Lei Jun's Share Purchases Drive Narrowing of Kingsoft's Holding Company Discount

Overview

This is a Chart of the Day-style company research report by Morgan Stanley on Kingsoft Corporation Limited (3888.HK). The core conclusion is that recent share purchases by Chairman and largest shareholder Lei Jun have strengthened the market's interpretation of the company's asset value and governance signals, driving the holding company discount to narrow since the end of May and move toward the historical average of 54%.

Core views

The report views Lei Jun's share purchases as the main catalyst for discount convergence. The purchases not only brought about approximately HK$644 million in capital inflows, but also increased his ownership stake from 22.2% to 26.18%, enhancing alignment between the largest shareholder and the listed company's value. On valuation, Morgan Stanley uses a sum-of-the-parts approach to break down online games, WPS, and Kingsoft Cloud, and applies a 45% holding company discount in the base case.

Analysis framework

The report analyzes Kingsoft by combining event-driven analysis with valuation decomposition: it first observes the chairman's share purchases and changes in the holding company discount, then uses an SOTP framework to estimate the value of online games, WPS, and Kingsoft Cloud separately, and lists business factors that could drive valuation upgrades or downgrades.

Methodology notes

• Valuation FrameworkSum-of-the-Parts (SOTP)

  Value each business and investment asset separately, then aggregate them and deduct the holding company discount.

  In the base case, online games, WPS, and Kingsoft Cloud are valued separately, then a 45% holdco discount is applied, using a spot USD/RMB exchange rate of 7.00.

• Valuation FrameworkDCF

  Use discounted cash flow valuation for WPS.

  WPS valuation assumptions include a 9.8% WACC and a 3% terminal growth rate, reflecting the long-term cash flow value of the office software business.

• Valuation MultipleP/E

  Use 2026e P/E to value the online games business.

  The online games business is included in the base valuation at 10x 2026e P/E, with a recovery in future growth as an important upside variable.

• Market Value MethodListed Stake Market Value Method

  Include Kingsoft Cloud based on its current market capitalization and Kingsoft's ownership stake.

  The report includes Kingsoft Cloud in the SOTP based on its current market capitalization and Kingsoft's 32.9% ownership stake.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Kingsoft Corp Ltd / 3888.HK

  Main subject of the report; Hong Kong-listed equity.

  Strengths

  The largest shareholder's share purchases provide a positive signal, and the multi-business asset base offers valuation support under the SOTP framework.

  Weaknesses

  The excerpt does not provide full earnings forecasts, current share price, or a clear rating, so investment judgment requires the full report and the latest market price.

  Comparison

  The holding company discount has approached the historical average of 54%, while the base valuation uses a 45% discount assumption.

  Risks

  The discount may stop narrowing further, and there is uncertainty around business growth and improvement in WPS paid conversion.

• WPS

  One of Kingsoft's core businesses, valued using DCF.

  Strengths

  May benefit from government policy support, rising budgets for office software localization, and nationwide cloud adoption.

  Weaknesses

  Improvement in paid conversion is a key variable; failure to continue improving would weigh on valuation.

  Comparison

  Unlike the multiple-based valuation for online games, WPS uses a DCF framework with 9.8% WACC and 3% terminal growth.

  Risks

  Slower-than-expected progress in localization tenders and delivery, or failure to improve WPS paid conversion.

• Online Games

  One of Kingsoft's business segments, valued at 10x 2026e P/E.

  Strengths

  New upgrades may drive a recovery in game revenue growth.

  Weaknesses

  Business elasticity depends on revenue performance from new content or post-upgrade performance.

  Comparison

  Valued in SOTP using an earnings multiple rather than DCF or the listed stake market value method.

  Risks

  A weaker-than-expected recovery in game revenue growth.

• Kingsoft Cloud

  A listed investment asset in which Kingsoft holds a 32.9% stake.

  Strengths

  Can be transparently included in SOTP at current market capitalization.

  Weaknesses

  Its contribution to Kingsoft's valuation is affected by fluctuations in Kingsoft Cloud's market price.

  Comparison

  Unlike operating business valuations, Kingsoft Cloud is included based on current market capitalization and ownership stake.

  Risks

  Cloud business or market valuation volatility may affect Kingsoft's SOTP valuation.

Key data

• Report Date2026-06-28The report was published on June 28, 2026 at 07:14 PM GMT.
• Covered CompanyKingsoft Corp Ltd / 3888.HKA Hong Kong-listed company covered under Greater China IT Services and Software.
• Lei Jun Ownership Change22.2% to 26.18%The ownership stake rose from May 28 to June 25.
• Capital Inflow from Share Purchasesapproximately HK$644mnThe report views this share purchase activity as the main driver of the decline in the holding company discount.
• Historical Average Holding Company Discount54%The current discount has narrowed and is approaching this historical average level.
• Base Valuation Discount Assumption45%The holdco discount used in the SOTP base case.
• Online Games Valuation Assumption10x 2026e P/EThe base valuation multiple used for the online games business.
• WPS Valuation Assumption9.8% WACC；3% terminal growthWPS is valued using DCF.
• Kingsoft Cloud Inclusion MethodKingsoft ownership stake of 32.9%Included based on Kingsoft Cloud's current market capitalization and ownership stake.
• Exchange Rate AssumptionUSD/RMB 7.00The spot exchange rate used in the SOTP base case.
• Most Recent Historical Target PriceHK$28Historical target price records show 28 on March 30, 2026.

Impact & implications

The investment implication of the chairman's share purchases for Kingsoft is broadly positive: on the one hand, it may reduce market concerns about the holding company structure and asset discount; on the other hand, subsequent share price performance will still depend on whether the discount continues to converge, whether game revenue resumes growth, whether WPS paid conversion improves, and whether localization and cloud adoption-related demand materializes.

Risks

• Slower-than-expected progress in localization tenders and delivery.
• WPS paid conversion fails to improve further.
• A weaker-than-expected recovery in game revenue growth.
• The narrowing trend in the holding company discount may slow or reverse.
• Fluctuations in Kingsoft Cloud's market capitalization may affect SOTP valuation.
• Morgan Stanley disclosed that it has investment banking and other service relationships with Kingsoft Corp Ltd, and investors should pay attention to potential conflicts of interest.

What to watch

• Whether Lei Jun continues to increase his holdings and changes in his ownership stake.
• Changes in Kingsoft's holding company discount relative to the 54% historical average and the 45% base-case assumption.
• Whether online game revenue growth recovers due to new upgrades.
• WPS paid conversion, localization tender progress, and delivery pace.
• The intensity of government policy support for office software installation and nationwide cloud adoption.
• Whether listed investments with limited synergy with Kingsoft's business are sold.
• Changes in Kingsoft Cloud's market capitalization and their impact on Kingsoft's SOTP.
• Changes in the USD/RMB exchange rate relative to the 7.00 assumption.