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划鱼蒙
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1 Company Research Transferring Coverage Kingsoft Corp (3888 HK) Multiple Engines in Growth Mode This report marks the transfer of coverage to Raymond Lam. Kingsoft s 1H17 net profit already turned around to RMB544m from 1H16 net loss on robust online game and office software sales. Fuelled by fast-paced mobile games pipeline, we project the company s EPS CAGR to grow at 30% (FY16-19F). Our SOTP-TP at HKD24.5 (22% upside) reflects 23.8x F P/E, +0.5SD above past 5- year forward P/E mean, below mobile internet peer s median at 29.0x. Dual drivers for earnings growth. Kingsoft s 2Q17 headline net profit turned around at RMB250m from a net loss of RMB808m in 2Q16. While its non-gaap profit without share-based compensation, one-off item and discontinued operation, Cheetah (CMCM US, NR), at RMB279m in 2Q17 improved from 2Q16 of RMB158m. Thanks to the sales from (1) strong 1H17 online game at 69%yoy jumps and (2) office software at 80%yoy. On this, we continue to expect online game and office software to grow at 40% and 20% CAGR (FY16-19F), on its successful transformation of the booming mobile game market and monetization in mobile office application since Mobile game remain to shine We expect Kingsoft s mobile game to remain as the revenue driver, whose pipeline includes mobile games such as JX World II and JX Online II, distributed by Xiaomi and Tencent respectively. Further, we expect game business to grow at 40% FY16-19F CAGR, thanks to streaming of games including JX Online III revamped version, to be launched by end of 2017 with its mobile version by 2018, albeit of the latter release having been delayed. For cloud business, sales already hit RMB572m in 1H17 (1H16: RMB283m, +102%yoy), making up 23% of total revenue (1H16: 20%). Kingsoft Cloud as the long term driver Our Kingsoft Cloud sales growth is forecast to climb at 60% 3-Yr CAGR (16-19F). So, we are upbeat on its cloud business for (1) China public cloud market growth to keep strong; (2) market leading video cloud becoming distribution channel of mainstream media providers such as CNTV, Mango TV and Wasu while valueadded service from game cloud providing stable growth; and (3) healthcare cloud having started operation in hospitals. Post company s conference call, we see the cloud market is well diversified thus the concern on competition is minor. Re-initiate BUY with TP at HKD24.5 Our SOTP-TP at HKD24.5 (+21.9% upside) comprises of (1) HKD10.4 on online games consistent with HK-listed online game developers at 7.3x F P/E, (2) HKD1.5 on office software at-par to 40.5x application software P/E and (3) HKD1.8 for cloud computing at 2.0x target P/S ratio. Key risks: (1) quicker-than-expected revenue decline on older games titles, (2) higher marketing cost to sales slowing down mobile games growth and (3) net loss from cloud business to widen. Figure 1: Financial Summary Year to Dec 31 (RMBm) FY15A FY16A F F FY19F Revenue 5,676 8,282 6,008 8,411 11,241 Operating Profit ,087 1,649 2,361 Reported Profit 369 (271) 683 1,513 2,132 Underlying Profit 588 1,043 1,167 1,849 2,480 Underlying EPS (RMB) Underlying EPS growth (%) P/E P/B ROA (%) ROE (%) China TMT Technology 24 October 2017 BUY Target price HKD24.50 Last price (23 Oct 17) HKD20.10 Upside/downside (%) 21.9 HSI Mkt cap (HKDb/USDb) 26.3/ week range (HKD) Avg trading volume daily (USDm) Free float (%) 53 Performance HKD Oct-16 Price(LHS) Performance 1M 3M 12M Absolute (%) 9.8 (6.1) 14.1 Absolute (USD, %) 9.9 (6.0) 13.4 Relative to HSI (%) 8.3 (12.1) (7.0) Company background Kingsoft Corporation Ltd. develops and markets computer software. The Company develops role-playing computer games and security, word processing, and spreadsheet software.the company s major shareholders include: (1) Mr Jun Lei (13.35%); (2) Kau Management Ltd (8.25%) and (3) Tencent Holdings Ltd (8.16%). Raymond Lam SFC CE No.: BGL raymond.lam@guosen.com.hk Jun-17 Rel. to HSI(RHS) 120% 110% 100% 90% 80% See the last page of this report for important disclosures 1

2 Figure 2 P&L details and forecasts RMBm FY14 FY15 FY16 F F FY19F Online game 1,253 1,369 2,546 3,819 5,346 6,950 Cheetah Mobile 1,674 3,562 4, Cloud, WPS and others ,288 2,189 3,065 4,291 Total Revenue 3,350 5,676 8,282 6,008 8,411 11,241 YoY growth (%) 54% 69% 46% -27% 40% 34% Cost of revenue (590) (1,319) (2,662) (2,403) (3,364) (4,496) Gross profit 2,760 4,357 5,620 3,605 5,047 6,745 Gross margin (%) 82% 77% 68% 60% 60% 60% R&D costs, net of gov grants (956) (1,348) (1,840) (1,622) (2,271) (3,035) Selling and distribution expenses (797) (1,756) (1,958) (721) (841) (1,124) Administrative expenses (297) (443) (565) (276) (387) (472) Share-based compensation costs (202) (356) (361) (270) (421) (450) Other operating income Other expenses (30) (60) (76) (18) (25) (34) Opex/ sales excl. SBC (%) 61% 62% 53% 44% 42% 41% Operating profit ,087 1,649 2,361 OP margin (%) 15% 10% 12% 18% 20% 21% Operating profit excluding SBC ,334 1,358 2,069 2,810 OP margin excl. SBC (%) 21% 16% 16% 23% 25% 25% Non-operating gains/(losses), net 305 (73) (1,190) (270) 0 0 Share of gain (losses) of JV (8) (24) Share of gain (losses) of associates (7) (19) (67) (17) (22) (28) Finance income Finance costs (76) (78) (115) (119) (43) (43) Profit before tax (124) 1,041 1,995 2,790 Taxation (95) (201) (168) (198) (314) (421) Less: Non-controlling interests 98 (27) (22) Reported net profit (271) 683 1,513 2,132 Non-GAAP net profit ,043 1,167 1,849 2,480 YoY growth (%) 19% 4% 78% 12% 58% 34% Non-GAAP net margin (%) 17% 10% 13% 19% 22% 22% #The income statement is restated after excluded Cheetah Figure 3 SOTP Valuation (as close price on 24 Oct 2017) 2016F Non-GAAP NP Revenue P/E P/ Sales Ownership Discount Value Value per Share (RMBm) (RMBm) (%) (%) (RMBm) (RMB) Online Game 2,406 5,346 7x -- 90% 10% 14, Cloud computing -- 3, x 50% 20% 2, Office software and others x 50% 20% 2, Cheetah Mobile -- 47% 3, Net Cash 6, TP (HKD) 24.5 Implied P/E 23.8 Current price 20.1 Upside 21.9% Source: Company data, Bloomberg, Guosen Securities (HK) Research Guosen Securities (HK) 2

3 Figure4 Peers comparison table 3-mth avg t/o (US$m) Source: Company data, Bloomberg, Guosen Securities (HK) Research PER FY16 PER PER EPS YoY% EPS YoY% Div yld (%) Div yld (%) Company Ticker Price Mkt cap (US$m) 3-Yr EPS Cagr (%) PEG P/S Online Game TENCENT 700 HK , IGG INC 799 HK , BOYAA INTERACTIV 434 HK FEIYU 1022 HK N/A N/A N/A N/A N/A N/A N/A N/A LINEKONG INTERAC 8267 HK N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A NETEASE INC-ADR NTES US , CHANGYOU.COM-AD CYOU US , Mobile Internet BAIDU INC-SP ADR BIDU US , WEIBO CORP-ADR WB US , FACEBOOK INC-A FB US , Cloud Computing VIANET-ADR VNET US N/A N/A N/A N/A N/A N/A N/A N/A SALESFORCE.COM CRM US , N/A IBM IBM US , ORACLE CORP ORCL US , AMAZON.COM INC AMZN US , Application Software YONYOU NETWORK-A CH , NEUSOFT CORP-A CH , N/A P/B P/B ROE FY16 (%) Figure 5 12 months forward PE band chart Figure 6 12 months forward PB band chart, Guosen Securities (HK) Research, Guosen Securities (HK) Research Guosen Securities (HK) 3

4 Summary financial statements(year to Dec 31) Profit & Loss (RMBm) FY15A FY16A F F FY19F Financial Ratios FY15A FY16A F F FY19F Revenue 5,676 8,282 6,008 8,411 11,241 Gross profit margin (%) Revenue growth (%) (27.5) Operating profit margin (%) Cost of sales (1,319) (2,662) (2,403) (3,364) (4,496) Underlying profit margin (%) Gross profit 4,357 5,620 3,605 5,047 6,745 Net debt/equity (%) (111) (117) (87.6) (75.3) (72.3) Other income/(expense) (269) (284) Net debt/total assets (%) (55.7) (52.2) (50.7) (45.7) (44.9) Operating expenses (3,546) (4,363) (2,619) (3,499) (4,631) Current ratio (%) Operating profit ,087 1,649 2,361 Dividend payout (%) Operating profit growth (%) Interest cover Other non-operating inc/(exp) (73) (1,190) (270) 0 0 Dividend cover Finance income Acct. receivable turnover days Finance expenses (78) (115) (119) (43) (43) Acct. payable turnover days Associates & JCE (43) Inventory turnover days Profit before taxation 542 (124) 1,041 1,995 2,790 Cash cycle days Taxation (201) (168) (198) (314) (421) Dupont Analysis FY15A FY16A F F FY19F Non-controlling interests (160) (168) (237) Tax burden (%) Net profit 369 (271) 683 1,513 2,132 Interest burden (%) 100 (12.8) Other Adjustments on UP 218 1, Operating profit margin (%) Underlying Profit 588 1,043 1,167 1,849 2,480 Asset turnover Underlying profit growth (%) Leverage ratio EPS (RMB) (0.210) ROA (%) Underlying EPS (RMB) ROE (%) Underlying EPS growth (%) DPS (RMB) DPS growth (%) (10.9) Balance Sheet (RMBm) FY15A FY16A F F FY19F Cashflow (RMBm) FY15A FY16A F F FY19F Fixed assets 966 1,098 1,969 2,995 3,831 EBIT ,087 1,649 2,361 Associates & JCE ,274 Depreciation & amortization Others 3,552 2,804 1,067 1,169 1,274 Interest expense (68) Non-current assets 4,843 4,474 3,771 5,129 6,380 Change in working capital 230 (321) 19 (330) 30 Inventories Tax paid (107) (197) (218) (283) (384) Debtors & prepayments 1,803 2,896 1,712 2,236 2,856 Other operating cashflow Bank deposits & cash 8,783 9,993 7,968 8,156 9,443 Operating activities 1,435 1,393 1,562 2,286 3,595 Others ,374 1,354 1,359 Capex (680) (683) (1,157) (1,778) (1,893) Current assets 10,642 13,105 11,069 11,765 13,683 Free cash flow ,703 Bank & other borrowings Disposal of non-current assets (1,467) Trade & payables Associates & JCE (net) (199) (209) (9) 0 0 Taxation Interest received Others 2,235 2,671 1,805 2,005 2,589 Dividends received Current liabilities 2,705 3,731 2,155 2,381 3,069 Other investing cashflow 1,725 (2,475) (6) 0 0 Bank & other borrowings Investing activities (472) (3,129) (912) (1,778) (1,893) Others 2,858 3,408 1,306 1,330 1,359 New loans raised (310) 0 0 Non-current liabilities 2,869 3,846 1,744 1,769 1,798 Repayment of loans Net assets 9,911 10,002 10,940 12,745 15,197 Dividends paid (133) (110) (175) (277) (372) Share capital Other financing cashflow 2, (2,121) (43) (43) Premium & reserves 7,793 7,810 8,588 10,244 12,453 Financing activities 2, (2,606) (320) (415) Shareholders' funds 7,798 7,815 8,593 10,249 12,459 Inc/(dec) in cash 3,197 (1,135) (1,956) 188 1,288 Non-controlling interests 2,041 2,115 2,275 2,423 2,666 Cash at beginning of year 3,194 6,629 5,776 3,820 4,008 Total equity 9,911 10,002 10,940 12,745 15,197 Foreign exchange effect BVPS (RMB) Cash at end of year 6,629 5,775 3,821 4,008 5,296 Guosen Securities (HK) 4

5 Information Disclosures Stock ratings, sector ratings and related definitions Stock Ratings: Buy: A return potential of 10 % or more relative to overall market within 6 12 months. Neutral: A return potential ranging from -10% to 10% relative to overall market within 6 12 months. Sell: A negative return of 10% or more relative to overall market within 6 12 months. Sector Ratings: Overweight: The sector will outperform the overall market by 10% or higher within 6 12 months. Neutral: The sector performance will range from -10% to 10% relative to overall market within 6 12 months. Underweight: The sector will underperform the overall market by 10% or lower within 6 12 months. Interest disclosure statement The analyst is licensed by the Hong Kong Securities and Futures Commission. Neither the analyst nor his/her associates serves as an officer of the listed companies covered in this report and has no financial interests in the companies. Guosen Securities (HK) Brokerage Co., Ltd. and its associated companies (collectively Guosen Secur ities (HK) ) has no disclosable financial interests (including securities holding) or make a market in the securities in respect of the listed companies. Guo sen Securities (HK) has no investment banking relationship within the past 12 months, to the listed companies. Guosen Securities (HK) has no individual employed by the listed companies. Disclaimers The prices of securities may fluctuate up or down. It may become valueless. It is as likely that losses will be incurred rath er than profit made as a result of buying and selling securities. The content of this report does not represent a recommendation of Guosen Securities (HK) and does not constitute any buying/selling or dealing agreement in relation to the securities mentioned. Guosen Securities (HK) may be seeking or will seek investment banking or other business (such as placing agent, lead manager, sponsor, underwriter or proprietary trading in suc h securities) with the listed companies. Individuals of Guosen Securities (HK) may have personal investment interests in the listed companies. This report is based on information available to the public that we consider reliable, however, the authenticity, accuracy or completeness of such information is not guaranteed by Guosen Securities (HK). This report does not take into account the particular investment objectives, financial situation or needs of individual clients and does not constitute a personal investment recommendation to anyone. Clients are wholly responsible for any investment decision based on this report. Clients are advised to consider whether any advice or recommendation contained in this report is suitable for their particular circumstances. This r eport is not intended to be an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. This report is for distribution only to clients of Guosen Securities (HK). Without Guosen Securities (HK) s written authoriza tion, any form of quotation, reproduction or transmission to third parties is prohibited, or may be subject to legal action. Such information and opinions contained therein are subject to change and may be amended without any notification. This 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 regulation or which would subject Guose n Securities (HK) and its group companies to any registration or licensing requirement within such jurisdiction. Guosen Securities (HK) 5

6 信息披露公司评级行业评级及相关定义公司评级买入 : 我们预计未来 6-12 个月内, 个股相对大盘涨幅在 10% 以上 ; 中性 : 我们预计未来 6-12 个月内, 个股相对大盘涨幅介于 -10% 与 10% 之间 ; 减持 : 我们预计未来 6-12 个月内, 个股相对大盘跌幅大于 10% 行业评级超配 : 我们预计未来 6-12 个月内, 行业整体回报高于市场整体水平 10% 以上 ; 中性 : 我们预计未来 6-12 个月内, 行业整体回报介于市场整体水平 -10% 与 10% 之间 ; 低配 : 我们预计未来 6-12 个月内, 行业整体回报低于市场整体水平 10% 以上利益披露声明报告作者为香港证监会持牌人士, 分析员本人或其有联系者并未担任本研究报告所评论的上市法团高级管理人员, 也未持有其任何财务权益本报告中, 国信证券 ( 香港 ) 经纪有限公司及其所属关联机构 ( 合称国信证券 ( 香港 )) 并无持有该公司须作出披露的财务权益 ( 包括持股 ), 在过去 12 个月内与该公司并无投资银行关系, 亦无进行该公司有关股份的庄家活动本公司员工均非该上市公司的雇员免责条款证券价格有时可能非常波动证券价格可升可跌, 甚至变成毫无价值买卖证券未必一定能够赚取利润, 反而可能会招致损失本研究报告内容既不代表国信证券 ( 香港 ) 的推荐意见, 也并不构成所涉及的个别股票的买卖或交易要约国信证券 ( 香港 ) 或其集团公司有可能会与本报告涉及的公司洽谈投资银行业务或其它业务 ( 例如配售代理牵头经办人保荐人包销商或从事自营投资于该股票 ) 国信证券 ( 香港 ) 不排除其员工有个人投资于本报告内所提及的上市法团报告中的资料均来自公开信息, 我们力求准确可靠, 但对这些信息的正确性公正性及完整性不做任何保证本报告没有考虑到个别客户特殊的投资目标财务状况或需要, 并不构成个人投资建议, 客户据此投资, 责任自负客户在阅读本研究报告时应考虑报告中的任何意见或建议是否符合其个人特定状况本报告并不存在招揽或邀约购买或出售任何证券的企图本报告仅向特定客户传送, 未经国信证券香港书面授权许可, 任何人不得引用转载以及向第三方传播, 否则可能将承担法律责任研究报告所载的资料及意见, 如有任何更改, 本司将不作另行通知在一些管辖区域内, 针对或意图向该等区域内的市民居民个人或实体发布公布供其使用或提供获取渠道的行为会违反该区域内所适用的法律或规例或令国信证券 ( 香港 ) 受制于任何注册或领牌规定, 则本研究报告不适用于该等管辖区域内的市民居民或身处该范围内的任何人或实体 Guosen Securities (HK) 6

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公司报告业绩分析国药控股 (1099 HK) 持续改革以稳定增长国药控股于 8 月 22 日公布总体盈利和核心净利润分别为人民币 25.29 亿 ( 同比升 32%) 及 25 亿 ( 同比升 35%), 较我们预期高 17% 及 8%, 原因是融资成本和税率下降 16 第 2