Wednesday, December 18, 2013

HKSE stock chart Kingsoft Corp 3888.HK

Since early this year, Kingsoft corp has been on an uptrend, year to date already up more than 400%, previously our system spot a risk of trend change in Novemeber and trigger a sell signal, however the stock only go sideway. Currently we see that the price has gain back strength. There might be possibility that this stock will continue its uptrend. In anycase if price go in the unfavorable direction, we will be looking at $19.50 for a stoploss.

Below are Analyst recommendation from Phillip research house.

Kingsoft  – Strong 3Q results, “Buy” rating
Recommendation: Buy
Previous close: 20.60
Fair value: 24.08

  • 3Q2013 business results: Kingsoft (KS) presented a strong quarter result; with a reporting revenue of RMB 551mn, up 11% QoQ or 51% YoY. Online game business generated RMB 271mn in revenue (up 28% YoY or flat QoQ) while application software business expanded 78% YoY (or 23% QoQ) to RMB 270mn. The operating profit for the first three quarters cumulated to RMB 504mn, representing a 64% YoY increase.
  • Mobile games business review: Mobile games segment contributed 8% of KIS revenue in 3Q13, with around 400 games on the company’s mobile game platform. With the company started monetization of its mobile user traffic, management sees potentials in mobile advertising revenue in future.
  • WPS business review: WPS business is also an important part of KS’s business. Securing big corporate contracts helped revenue from this sector rose 37% QoQ to RMB 78mn, accounting for 14% of its revenue in 3Q13. In addition to the guidelines from State Council instructing the usage of legitimate software, KS, being a leading office software vendor, is expected to benefit largely from the policy.
  • R&D as a significant cost component: R&D costs for 9M2013 rose to RMB421 mn, which is already 9% higher than the total R&D cost in 2012 (RMB 385 mn), representing 28% of total revenue. With its large investment, the 9 mobile games currently under development might further boost the revenue.
  • Valuation: We give a target price of HK$24.08 based on a sum of parts PE valuation. By applying 10x PE on online game business and 41x PE on application software due to higher growth in the business.
Click here to download for the report.