Lyon: Lower KINGSOFT (03888) target price to 29.1 Hong Kong dollars, rating "outperform the market"

Lyon released a research report stating that KINGSOFT (03888) fourth-quarter revenue last year met expectations, but reflected a weak fundamental outlook, leading to a reduction in valuation multiples and an increase in the discount estimation of the holding company. The target price was accordingly lowered from HK$35.5 to HK$29.1, maintaining a rating of "outperform the market". Game business revenue decreased by 33% year-on-year, slightly higher than the bank's expectation of 1.5%, mainly due to a high base in the same period of the previous fiscal year, putting pressure on popular games. Office software business revenue increased by 17% year-on-year, mainly benefiting from strong growth in WPS365 and accelerated development of to-C business. The bank expects this year to be a year of transition for the game business, especially in terms of leadership and strategic adjustments. Although the bank predicts that its game business revenue will decrease by around 10% to 19% year-on-year, office software business revenue will accelerate to a 20% year-on-year growth. Taking into account the negative factors brought by the game business, the bank has lowered KINGSOFT's revenue forecasts for this year and next year by 7%, and operating profit forecasts for each year have been reduced by 21% and 16%, respectively.