20180817-兴业金融证券-金蝶国际-00268.HK-Still_Our_Top_Pick_10页_434kb

Kingdee Summary

Core Content

Kingdee is a leading ERP software provider in China, known for its products K/S and K/3, targeting small and medium enterprises (SMEs). The company has also expanded into cloud computing and mobile services. Despite a slowdown in cloud revenue growth to 26% YoY, the company maintains a "Buy" rating, with a revised target price of HKD11.40, representing a 38% upside from the current price of HKD8.28.

Main Points

• Cloud Revenue Growth:

  • Kingdee's cloud revenue growth slowed to 26% YoY, below previous expectations of over 60%.
  • The slowdown is attributed to the private cloud segment, while public cloud revenue shows higher visibility and recurring earnings.
  • The company still expects a 60% cloud revenue growth for 2H18, implying a 45% full-year growth.
  • Cloud revenue is projected to account for 60% of total revenue by FY20.

• Kingdee Cloud Galaxy:

  • A new cloud service product with a user-friendly and flexible interface, all-in-one integration, and powerful management reporting.
  • Customization is efficient, with 70% achievable without coding.
  • The product is considered the best enterprise management cloud platform in China.

• Traditional ERP Business:

  • Expected to grow at a low-teens rate in FY18 and 1H19.
  • Growth is expected to slow down from 1H19 onwards as more clients migrate to Kingdee Galaxy Cloud.

• Valuation and Metrics:

  • The target price (TP) is based on a SOP (Standalone Operating Profit) valuation with a 15x P/E for traditional ERP and a 15x price-to-sales ratio for the cloud business.
  • The TP implies a 44x FY18F P/E and 33x FY19 P/E, similar to its past 3-year forward P/E mean.
  • Earnings for FY18 and FY19 were cut by 3.2% and 5.7%, respectively.

• Financial Forecasts:

  • Total turnover is projected to increase from CNY1,862m (Dec-16) to CNY4,343m (Dec-20F).
  • Recurring net profit is expected to grow from CNY189m (Dec-16) to CNY563m (Dec-20F).
  • The company's gross margin is expected to remain stable at around 82.1% to 82.7%.

• Key Risks:

  • Overestimated cloud expenditure.
  • Margin pressure on traditional ERP business.
  • Intensifying competition in the cloud sector.

• Investment Recommendation:

  • Maintain "Buy" rating with a slightly lower TP of HKD11.40.
  • The company is seen as a sector Top Pick due to its cloud service offerings and growth potential.

Key Information

• Market Cap: USD3,470m

• Bloomberg Ticker: 268 HK

• Share Data:

  • Avg Daily Turnover: HKD358m / USD43.7m
  • 52-wk Price Range: HKD3.12 - HKD11.1
  • Free Float: 30%
  • Shares Outstanding: 2,807m
  • Estimated Return: 38%

• Shareholders:

  • Chairman Xu: 27.0%
  • Oriental Gold: 14.5%
  • JD.com: 10.0%

• Valuation Metrics:

  • Recurring P/E (x): 111 (Dec-16), 79 (Dec-17), 67 (Dec-18F), 51 (Dec-19F), 36 (Dec-20F)
  • P/B (x): 6.06 (Dec-16), 5.12 (Dec-17), 4.76 (Dec-18F), 4.35 (Dec-19F), 3.88 (Dec-20F)
  • EV/EBITDA (x): 28.3 (Dec-16), 13.2 (Dec-17), 13.1 (Dec-18F), 11.2 (Dec-19F), 9.3 (Dec-20F)

Investment Recommendation Summary

• RHB Rating: Buy (Maintained)
• Target Price: HKD11.40
• Current Price: HKD8.28
• Upside Potential: 38%

SWOT Analysis

Strengths:

• Strong R&D team with a proven track record in ERP software
• Strong customer base
• First-mover advantage in the Cloud ERP market
• Leading Cloud ERP product

Weaknesses:

• Vulnerability to economic downturns due to focus on SMEs

Opportunities:

• Cloud ERP market has significant potential

Threats:

• Intensifying competition in the Cloud ERP market

Key Metrics Overview

Investment Research Disclaimers

• RHB has issued this report for general information purposes only.
• The report is not tailored to specific investment objectives and should not be considered as an offer to buy or sell securities.
• The information is based on publicly available data and has not been independently verified.
• Opinions expressed are subject to change and not guaranteed.
• RHB is not liable for any losses resulting from reliance on this report.