Committed to AI transformation

Committed to AI transformation Target PriceHK$15.10(Previous TPHK$19.20)Up/Downside50.7%Current PriceHK$10.02 Kingdee reported its 2025 results: revenue was RMB7.0bn, up 12.0% YoY(2024: +10.2% YoY), in line with Bloomberg consensus; net profit attributable toordinary shareholders was RMB92.9mn (2024: loss of RMB142.1mn),belowBloomberg consensus of RMB132mn. In this print, Kingdee demonstrated itscapability to deliver healthy revenue growth with improving operating efficiency,as well as its strong commitment to business transformation in the AI era, in ourview.Competition from LLM companies in the software industry may continueto weigh on market sentiment in the near term and could impact overall industryvaluations. However, we believe Kingdee remains one of the key beneficiariesin the AI application era, backed byits deep industry and scenario insights, aswell as high-quality enterprise datasets.We roll forward our valuation to 2026Ewitha new target price of HK$15.1(was HK$19.2). We lower our targetEV/Sales multiple from 8.4x (in line with the two-year mean plus two standarddeviations) to 5.4x (in line with the two-year mean) to reflect the change inmarket sentiment. Nevertheless, we reiterate Kingdee as our top pick in ourChina software coverage universe, and believe that a reacceleration in revenuegrowth—supported by improving macro conditions and AI monetization, as wellas a solid margin expansion trajectory—could drivea futurevaluation rerating.Maintain BUY. China Software & ITServices Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk Stock Data Cloud revenue contributioncontinued to rise.In 2025, Kingdee’s cloudrevenue grew 13.2%YoY to RMB5.8bn (82.5% of total revenue; +0.9pptYoY). Despite ongoing macro headwinds, Kingdee achieved 19.2% YoYgrowth in ARR (2024: 20.0%) and 20.7% YoY growth in subscription-relatedcontract liabilities (2024: 28.5%). Key product lines delivered healthysubscriptionrevenue growth.1)KingdeeCloud Cosmic&Constellation(C&C)recorded revenue ofRMB1.94bn in 2025, up 28.0% YoY, of which subscription revenue grew35.4% YoY to RMB528mn; its net dollar retention (NDR) rate increased by2pptsYoY to 110%;2)Kingdee Cloud Galaxy recorded subscriptionrevenue of RMB1.52bn, up 19.3% YoY, with NDR reaching 97%, up 2pptsYoY; 3) subscription revenue for Small and Medium-sized Businesses(SMBs) products (mainly Kingdee Cloud Stellar and Jingdou Cloud) camein at RMB1.1bn, up 22.7% YoY.Regarding AI adoption, managementhighlighted that Kingdee AI has achieved contract value of c. RMB356mn in2025. AI is driving effective cost savings for Kingdee.In 2025, AI-assisted newcode accounted for 41% of total newcode, and management expects thisratio to increase further to 70% in 2026. Driven by the acceleration of AItransformation, total headcount and R&D headcount declined by 7.0% and13.6% YoY, respectively, in 2025. 2026NPM guidance comes in ahead of consensus.For 2026,management guidedfor: 1) double-digit YoY growth in group revenue; 2)Kingdee AI Suite revenue to exceed RMB1bn withthesurge in AI-nativebusiness revenue generation serving as the main driver; 3) adj. net marginto rise to ~7% (from 3.3% in 2025), driven by solidrevenuegrowth andunleashing of operating leverage,and this was ahead of Bloombergconsensus at 4.8%; 4)OCF to grow over 20% YoY;5)over HK$500mnspending in share repurchases(c.1.4% of market cap based on latestmarket close as of 18 Mar), while remainingopportunisticdepending onmarket conditions. Source: FactSet Changesin forecast and valuation We lower our 2026E/2027E revenue forecasts by 2%/1% to reflect a more moderate cloudrevenue growth outlook amid macro headwinds, while raising our netprofit forecasts by29%/28% to account for better-than-expected improvements in operating efficiency. Risks:1)slower-than-expected revenue growth;2)slower-than-expected marginexpansion; 3) more intensified-than-expected industry competition. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in thisreport: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered inthis research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after