CICC: Maintains an "outperform" rating on KINGSOFT (03888), but lowers the target price to HK$32.

Zhongjin released a research report stating that it maintains a outperform rating for KINGSOFT (03888), considering the uncertain short-term growth of the gaming business. The target price is lowered by 18% to 32 Hong Kong dollars, corresponding to a 2026 P/E ratio of 28 times. The company is currently trading at a 2026 P/E ratio of 21 times, corresponding to a 35% upside potential. Based on a more cautious assumption for the short-term gaming business, the 2026 revenue is lowered by 7.1% to 10.14 billion yuan; taking into account the recognition of potential investment returns, the 2026 net profit attributable to the parent is raised by 26.8% to 1.42 billion yuan. The introduction of 2027 revenue forecast of 11.34 billion yuan and net profit forecast of 1.01 billion yuan. The report states that KINGSOFT announced its 4Q2025 performance, with revenue of 26.2 billion yuan, a year-on-year decrease of 6.2%, in line with market expectations; operating profit of 5.14 billion yuan, a year-on-year decline of 53.5%. Exceeding market expectations, mainly benefited from the profit contribution of the office business exceeding expectations. In terms of the office business, in the fourth quarter, revenue increased by 16.6%/15.1% year-on-year/month-on-month, with all three core businesses growing steadily. In terms of the gaming business, revenue in the fourth quarter decreased by 32.8%/-3.3% year-on-year/month-on-month, mainly due to the high base in the same period last year and the decline in current game revenue. The operating profit margin for the quarter reached 19.6%, year-on-year/month-on-month -20.0ppt/+8.2ppt, the year-on-year decline was mainly due to increased investment in AI and increased promotional marketing expenses. The net profit margin attributable to the parent reached 37.2%, year-on-year/month-on-month +20.8ppt/+28.4ppt, mainly benefited from a one-off disposal gain from the KINGSOFT CLOUD placement. "Goose and Duck Slaughter" was officially launched in January 2026, with a total of over 30 million new users and topped the iOS free list for two consecutive months. Looking ahead, the management stated that they will continue to invest in flagship IPs, moderately reduce some projects, and deepen the application of AI in game creation. Looking ahead to the first quarter of 2026, the bank expects the office business revenue to maintain double-digit growth, while short-term pressure on the gaming business may continue.