AMTD Research | Kingdee (268 HK): Solid 1H results, R&D investment likely to peak and operating leverage on the horizon, raising PT to HK$33.7

We published a research note on Kingdee (268 HK) to reiterate our Buy rating with a new PT of HK$33.7.

We like Kingdee, on the demand side, we see: 1) resilient demand for digitalization across all the business sectors; 2) new clients coming from domestic substitution; on the product side: Cloud Cosmic PaaS platform laid the ground for its cloud business ecosystem which can integrate more diversified modules easily and serve different sized clients. Our new PT of HK$33.7 comprises HK$31.8 for cloud business (16x FY23e cloud revenue), HK$1.2 for ERP business (20x FY23e EBIT), and HK$0.7 for its IP.

• Solid results underpinned by resilient demand
  • Cloud revenue grew strongly by 55.1% YoY to RMB1.2bn. The proportion of cloud business was further improved to 66.1%;
  • The leading indicator – cloud contract liabilities was up by 74.9% YoY to RMB1.2bn by the end of Jun, suggesting an upbeat outlook for the following reporting periods;
  • Gross margin declined slightly to 62.7% compared to 64.2% in 1H20, due to the continued restructuring of the outsourcing implementation team for the large enterprise clients.

• Cosmic PaaS laid the ground for its cloud eco and drives future growth
  • In May Kingdee introduced Cloud Cosmic 4.0 with 186 patent applications in total and announced new SaaS application Cloud Constellation on top of the Cosmic platform;
  • In 1H, Cloud Comsic/Constellation recorded revenue of RMB160mn, up 155.4% YoY;
  • Cloud Comsic/Constellation dollar retention rate was more than 100% and the company added 142 new customers (incl. 105 upsell customers) with a per contract value of RMB1.3mn.