- August 21, 2020
Cloud transition still on track, despite NT turbulence, raising PT to HK$24.6
Although Kingdee reported revenue decline with rising opex ratio in first half, we reiterate Buy on Kingdee, because: 1) impressive cloud billings growth (up 57.6% YoY in 1H20), which offset the cash flow pressure caused by shrinking ERP business; 2) determined and clearer cloud roadmap with broad offerings (PaaS/140+ SaaS modules/18 industry solutions); 3) leading position in fast-growing China EA SaaS market. We adjusted our model accordingly to reflect the current strategic shift of the company, including cutting traditional ERP business, conservative opex ratio, but enhanced cashflow. We raise Kingdee’s cloud revenue by 3.5%/6.5% in FY21/22E from prev ets. with cloud revenue/FCF (excl. IP) heading to RMB11.9bn/RMB3.9bn in FY25E, respectively. Now applying a 30x EV/FCF (in line with cloud transition peers) and discounting back to next year, we derive HK$24.2/sh for cloud business. By adding on HK$0.4/sh of investment properties, our new PT is HK$24.6/sh, implying a 34% upside.
