Kingsoft:More mobile games to come

Revenue and adjusted profit beat consensus by 9% and 137% on solid onlinegames and opex control. Online game revenue grew 139% YoY owing tostrong mobile JX 1 and continuing monetisation of PC JX Online III. Cloudrevenue growth slowed from 200%+ YoY in 1H16 to about 140% YoY in3Q16. Management maintains 150%+ YoY cloud revenue growth guidance for2016. We lift FY16-17E EPS by 14%/17% to factor in stronger games, and liftSOTP-based TP from HK$20 to HK$23.

3Q16 results beat. 3Q16 revenue grew 26% QoQ and 48% YoY toRMB2.2bn, 6-9% above MQ and consensus on the back of 139% YoY onlinegame revenue growth. Adjusted OPM expand from 8.9% in 2Q16 to 14.9% in3Q16 due to larger game revenue contribution as well as effective controlover R&D and S&M expenses. Adjusted net profit, excluding SBC and21Vianet impairment, grew 34% QoQ and 82% YoY to RMB342mn, aboveMQ/consensus of RMB254/144mn.

Mobile JX I and PC JX III stayed robust. Online game revenue grew 66%QoQ and 139% YoY to RMB792mn, above MQ expectation, owing to strongJX Online III and mobile game JX I. Monthly grossing of Mobile JX 1 came offfrom RMB501m in June to current RMB250-300mn. With the launch of anexpansion pack and a successful anniversary event, revenue from JX OnlineIII grew 61% YoY in 3Q16. The third JX Online mobile game is scheduled tolaunch in 2Q17. In the pipeline, there are also Genghis Khan and EudemonsOnline jointly developed with 70yx and NetDragon.

CMCM starts monetizing content apps. Cheetah Mobile’s revenue grew 9%QoQ and 12% YoY to RMB1.1bn, in line with MQ. CMCM invested aboutRMB240mn on content-driven apps, which contributed to 4% of revenue.

Global mobile MAU declined modestly 2% QoQ to 612mn due to maturingPiano Tile 2 and in spite of reduced S&M expense in 3Q16.

Cloud/WPS continued solid growth. Revenue from cloud/WPS grew 21%QoQ and 77% YoY to RMB331mn, driven by solid Kingsoft Cloud particularlyfrom mobile game and video industries and WPS office. Cloud revenuegrowth slowed from 200%+ YoY in 1H16 to about 140% YoY in 3Q16.

Management maintains 150%+ YoY cloud revenue growth guidance for 2016.

Cloud loss as % of revenue narrowed QoQ and YoY in 3Q16. Global MAU ofWPS grew 3% QoQ and 36% YoY to 229mn.