$Kingsoft Cloud Holdings Ltd(KC)$ $NASDAQ(.IXIC)$
Kingsoft Cloud Holdings Ltd is a China-based company mainly engaged in independent cloud services. The Company provide a full suite of cloud products combining unified IaaS infrastructure and PaaS middleware, and tailored business applications which support a wide range of use cases that enable customers’ diverse business objectives. The Company also offer solutions in a holistic approach, by merging cloud solutions with dedicated customer services. The Company’s end-to-end customer services cover planning, solution development, fulfillment and deployment, as well as ongoing maintenance and upgrade.
Investment Overview
Pure cloud player to benefit from multi-cloud adoption. Kingsoft Cloud (KC) is a leading independent cloud service player in China. The company ranked fourth among the largest public cloud players in China with a c.7.5% market share. It is well positioned to ride on enterprises’ multi-cloud adoption in China against the backdrop of rising cloud penetration.
Premium customer strategy offers high growth visibility. KC adopts a premium customer strategy, focusing on leading enterprises within selected verticals, such as games, videos, and financial services, including ByteDance, Bilibili, Kuaishou, Meituan, etc. Premium customers have higher spending power and higher growth visibility than SMEs, leading to faster business expansion for KC. KC achieved cloud service revenue CAGR of c.27% in 2019-2022. If excluding the business adjustment impact, the growth is largely in line with the industry average.
Solid margin improvement supports stronger profitability. KC’s gross margin improved from 0.2% in FY19 to 5.3% in FY22, as it prioritised its high-margin public cloud business and benefitted from economies of scale. We expect the gross margin to continue to improve and reach 21% in FY24F, and adjusted EBITDA to break even in FY24F.
Risks
(1) Intensified market competition, (2) significant slowdown of cloud service demand, and (3) disruptive cybersecurity incidents or attacks.
Key potential catalysts for KC include: (1) Faster-than-expected adoption of cloud computing in China, (2) stronger-than-expected revenue growth from new products and solutions, and (3) better-than-anticipated operating margin, driven by cost efficiency improvements.
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