Kingsoft Office (688111)

Equity Research 24 August 2026 | 9:11AM HKT

Kingsoft Office (688111.SS): AI Agent products to drive user adoption and spending; 2Q NI miss; Sell

Kingsoft Office reported 2Q26 revenues at +25% YoY to Rmb1.7bn, or 7%/ 7% Allen Chang | higher than our and Bloomberg estimates, driven by ToC subscription business +17% Goldman Sachs (Asia) L.L.C. YoY, and strong growth of WPS 365 at 60% in 2Q. GM was down to 83.3% in 2Q26 Verena Jeng (vs. 84.1%/ 86.6% in 2Q25/ 1Q26), which we attribute to the product mix changes. | Goldman Sachs (Asia) L.L.C. OP is up 34% YoY to Rmb352m, while 21% lower than our estimates due to higher-than-expected R&D expenses. 2Q NI came to Rmb322m, or 38% below our Ting Song | Goldman Sachs (Asia) L.L.C. estimates. We note the company continues to roll out new WPS AI products targeting ToB/ ToC users for better productivity, while the paying ratio and user adoption could take time to ramp up.

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Goldman Sachs Kingsoft Office (688111.SS)

Exhibit 1: Kingsoft Office 2Q26 result snapshot Act / Rmb mn 2Q25 1Q26 2Q26 QoQ YoY GS Act. / GS Con. consensus Revenue 1,356 1,613 1,700 5% 25% 1,584 7% 1,590 7% GP 1,141 1,397 1,416 1% 24% 1,346 5% OP % 34% 447 -21% Pre-tax income 361 2,406 359 -85% -1% 568 -37% Net income 344 2,195 322 -85% -6% 517 -38% 385 -16% Margins GPM 84.1% 86.6% 83.3% -3.3 ppts -0.9 ppts 85.0% -1.7 ppts OPM 19.3% 25.1% 20.7% -4.4 ppts 1.4 ppts 28.2% -7.5 ppts NPM 25.4% 136.1% 19.0% -117.1 ppts -6.4 ppts 32.6% -13.7 ppts 24.2%

Source: Company data, Goldman Sachs Global Investment Research, Bloomberg

Key takeaways from earnings call

n AI strategy: KO continues to see AI as key growth driver ahead to drive ToC and ToB subscription growth with enhanced features. After launching Lingxi AI, management notes the company will integrate the WPS features on Lingxi and expects Lingxi to drive new user adoption. n WPS AI new product launches: During WAIC, the company released (1) WPS AI agent Lingxi professional version for ToC users, targeting to complete more complicated office tasks through document/ code/ browsers, and (2) WPS AI Comate for ToB clients, integrating enterprise knowledge. Management is positive on the new AI features to support the growing paying ratio. n AI business profitability: Management noted the token consumption of AI agent is higher than other AI products, and the company continues to optimize the AI models to improve the cost structure.

Earnings revision: We factor in KO 2Q26 result, and revise down 2026E earnings by 5% on higher revenues but higher-than-expected Opex spending for new product R&D. We keep 2027/ 28E earnings largely unchanged.

Exhibit 2: Earnings revision 2026E 2027E 2028E Rmb m New Old Diff % New Old Diff % New Old Diff % Revenues 7,392 7,265 2% 8,918 8,881 0% 11,218 11,193 0% GP 6,312 6,232 1% 7,624 7,586 0% 9,582 9,552 0% OP 2,012 2,106 -4% 2,794 2,790 0% 3,715 3,714 0% Net income 3,872 4,065 -5% 3,031 3,029 0% 3,999 4,001 0% EPS 8.32 8.73 -5% 6.48 6.48 0% 8.49 8.49 0% Margins GPM 85.4% 85.8% -0.4 ppts 85.5% 85.4% 0.1 ppts 85.4% 85.3% 0.1 ppts NPM 52.4% 56.0% -3.6 ppts 34.0% 34.1% -0.1 ppts 35.6% 35.7% -0.1 ppts

Source: Company data, Goldman Sachs Global Investment Research

Valuation: Our target price is derived from a DCF-based methodology to better capture long-term cash flow generation. We model stage 2 FCF growth in 2032E-2036E at 12% YoY (unchanged), and terminal growth at 2%, which is consistent with our China Tech coverage. We discount the value at a WACC of 12.1%, with a COE of 12.1% (beta at 1.4, risk free rate at 3.0%, market risk premium at 6.5%). Our DCF based target price is Rmb201 (unchanged). Our TP implied 2027E P/E is 31x (unchanged)…