1、EQUITY:TECHNOLOGYKingsoft Cloud 3896.HK 3896 HKGlobal Markets Research5 May 2025Poised to benefit from LLM training&inference demand“Xiaomi+Kingsoft”ecosystem underpins long-term growthAction:Initiate coverage at Buy with TP of HKD9.2;implying 24.3%upsideWe believe Chinas AI investment cycle is acce

2、lerating in 2025,driven by the large language model(LLM)developed by DeepSeek(unlisted)and advancements in Gen AI application(i.e.,AI agents).As one of the leading AI cloud infrastructure service(AIaaS)providers in China,Kingsoft Cloud(KC)is well positioned to benefit from the buoyant demand for LLM

3、 training and inference.We believe KC should outperform in Chinas cloud computing market in 2025,delivering 20%y-y top line growth,primarily driven by 91%y-y AI revenue growth(27%of total revenue).We believe KCs growth over the next 1-2 years will be driven largely by its ecosystem partners Xiaomi(1

4、810 HK,Buy,covered by Donnie Teng)and Kingsoft(3888 HK,Buy)+Kingsoft Office(688111 CH,Buy),which could contribute 30%of total revenue in FY27F.We estimate 19%revenue CAGR for FY24-27F,and expect net income to turn positive in FY27F.Xiaomi recently launched its first reasoning LLM,“Mimo”,and we think

5、 the upcoming LLM upgrades could serve as positive stock catalysts.We believe the recent stock correction reflects concerns about slower AI demand,and has led us to initiate coverage of the stock at Buy with a DCF-based TP of HKD9.2(WACC:10.5%,terminal growth rate:3.5%),implying 3.3x FY26F P/S.The c

6、ompany recently completed its stock issuance plan,which could likely dilute EPS by 8%.The stock is currently trading at 2.4x FY26F P/S.Public cloud segment to outperform peers,driven by robust AI demand from ecosystem partners;EBITDA margin to improve meaningfully vs GPMWe believe KC is likely to se