expanded 0.4ppt QoQ to 39.6%, benefiting from increased online game revenue mix and decent Opex control. Net income surged 124% YoY to RMB460m, beating BOCIe by 11% while slightly missing consensus by 2%.
　　JX3 Ultimate enhances franchise momentum: Revenue increased 26% YoY to RMB1,291m, beating BOCIe by 2% thanks to:1) robust JX3 Online performance, amplified by JX3 Ultimate ( 劍 網 3 無 界 ) launch in 2024 boosting player engagement; 2) revenue contribution from Snowbreak: Containment Zone (塵白 禁區), supported by continuous content updates. Mgmt. projects stable growth for existing titles like JX3 Online in 2025. New game pipeline includes: global launch of Mecha BREAK (解限機) in 1H25; new mobile game Fate of Sword: Zero (劍俠 情緣·零); and in-house developed shooter Wild Assault (獸獵突襲) launching on Steam and Epic Games Store in April.
　　Office software capitalises on AI integration: Office revenue grew 17% YoY and 24% QoQ to RMB1,501m, with paying subscribers increasing 20% YoY to 41.7m, driven by enhanced AI capabilities across ToB and ToC solutions. Mgmt. emphasises the importance of combining LLMs with enterprise data to enhance user experience and targets continued growth in 2025 through increased AI investment. We believe WPS is at a favourable competitive position in the AI era as office software is still a key daily productivity software, although more sophisticated and practical AI features may take some time to develop.
　　Cloud rides on AI wave: Revenue increased 29% YoY, beating BOCIe by 20% primarily due to surging AI revenues (+500% YoY to RMB474m). GPM improved 3ppts QoQ to 19.1%, with net loss margin narrowing and adj. NI turning positive for the first time. We anticipate AI cloud services for Xiaomi and Kingsoft office will emerge as key growth drivers during 2025-26.
　　Key Risks for Rating
　　1) High reliance on JX game IP; 2) Xinchuang demand may fluctuate in short term; 3) online collaboration software competition; 4) AI product development.
　　Valuation
　　We apply 16x 2025 P/S on Office Software, 4.0x 2025 P/S on Cloud, 10x 2025 P/E on Online Game and a 35% holding company discount. Maintain BUY with new target price of HK$50.2 (was HK$35.8).