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On Thursday, HSBC analysts downgraded Kingsoft Corp Ltd. (3888:HK) (OTC:KSFTF) from a Buy to a Hold rating, despite increasing the price target from HK$40.00 to HK$42.70. The revised price target represents a modest increase, reflecting the firm’s updated sum of the parts (SOTP) valuation, which takes into account the market valuations of Kingsoft Office, Kingsoft Cloud, Cheetah Mobile (NYSE:CMCM), and the target price-earnings (PE) valuation on the gaming business, Seasun.
The analysts at HSBC have incorporated their latest assumptions into their SOTP valuation, leading to the uplift in the target price. This new target price suggests a PE ratio of 26 times for the year 2025 estimated earnings and 23 times for 2026 estimated earnings. It also implies a price-to-sales (PS) ratio of 4.8 times for 2025 estimated sales and 4.1 times for 2026 estimated sales, compared to a three-year average of 3.8 times.
The downgrade to a Hold rating comes after consideration that growth is expected to normalize in the year 2025, and the stock’s appeal has diminished following a year-to-date rally of approximately 11%. HSBC believes that the stock’s current valuation already reflects much of its growth potential.
HSBC also noted potential catalysts that could positively impact Kingsoft’s stock in the future. These include stronger-than-anticipated performance from the gaming sector following new game launches, faster-than-expected growth in WPS365, or a lower share of losses from Kingsoft Cloud. These factors could provide upside to the current valuation and merit investor attention.
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