BofA Securities downgraded Beijing Kingsoft Office Software Inc. from Buy to Neutral on Thursday, marking a significant shift in the firm's position.

The company raised its price objective from RMB279.00 to RMB279.00 in spite of the downgrading. A conflicting assessment of the company's financial performance is reflected in the modification.

According to the analyst, Kingsoft Office's current value, this is almost 60 times the 12-month ahead P/E, already accounts for a number of favorable factors. These include a robust growth in operational cash flow, which witnessed a 31% year-over-year gain in the third quarter of 2024, and the quick monetization of AI technologies, which was the focus of a study released in mid-August.

But the expert also pointed out possible immediate difficulties. The shift to a SaaS model for the company's institutional subscription business and decreased demand in the Xinchuang market might have an effect on revenue growth. Notwithstanding these reservations, the analyst praised Kingsoft Office's strong business strategy, which includes more than 80% recurring revenue, a net profit margin of over 30%, and a free cash flow margin of over 33%.

BofA Securities has reduced its profit prediction for Kingsoft Office by 3-5% for the fiscal years 2024 through 2026 due to the expected soft demand in the Xinchuang sector and the rise in institutional subscription revenues. However, the company has increased its price target based on discounted cash flow from RMB235 to RMB279. With a compound annual growth forecast of 19% from fiscal year 2023 to 2033, as opposed to the prior forecast of 17%, this revision is predicated on higher free cash flow predictions.

Kingsoft Office is expected to sell at 62 times its estimated price-to-earnings ratio (P/E) for the fiscal year 2025, or 2.2 times its price-to-earnings-growth ratio, based on the most recent price estimate issued by BofA Securities. Based on the company's previous trading, this value is between 40 and 183 times its 12-month prospective P/E ratio.