HK Stock Market Move | KINGSOFT CLOUD(03896) rises more than 20% against the market trend, with a significant acceleration in investment in AI business, expected to be the first to benefit from an increase in resource demand.

KINGSOFT CLOUD (03896) surged more than 20% against the market, rising 20.35% to HK$2.72 as of the time of writing with a turnover of HK$4.01 billion. On the news front, CICC released a research report pointing out that recently, KINGSOFT CLOUD announced a financing lease agreement with CITIC Financial Leasing totaling 250 million RMB to accelerate investment in AI infrastructure. Benefiting from the increased demand from Xiaomi and Kingsoft's ecosystems, KINGSOFT CLOUD is expected to be the first to gain incremental resource demand brought by the ecosystem customer's AI business layout. The report noted that the pace of the company's investment in AI infrastructure has significantly accelerated since the second half of 2023. It is estimated that the company's capital expenditure since 3Q23 has exceeded 3.6 billion RMB, mainly invested in AI computing power. The bank believes that the company's expansion of financing channels will provide more solid support for the subsequent quarterly investment in AI computing power. At the same time, the related investments have already achieved substantial income conversion, with the AI business revenue reaching 330 million RMB in 2Q24, accounting for about 26% of the public cloud/overall revenue. The report continued that in 2Q24, the company's adjusted gross profit margin reached 17.1%, improving for eight consecutive quarters on a quarter-on-quarter basis. The adjusted EBITDA profit margin turned positive in 1Q24 and continued to improve quarter-on-quarter, reaching 3.2% for the quarter. Considering that the company's ROI for AI computing power investment and business gross profit margin and EBITDA profit margin levels are better than traditional cloud computing businesses, with upfront capital expenditure gradually converting to income, the bank expects the company's adjusted gross profit margin and EBITDA profit margin to continue to steadily improve.