My Thoughts on Kingsoft Sum of Parts

 

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Kingsoft is a technology holding company in China. Its subsidiary, Kingsoft Office, had fought a 20 years war with Microsoft Office in China and came out on top. The company is led by the visionary Lei Jun who is also the founder of Xiaomi. Tencent also has a 7.4% stake in the company.

The break down of Kingsoft holding goes like this:

53% of Kingsoft Office which is a China-based company mainly engaged in the design, research and development and sales promotion of WPS Office software products and services. 

52% of Kingsoft Cloud which is one of the world's leading cloud computing service providers and among China's Top 3 cloud computing companies. 

48% of Cheetah Mobile which is a security software company, Tencent owns 16.9% and is the second largest shareholder.

68% of Seasun Gaming which is a mobile gaming company which Tencent also owns a 9.9% stake.

0.5% of 21Vianet which is the largest carrier-neutral Internet and data center service provider in China

Kingsoft's main business is entertainment and office software.

Entertainment software business: Research and develop online games, mobile games and casual game services(Revenue accounted for 60%)

The online game business is based on "Swordsman Love" IP as the core layout it and expands its IP influence from there. According to the annual report, the company's revenue in 2020 is 5.59 billion yuan, an increase of 28% over the same period last year.

Office software business: Design, develop and sell WPS Office office software products and services(Revenue accounted for 40%), this company is growing rapidly. Just like Microsoft office, WPS is being cloudified and Saasified, synergistic with Kingsoft Cloud. The Saas model is more superior. 

Since the company has transformed from providing tools and products to application services, revenues from the licensing of office software products are relatively stable. As paying customers continue to increase, revenue from office service subscriptions is growing rapidly.

Under the trend of telecommuting, "cooperation"  become the new core product strategy of Kingsoft Office. A series of products have been launched last year. While the number of WPS members continues to rise, the market penetration rate and customer stickiness of WPS cloud office services have also increased significantly.

2020 annual report shows, revenue from office software and services business was RMB 2.26 billion, 43% increase from the previous year. Mainly due to the increase in user scale and the continuous increase in paid conversion rate drive subscription services and licensing business revenue to achieve strong growth.

Sum of Parts:

As Kingsoft Office, Kingsoft Cloud and 21Vianet are all listed companies, it is easy to derive their break down values. In terms of 100mil hkd:

Kingsoft Office has a market cap of 1616. 53% of that equals to 851.79

Kingsoft Cloud has a market cap of 762. 52% of that equals to 320.04

Cheetah Mobile has a market cap of 25. 48% of that equals to 12

Seasun Gaming has a market cap of 100(15x pe). 68% of that equals to 68

Cash amount to 160 

21Vianet has a market cap of 350. Kingsoft owns 0.5% which is equals to 1.75

If we add all these up it gives a total value of 1,413.58

Kingsoft current market cap is 761

This means that Kingsoft as a holding company has a 54% discount to its sum of parts. The company is sitting on 18.4bil hkd of net cash. There is currently no competing product in China for WPS and the payment rate is still very low. The amount of potential growth for their WPS software and cloud business is promising.

Full disclosure, I have vested interest in this stock and I'm currently up 1.41%. It is currently the second largest holding in my portfolio

Snap shot of my portfolio performance as of today: Total profit for 2021: S$64,855.16


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