20230214-招银国际-金蝶国际-00268.HK-Bidding_data_implied_accelerated_software_substitution_8页_1mb

Kingdee (268 HK) Summary

Core Content

Kingdee, listed on the Hong Kong Stock Exchange (268 HK), is a leading Chinese software and IT services company. The report outlines its financial performance, growth drivers, and valuation analysis for the fiscal years 2022E and 2023E, highlighting the company's strategic initiatives and the broader trend of software localization in China.

Main Points

Financial Performance (FY22E)

• Revenue: Expected to reach RMB4.8bn, a 15% YoY increase.
• Net Loss: Widened to RMB395mn, compared to RMB302mn in FY21.
• ARR Growth: Projected to grow by 33% YoY to RMB2.1bn, below the company's prior target of +45–50% YoY.
• Cloud Revenue: Estimated to grow by 32% YoY to RMB3.6bn.
• Galaxy Growth: Core SaaS product Galaxy is expected to grow by +15% YoY, but the growth was impacted by the impact of the COVID resurgence in FY4Q22.
• Earnings Forecast: FY22E EPS is estimated at -0.11 RMB cents, below the consensus of -0.12 RMB cents.
• Valuation: EV/Sales ratio is at 9.6x for FY22E, which is below the three-year mean of 11x.

Financial Outlook (FY23E)

• ARR Recovery: Expected to grow by 40% YoY, surpassing FY22E's growth rate.
• Galaxy Profitability: OPM is projected to improve to 30%, up from 20% in FY22E.
• Xinchuang Initiative: Will help offset margin dilution from the initiative.
• Net Loss Narrowing: Net loss is expected to narrow to below RMB300mn.
• Earnings Forecast: FY23E EPS is estimated at -0.08 RMB cents, with a slight revision from the previous forecast of -0.07 RMB cents.
• Valuation: EV/Sales ratio is at 7.9x for FY23E, still in-line with the three-year mean of 11x.

Bidding Trends

• Accelerated Local Substitution: Bidding data shows a significant increase in the number of bidding wins for Kingdee.
• FY22E Bidding Won: Increased by 82% YoY in terms of dollar amount.
• FY23E Bidding Won: Increased by 141% YoY, indicating an accelerating trend.
• Government-backed Enterprises: 40,000 enterprises are required to submit Xinchuang work plans in 2023, aligning with the company's strategic direction.

Valuation and Investment Recommendation

• Target Price: Revised to HK$23.56 (from HK$23.83), based on 11x EV/Sales for FY23E.
• Investment Recommendation: Maintain BUY, despite near-term correction pressure following an over 80% rally since October 2022.
• Catalyst: The China's Two Sessions in March 2023 are expected to focus on technology self-sufficiency, which is a key catalyst for the company.

Key Information

• Shareholding Structure:

  • Mr. Xu (Chairman): 20.3%
  • Oriental Tao Limited: 11.1%

• Stock Data:

  • Market Cap: HK$57,954.0 million
  • Current Price: HK$16.68
  • 52-week High/Low: HK$20.50 / HK$9.18
  • Total Issued Shares: 3,474.9 million

• Earnings Revision:

  • Sales: Revised down by 2% for FY22E to RMB4.788bn.
  • Gross Profit: Revised down by 1% for FY22E to RMB2.990bn.
  • Operating Profit: Revised down by 14% for FY22E to RMB-839mn.
  • Net Profit: Revised down by 23% for FY22E to RMB-395mn.
  • EPS: Revised down by 23% for FY22E to -0.11 RMB cents.

• Valuation Comparison:

  • EV/Sales: Kingdee's EV/Sales ratio is at 9.6x for FY22E and 7.9x for FY23E.
  • FCF Margin: Expected to improve from 1% in FY22E to 0.4% in FY24E.
  • ROE: Expected to improve from -5.3% in FY22E to 0.4% in FY24E.

Summary of Financial Highlights

Metric	FY20A	FY21A	FY22E	FY23E	FY24E
Revenue (RMB mn)	3,356	4,174	4,788	5,849	7,031
YoY Growth (%)	0.9	24.4	14.7	22.2	20.2
Net Profit (RMB mn)	(335.5)	(302.3)	(394.6)	(263.5)	27.4
EPS (Reported)	(10.12)	(9.23)	(11.37)	(7.59)	0.79
EV/Sales (x)	13.6	11.1	9.6	7.9	6.5

Conclusion

The report maintains a BUY rating for Kingdee, emphasizing the long-term potential of the software substitution trend in China. While the company faces near-term correction pressure, the strategic focus on ARR recovery, Galaxy profitability, and the Xinchuang initiative positions it well for future growth. The revised target price of HK$23.56 reflects the updated EV/Sales multiple and the company's improved financial outlook.