China Securities Co., Ltd.: KINGDEE INT'L (00268) continues to make breakthroughs in the large enterprise market, maintaining a "buy" rating.

China Securities Co., Ltd. released a research report stating that considering the company's net profit turning positive and maintaining high-speed growth, operational cash flow continues to optimize, it maintains a "buy" rating for KINGDEE INT'L (00268). As a leader in the domestic industry's cloud transformation, KINGDEE INT'L has accumulated steadily and achieved a cloud revenue share of over 80%, with profit release imminent. On one hand, the ERP industry it's in is benefiting from the demand release driven by "digitalization + localization + AI"; on the other hand, the cloud products have been invested in and polished for many years, and the product line for small and medium-sized enterprises has gradually entered a stable profit release period, while the large enterprise market continues to break through, with its own strengths gradually becoming prominent. The main points of China Securities Co., Ltd. are as follows: Current situation: Cloud revenue accounts for over 80%, and the total contract liabilities rank first in the China National Software & Service industry The company has been deeply cultivating the ERP field for decades and has gradually completed the transformation to cloud SaaS. In the first half of 2024, the cloud revenue share reached 83.2%. On the product side, the revenue for Cangqiong and Xinghan in 2023 was 981 million yuan, with contracted amounts totaling 14 billion yuan; Xingkong has been the number one in market share for growth-type enterprise application software in China for 19 consecutive years, and had a revenue of 1.952 billion yuan in 2023. The company's core cloud product revenue and orders continue to grow, and as of the first half of 2024, the total contract liabilities have reached 3.367 billion yuan, ranking first in the China National Software & Service industry. Industry DRIVE (Beta): Demand release driven by digitalization + localization + AI 1) Digitalization: China's data economy scale reached 50.2 trillion yuan in 2022, and ERP systems as the core tool for enterprise digital management directly benefit from it. 2) Localization: Considering that in the high-end market for domestic ERP systems, products from overseas manufacturers such as SAP still have a relatively high share. From the perspective of supply chain security, there is still a large space for domestic software ERP in the large enterprise market. 3) AI: On one hand, AI has good integration points with ERP products for data analysis, process execution, etc., which can improve user experience and efficiency. On the other hand, the requirement for AI's large model cloud deployment also promotes the acceptance of public clouds by enterprises, benefiting cloud ERP vendors. Self-advantage (Alpha): Steady profit increase after accumulating cloud capabilities, continuous breakthrough in the large enterprise market 1) The small and medium-sized enterprise market is the basis, and profitability increases after the cloudization stabilizes. In the first half of 2024, Xingkong achieved a net renewal rate (NDR) of 95% and an operating profit margin of 20%; Jingdouyun achieved a net renewal rate (NDR) of 87% and an operating profit margin of 40% in the first half of 2024, both higher than the software era. 2) In the large enterprise market, the company has achieved breakthroughs through product lines such as Cangqiong and Xinghan. In the first half of 2024, it gained 275 new signed customers, with new contract amounts totaling 9 billion yuan, and the subscription ARR growth rate was +29%, achieving breakthroughs in the large enterprise market and raising the overall revenue ceiling.