20220822-招银国际-金蝶国际-00268.HK-Cloud_on_track_with_improved_earnings_quality_10页_1mb

Kingdee (268 HK) Company Update Summary

Core Content and Overview

Kingdee, a leading player in the China software and IT services sector, reported its FY1H22 results, showing a top-line revenue increase but a wider net loss. The company's cloud business continued to perform well, with significant growth in revenue and ARR, reflecting a strong SaaS outlook. However, the increase in implementation costs and R&D expenses for large enterprise projects impacted gross margin and short-term profitability.

Key Financial Highlights

FY1H22 Performance

• Revenue: RMB2,197 million (+17% YoY), beating estimates by 6% and aligning with consensus.
• Cloud Revenue: RMB1,677 million (+35% YoY), representing 76% of total revenue.
• ARR: RMB1,860 million (+46% YoY), with subscription contract liabilities at RMB1,572 million (+56% YoY).
• Gross Margin (GPM): 60.6% (-2.2 pct pts YoY), due to higher implementation costs.
• Net Loss: RMB356 million, in-line with estimates but missing consensus.
• EPS: -0.10 RMB, missing consensus by 5%.

Segment Analysis

• SME Segment:
  • Cloud Galaxy revenue: RMB786 million (+16% YoY).
  • Subscription ARR growth: +53% YoY.
  • OPM improved to 20%.
  • Subscription revenue constitutes 60% of Galaxy revenue.
• Large Enterprise Segment:
  • Cosmic & Constellation revenue: RMB284 million (+78% YoY), driven by software localization.
  • Dollar retention: 100%, compared to >120% in FY21.
  • R&D expenditure increased by +19% YoY to RMB795 million.
  • R&D capitalization rate decreased to 31.3% (from 34.2% in FY1H21), indicating better earnings quality.

Strategic Outlook and Earnings Forecast

• Cloud Growth: The company is on track for continued cloud growth, with FY22E cloud revenue expected to reach RMB3,632 million (74% of total revenue).
• Earnings Revision:
  • Revenue forecast remains largely unchanged for FY21-24E.
  • Net loss is expected to widen due to lower GPM and higher R&D.
• Valuation:
  • Target price maintained at HK$23.83, based on 11x FY23E EV/sales.
  • This is in line with the company's three-year mean.
• Peer Comparison:
  • EV/sales ratio is 9.1x for FY22E and 7.5x for FY23E.
  • The company's valuation is compared with peers like Yonyou, Kingsoft Office, SAP, Intuit, Xero, and Workday.

Operating Model and Financial Summary

• Revenue Breakdown:
  • Cloud Services: RMB1,677 million in FY1H22, representing 76% of total revenue.
  • Management software: RMB519 million (-18% YoY).
  • License revenue: RMB175 million.
• Operating Metrics:
  • Gross profit: RMB1,331 million (-2.2 pct pts YoY).
  • Operating loss: RMB651 million.
  • R&D expenditure: RMB795 million (+19% YoY).
  • SG&A and sales and marketing expenses increased YoY.
• Cash Flow:
  • Net cash from operating activities: RMB481 million in FY22E.
  • Net cash from investing activities: RMB-519 million.
  • Net cash from financing activities: RMB310 million.
  • Net change in cash: RMB272 million.

Shareholder and Market Information

• Shareholding Structure:
  • Mr. Xu (Chairman): 20.25%
  • JPMorgan Chase & Co.: 14.01%
• Stock Performance:
  • 1-month: -8.8%
  • 3-month: +9.2%
  • 6-month: -17.8%
• Market Cap: HK$55,668 million.
• Average 3-month turnover: HK$192.82 million.
• 52-week High/Low: HK$29.20 / HK$11.82.

Conclusion

Despite a wider net loss, Kingdee's cloud business is on track with strong SaaS growth, particularly in the SME segment. The company is a key beneficiary of the local substitution trend and continues to invest in R&D and implementation, which may have short-term margin impacts but are expected to enhance long-term earning quality. The analysts maintain a BUY rating with a new target price of HK$23.83, reflecting confidence in the company's growth trajectory and market position.