Guangda Overseas: Chinasoft International (00354) short-term profits disrupted by transformation factors Maintain "buy" rating.

EB Securities' overseas research team released a research report stating that CHINASOFT INT'L (00354) is facing short-term pressure on profitability by adjusting its business structure during a strategic transformation period, increasing one-time costs due to staff optimization, and making phased investments to win core large clients and expand key businesses. Looking ahead, the company will continue to deepen its AI strategic layout, accelerate the landing and expansion of AI-related software and hardware businesses, and open up long-term revenue growth potential. Considering the continued pressure from core large clients' price reductions and the company's ongoing investment in AI research and development, the net profit forecast for 2026-2027 has been revised down to RMB 630 million/720 million (previously predicted as RMB 750 million/870 million), with an added net profit forecast for 2028 of RMB 810 million. The company maintains a "Hold" rating. The main contents of the research report are as follows: Event: In 2025, the company achieved revenue of RMB 17.027 billion, a year-on-year increase of 0.5%; of which service revenue was RMB 16.686 billion, a year-on-year increase of 2.3%. Due to one-time severance compensation and impairment losses on goodwill, net profit decreased by 36.7% year-on-year to RMB 324 million, and attributable net profit decreased by 37.3% year-on-year to RMB 321 million. Excluding the impact of the above special items, adjusted pre-tax net profit was RMB 682 million, a year-on-year increase of 0.2%, with an adjusted pre-tax profit margin remaining at the same level as the previous year (4.0%). Full-stack full-scenario AI business achieved more than double growth, becoming the core DRIVE. In 2025, the company steadfastly promoted the "one body, two wing" AI strategy, with AI at its core, Physical AI and Digital AI as wings, focusing on the two core growth engines of AI Harmony and AI Intelligent Business Operating System. In 2025, full-stack full-scenario AI products and services revenue reached RMB 2.00 billion, a significant year-on-year increase of 109.2%. 1) AI Harmony Business: As an important part of Physical AI, the company relied on KaihongOS and Meta platform to deeply participate in the large-scale landing of Harmony, and create a new paradigm of smart city construction in core cities such as Xi'an, Shenzhen, and Beijing. In addition, the company jointly released the first national open-source Harmony learning platform for developers (open Harmony Bot series products) with Deep Open Hong, and released the first national Siasun Robot&Automation operating system based on open-source Harmony (M-RobotsOS), with a code contribution of over 6.7 million lines in the OpenHarmony community, ranking first among ecosystem vendors outside of Huawei. 2) AI Native Enterprise Intelligent Operating System (allmeta): After 5 years of continuous investment in AI native ERP, the company successfully released the allmeta enterprise intelligent business operating system, designed with AI as the core principle, through a three-layer product system of "data pedestal, cognitive center, execution network," to build a feasible business entity and empower enterprises to evolve on their own. Cornerstone business transformation and upgrade, AI empowers cost reduction and efficiency improvement. 1) Internal management efficiency: The company fully embraces AI Coding and intelligent development tools, helping the transition of manpower structure towards AI talents. By driving cost optimization and leapfrogging output per capita through technical efficiency, the cornerstone business is transitioning from labor-intensive to high-margin AI-empowered business. 2) Expansion into overseas markets: The company is steadily advancing its overseas strategy, providing smart venue comprehensive solutions for the Kai Tak Sports Park in Hong Kong, and undertaking the CDIP project for the Hong Kong Police Headquarters in Hong Kong; in Saudi Arabia, it has joint ventured with 3F Technology to establish JAT Company, serving the digital infrastructure construction of the NEOM of the Saudi Arabia. Short-term pressure on profitability, significant results in cost control. In 2025, the company achieved gross profit of RMB 3.469 billion, a year-on-year decrease of 7.3%; the gross profit margin was 20.4%, a year-on-year decrease of 1.7 percentage points, mainly due to the increase in one-time costs caused by adjustments in business structure, staff optimization, and phased investments to win core large clients and expand key businesses during the strategic transformation period. On the expense side, the company continues to strengthen budget control and improve operational efficiency through self-developed recruitment and operational AI tools, with sales/administrative expense ratios for 2025 decreasing by 0.1/0.8 percentage points year-on-year to 5.1%/6.4%; on the research and development front, the company maintains strategic resolve, continuing to increase investment in AI technology and products, with a research and development expense ratio of 6.1% in 2025, a year-on-year increase of 0.8 percentage points, laying a solid foundation for long-term competitiveness upgrading. Risk factors: Increased competition in the IT services industry; AI and cloud intelligent business development falling below expectations, etc.