|作者：||Matt MA,Leo LIU|
|摘要：||Report title:Kingsoft (3888 HK) - WPS listing provides great catalyst to Kingsoft
Analyst:Matt MA,Leo LIU
■ Beijing Office Software (WPS) is China’s leading office software & services provider, accounted 43% market share by number of users
■ Revenue/adj. NP grew 44%/54% CAGR in 2016-18, due to transition from software license model to service subscription model
■ WPS listing on Sci-Tech Board can benefit its parent company Kingsoft (3888 HK; BUY; TP HK$26)
Solid market position with great potential on both to-C &to-B ends
China’s basic office software market increased 10%YoY and reached RMB8.5bn in 2018. It is expected to grow at 12% CAGR and reach RMB14.9bn by 2023, according to CCW Research. Office software and services industry has rigid demands, large scale and high entry barriers; leading to an inevitable oligopoly market. As a subsidiary of Kingsoft, Beijing Office Software is currently China’s leading domestic office software and service provider, and one of earliest software companies which have developed WPS Office in 1988. Due to its early mover’s advantage and continuous R&D efforts, Co. has accumulated 280mn registered users by the end of 2018, accounted 43% market share by number of users. On the to-C side, Co. has acquired 310mn of MAU, with mobile end MAU reached over 181mn. On the to-B side, WPS has well tapped into governments, SOEs and banking industry. We believe with enhanced awareness on software security and domestic brand protection, WPS can further expand its market share.
Subscription model has great scale effect and is future growth driver
After 30 years of operation, WPS continues to grow rapidly, thanks to Co.’s proactive strategy and adapting monetization capability. From 2016-2018, WPS’ total revenue grew at 44% CAGR from RMB543mn to RMB1,130mn, while adj. net income grew at 54% CAGR from RMB113mn to RMB270mn; driven by transition from traditional software licensing model to service subscription model. In 2018, office services subscription became the largest revenue contributor, accounted for 35% of total revenue, and grew at 147% CAGR in 2016-18. We believe the subscription model can enhance office software users’ paying rate and provides a sustainable revenue stream. Co.’s MPU increased from 0.8mn in 2016 to 4.8mn in 2018, accounted 1.6% of its MAU. With paying ratio further increases, and Co.’s strategy revolving around cloud, multi-screen, content and AI, great monetization potential can be unleashed.
WPS’ listing benefits Kingsoft; Maintain BUY; TP HK$26
Normally A-share market has a valuation premium over the H-share market, due to better liquidity and different investor structure. According to our research, among the 91 dual listing A+H share companies, 90 companies enjoyed valuation premium in A share market, with the medium premium around 52%. Kingsoft currently holds 67.5% of Beijing Office Software, which is expected to remain as Kingsoft’s subsidiary after the listing. Therefore, we believe WPS’ Sci-Tech Board listing is a strong catalyst for Kingsoft, and may even provide ST trading opportunities. We maintain BUY for Kingsoft with TP at HK$26. Kingsoft is currently trading at 48x FY19E P/E. Key risks: 1) further delay of JX3M/JX2M’s launch, 2) Cloud biz struggles to penetrate into traditional enterprises, 3) delay on WPS listing, 4) WPS’s concentration risk on few products.