On Thursday, BofA Securities made a notable adjustment in its stance on Beijing Kingsoft Workplace Software program Inc (688111:CH), downgrading the inventory from Purchase to Impartial. Regardless of the downgrade, the agency elevated its worth goal to RMB279.00, up from the earlier RMB235.00. The revision displays a combined outlook on the corporate’s monetary efficiency.
The analyst cited that the present valuation of Kingsoft Workplace, at roughly 60 occasions 12-month ahead P/E, has already factored in a number of constructive features. These embrace the fast monetization of AI expertise, which was a spotlight of a report in mid-August, and a powerful uptick in working money stream, which noticed a year-over-year improve of 31% within the third quarter of 2024.
Nonetheless, the analyst additionally famous potential short-term challenges. Income progress could also be impacted by the transition to a SaaS mannequin for the corporate’s institutional subscription enterprise and weaker demand within the Xinchuang market. Regardless of these considerations, the analyst acknowledged Kingsoft Workplace’s sturdy enterprise mannequin, which boasts over a 30% internet revenue margin, a free money stream margin exceeding 33%, and greater than 80% recurring income.
In gentle of the anticipated gentle demand within the Xinchuang sector and the expansion of institutional subscription revenues, BofA Securities has barely lowered its earnings forecast for Kingsoft Workplace for the fiscal years 2024 by 2026, by 3-5%. However, the agency has raised its discounted money flow-based worth goal from RMB235 to RMB279. This adjustment is predicated on improved free money stream projections, with a compound annual progress charge of 19% from fiscal yr 2023 to 2033, in comparison with the earlier estimate of 17%.
The brand new worth goal set by BofA Securities is predicated on the expectation that Kingsoft Workplace will commerce at 62 occasions its fiscal yr 2025 estimated P/E, or 2.2 occasions its fiscal yr 2025 worth/earnings progress ratio. This valuation is inside the historic buying and selling vary of 40 to 183 occasions the 12-month ahead P/E ratio for the corporate.
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