Incidents:
Kingdee International released its annual report and achieved revenue of 5.679 billion yuan in '23, yoy +16.7%. The company had a net loss of 210 million yuan to its mother in '23, a year-on-year decrease of 179 million yuan; net cash flow from operating activities was 653 million yuan, an increase of 74.5% over the previous year. Contract liabilities amounted to $3.177 billion, yoy +20.74%.
1. The subscription transformation has basically been achieved. The company aims to subscribe to ARR CAGR 30% in the next three years. The company will achieve revenue of 5.679 billion yuan in 23 years, yoy +16.7%. Among them, the cloud service business revenue yoy +21.3%, accounting for 79.3% of the company's revenue. Subscription ARR is approximately 2.86 billion, yoy +33.1%. View by product:
1) Sky and Xinghan earned about 981 million yuan, yoy +40.9%. Corresponding to ARR YOY +48.7%, the renewal rate is 105.3%; considering the acceleration of domestic replacement in state-owned enterprises and leading private enterprises, it is expected that Sky Star will maintain rapid growth.
2) Starry Sky's revenue is 1,952 million, Yoy +16.2%. ARR yoy +29.2%, renewal rate 97.2%; considering channel promotion and customer promotion, Starry Sky is expected to maintain rapid double-digit growth.
3) Xiaowei Finance Cloud's revenue is about 1.08 billion, yoy +25.4%, and ARR yoy +45.6%, of which Star Renewal Rate is 90.8%; considering the large number of SMB customers, it is expected that Xiaowei Finance Cloud will achieve rapid growth.
2. Higher quality growth, with a positive V-shaped reversal signal from cash flow to profit. The company's gross margin reached 64.2% in '23, an increase of 2.6 pct over the previous year. The three cost ratio decreased by 3.8 pct year on year, of which the sales expense ratio was about 40.8%, -0.8 pct year on year; the R&D cost rate was about 25.4%, -1.2 pct year on year (R&D capitalization rate was about 32%, down about 1 pct year on year); and administrative expenses were about 8.6%, -1.8 pct year on year.
Considering the high gross margin of the subscription business and the decline in IaaS costs, gross margin is expected to enter a long-term improvement channel.
In terms of cost, considering the improvement in R&D efficiency and the gradual maturity of products, there is still room for a decline in R&D expenses. In terms of numbers, the company only added less than 5% in 2023, and the subscription business model determines that the demand for future personnel is also limited.
Based on this, we are optimistic that the company will achieve a V-shaped reversal of cash flow to profit from 2024 to 2026; in fact, the company's losses have narrowed significantly in the second half of 2023.
3. AI first, artificial intelligence is expected to open up ARPU space
In 2023, the company released Sky GPT, which pioneered the implementation of large-scale model applications in large and medium-sized enterprises to help enterprises improve productivity through AI. For large enterprises, based on Sky GPT, the company launched the first major financial model in China, encapsulating Kingdee's 30 years of financial knowledge and the practice of serving more than 7.4 million customers to provide enterprises with analytical forecasting, expert support, report generation and interpretation services. Currently, related products have been applied by benchmark customers such as C&D Real Estate and Hisense Group. At the same time, the flagship edition of Kingdee Cloud Starry Sky completed coverage of financial, supply chain, and manufacturing scenarios, and realized AI intelligence in multiple scenarios.
Profit forecast: Considering the company's strategic goal of “subscription first, AI first”, we believe that the company may be more cautious in business choices, adjust the company's 2024/2025 revenue forecast to 66.3/7.725 billion yuan (original forecast 75.94/9.418 billion yuan), add 2026 revenue forecast of 8.971 billion yuan, and adjust the company's 2024/2025 net profit forecast to -0.4/60 billion yuan (original forecast of 1.00/350 million yuan) and add 2026 The annual net profit forecast is 560 million yuan, maintaining the “buy” rating.
Risk warning: Macroeconomic development falls short of expectations, market competition increases risks, and technology updates and innovation risks.