Morgan Stanley: Downgrades ChinaSoft International (00354) to "underweight" and slashes target price to HK$2.6

Morgan Stanley released a research report stating that the rating of CHINASOFT INT'L (00354) has been downgraded from "in line with the market" to "underweight", with the target price significantly reduced from 6.6 Hong Kong dollars to 2.6 Hong Kong dollars. Morgan Stanley pointed out that the IT outsourcing revenue of ChinaSoft International is under pressure from its major clients compressing profits due to AI programming. Although management has guided that AI-related revenue will grow by over 70% in 2026, non-AI business (primarily IT outsourcing) is still expected to account for over 80% of total revenue in 2025, and revenue and gross profit margin in 2026 may face a decline. The bank has lowered revenue forecasts for each year from 2026 to 2028 by 16.7%, 17.3%, and 13.3% respectively, to reflect potential disruptive risks of AI to traditional outsourcing business, and adjusted EBIT forecasts for the same period have been lowered by 54%, 40.7%, and 14% respectively. Therefore, normalized net profit forecasts for 2026 to 2028 have been lowered by 70.5%, 52%, and 26.3% respectively.