Earnings Growth Of Kingsoft Corporation limited by Dr Clemen Chiang
Earnings Growth Of Kingsoft Corporation limited- Top Investment Holding Company

Earnings Growth Of Kingsoft Corporation limited- Top Investment Holding Company

How does earnings growth take place in an investment holding company? Learn from Kingsoft Corporation Limited's portfolio.

Dr. Clemen Chiang
Dr. Clemen Chiang

Kingsoft Corporation limited works as an Investment holding company in China. It provides services for the development and distribution of applications, protection, and multimedia software. The business of popular game services, smartphone applications, and online games is provided by the company. It also operates a distribution network for these types of games. Kingsoft also offers office software services and products, such as design, sales, and marketing, as well as research and development. The business offers online marketing, network security, and value-added services for the internet in addition to game licensing. It runs businesses in China, Hong Kong, and the Cayman Islands. Beijing, China serves as the home base of the Kingsoft Corporation.

Performance Evaluation

  • The most recent full year of revenue for Kingsoft is $8.105 billion.
  • The average annual revenue for Kingsoft's financial year ending in December 2017 through 2021 was HK$6.459 billion.
  • From the fiscal years that ended in December 2017 through 2021, Kingsoft generated a median revenue of HK$ 6.644 billion.
  • The peak month for Kingsoft's revenue over the previous five years was September 2022, when it reached HK$ 8.105 billion.
  • Kingsoft's revenue fell to HK$ 4.892 billion in December 2019, which was a five-year low.

2019 had a decline in Kingsoft's revenue (HK$ 4.892 billion, -27.2%) while 2017 saw an increase (HK$ 6.221 billion, +45.3%), 2018 saw a rise (HK$ 6.724 billion, +8.1%), 2020 saw a rise (HK$ 6.644 billion, +35.8%), and 2021 saw a rise (HK$ 7.817 billion, +17.7%).

Accounting Statements

Over 23 million businesses worldwide have their private financial information gathered by Dun & Bradstreet.

Financial information in US dollars as of December 31, 2021 (12-month period).

2021 ANNUAL SALES $996.62 USD

The HKG:3888 stock of Kingsoft Corporation Limited has recently exhibited weakness, but the company's financial outlook appears promising.

Is the market incorrect?

When you consider Kingsoft's (HKG:3888) recent results and the stock's 31% decrease over the last three months, it is difficult to be optimistic. Although the company's fundamentals appear to be solid, long-term financials typically correlate with future changes in market price. We made the choice to concentrate on Kingsoft's ROE in this article.

A company's ability to manage and increase its value is measured by its return on equity, or ROE. It is a profitability ratio, which means it calculates the percentage of return on the money invested by the shareholders of the company.

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How Is Return on Equity Calculated?

The return on equity formula is as follows:

Net profit (from ongoing operations) minus shareholders' equity equals return on equity.

According to the aforementioned formula, Kingsoft's ROE is 2.9% = CN839m CN29b (Based on the trailing twelve months to June 2022).

A company's earnings from the previous year are referred to as the "return." This implies that the corporation makes a profit of $0.03 for every HK dollar invested by a shareholder.

Why Is ROE Vital For Growing Earnings?

As of now, we know that ROE is a gauge of a business's profitability. We can then evaluate a company's prospects for earnings growth based on how well and what proportion of these gains it reinvests, or "preserves." Assuming all other factors remain constant, a company's growth rate will be stronger compared to businesses that don't necessarily exhibit these traits, the higher its ROE and profit retention.

Earnings Growth for Kingsoft including 2.9% ROE

You'll notice that Kingsoft's ROE appears to be somewhat lacking. Furthermore, the company's ROE is completely ordinary even when compared to the corresponding average of 8.3%. Although, Kingsoft's modest 6.7% net income rise over the last five years is unquestionably a plus. We believe that there might be additional elements at work here. For example, the business is managed well or has a lower payout ratio.

The next step was to compare Kingsoft's net income growth to that of the industry. We were shocked to discover that Kingsoft's growth was less than the 30% average growth of the sector during the same time period.

When valuing a stock, earnings growth is a crucial factor to take into account. Investors then need to examine whether or not the anticipated profits growth—or lack thereof—has already been factored into the share price. They can then use this to evaluate if the stock is set up for a promising or gloomy future. Is Kingsoft valued properly in comparison to other businesses?

Is Kingsoft Successfully Using Retained Earnings?

In Kingsoft's case, its modest 3 median payout ratio of 22% (or a retention ratio of 78%), which shows that the company is investing the majority of its profits to build its business, can likely be used to explain its excellent earnings growth.

Moreover, Kingsoft has paid a dividend for at more than ten years, demonstrating the company's commitment to returning profits to shareholders. Our most recent data from analysts indicates that the company's anticipated future payout ratio over the following three years will be around 22%. However, despite no expected change in its payout ratio, Kingsoft's ROE is forecast to increase to 4.5%.

In conclusion, we believe that Kingsoft has a number of advantages to take into account. Specifically, the fact that it retained the majority of its income, which helped it achieve decent earnings growth. Investors may not, though, be gaining anything from all that reinvestment after all given the low ROE. In light of this, the most recent analyst estimates indicate that the company's earnings will keep growing. Check out this visualization of analyst estimates for the company to learn more about the most recent expectations for the company.

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*Disclaimer: The article should not be taken as, and is not intended to provide investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. Spiking strongly recommends that you perform your own independent research before making financial decisions