Core views:
The company disclosed its 24-year report. 2024H1 achieved revenue of 2.87 billion yuan (RMB, same below), a year-on-year increase of 11.9%, and achieved net profit to mother of -0.22 billion yuan, compared to -0.28 billion yuan in the same period last year.
Cloud transformation continues to advance, and the cost rate continues to decline during this period. 24H1 traditional software business revenue decreased 8.8% year over year, cloud business revenue increased 17.2% year over year, and ARR was about 3.15 billion yuan, up 24.2% year on year. The 24H1 R&D Expense Rate/Sales Expense Ratio was -0.9 pct/-1.9 pct year-on-year. As cloud transformation gradually enters the harvest period, the continuous decline in sales expense ratio and R&D expense ratio is a proper characteristic, and it is also one of the signs that verify the success of cloud transformation.
Renewal rates remain high, and revenue quality has further improved. Renewal rates for major cloud products remain high (97% for Sky/ Starry Sky, 95% for Starry Sky), and the renewal rate for Star is about 92%, which is basically the same level as in 2023 (105% for Sky/ Starry Sky, 97% for Starry Sky, 91% for Stars), with slight fluctuations. A high renewal rate is an important indicator of the healthy development of cloud services, reflecting the overall competitiveness of the company's cloud services. The higher renewal rate also lays the foundation for future corporate expenses, especially sales expenses, to continue to decline. Furthermore, despite current macroeconomic pressure, cloud service revenue still increased 17.2% year over year, accounting for 83.2% of total revenue, and ARR increased 24.2% year over year. Relevant cloud service indicators all showed a further improvement in the company's revenue quality.
Profit forecasting and investment advice. The company's main business revenue for 2024-2026 is estimated to be 6.506 billion yuan, 7.539 billion yuan, and 8.881 billion yuan, respectively. Referring to comparable company valuations, we gave Kingdee a 2024 PS valuation multiplier of 6 times, corresponding to a reasonable value of approximately HK$11.88 per share (reference exchange rate of HKD1 = RMB 0.91626), maintaining a “buy” rating.
Risk warning. The economic environment causes fluctuations in downstream IT spending; the impact of the Hong Kong stock market trading environment; and uncertainty about the implementation of AI application performance.