According to the Zhitong Finance and Economics APP, Founder Securities released a research report stating that it maintains a "recommended" rating for Kingdee Int'l (00268), expecting total revenue of 6.685/7.84/9.223 billion yuan from 2024 to 2026, with a year-on-year growth of 15.62%/17.27%/17.65%. The company is currently in a critical stage of transitioning from a "cloud service-centric" to a "comprehensive cloud service" model. With the maturing industry landscape, the business realization logic is strengthening.

Event: On September 29th, the People's Bank of China conducted 182 billion yuan of 7-day reverse repurchase transactions through fixed-rate, quantity-based bidding, with an operation rate of 1.50%. Currently, the 7-day reverse repurchase operations have essentially assumed the main policy rate functions. Since the beginning of this year, the 7-day reverse repurchase operation rate has cumulatively decreased by 30 basis points.

The main points of Zheng Securities are as follows:

As domestic macro recovery accelerates company growth and amidst overseas interest rate cuts, Kingdee, as a leading Chinese SaaS enterprise, the valuation recovery elasticity should not be overlooked.

As a leading domestic ERP provider, the company targets high-end ERP replacement scenarios dominated by overseas brands such as SAP and Oracle in the large customer market (accounting for over 50% of the domestic market in 2021), aligning its product form with the leading SaaS cloud model represented by Salesforce. Considering the strong background of the domestic manufacturing industry and the continuous acceleration of enterprise digitalization, coupled with the advantageous competitive landscape created by the background of domestic substitution, the company's growth potential is actually better than comparable overseas companies that have entered the mature stage. Compared to the current valuation of overseas companies, as of September 30, 2024, Oracle/SAP/Salesforce PS-TTM were 8.77/8.05/7.27 respectively; also, considering the company's historical p/s ratio of 8.95 over the past three years, it is still at the historical valuation bottom (the company's p/s ratio was 4.86 as of September 30, 2024), Kingdee, as the leading Chinese SaaS enterprise, with accelerating fundamentals and the background of overseas interest rate cuts, has significant valuation recovery potential.

Continuing the advancement of cloud subscription transformation, Cangqiong & Xinghan lead the growth.

In the first half of 2024, the company's cloud computing service revenue was 2.39 billion yuan (+17.2% year-on-year), accounting for 83.3% of the total revenue (+3.8 percentage points year-on-year). Among them, revenue from Cangqiong and Xinghan totaled approximately 0.546 billion yuan (+38.93% year-on-year), ARR increased by 29%, contract signing amount increased by 63%, and net renewal rate reached 97%; Xingkong achieved revenue of approximately 1.054 billion yuan (+14.32% year-on-year), subscription ARR increased by 24%, and net renewal rate was 95% (-1 percentage point year-on-year); Xiaowei Financial Cloud realized revenue of approximately 0.588 billion yuan (+17.3% year-on-year), with ARR increasing by 31%. Among them, revenue from Xingchen increased by 70.8%, and net renewal rate reached 92% (+3 percentage points year-on-year). In addition, the operation indicators of the company's cloud business are equally impressive, with cloud subscription business ARR reaching 3.15 billion yuan, a 24.2% year-on-year growth; and the scale of cloud subscription related contract liabilities increased by 28.2%.

DCF model assesses the long-term value of the company.

1) Numerator end: ① Business structure improvement: In recent years, the company has continued to reduce traditional project-based businesses, which has to some extent affected the overall performance. Currently, with the continuous shrinkage of project-based business scale, the subsequent disruption to the overall performance will be further weakened, and overall performance growth will continue to align with cloud business; ② Customer structure improvement: The steady progress of Cangqiong & Xinghan has led to a continuous increase in the proportion of revenue from large customers. With the approach of the 2027 Innovation Creation Node, the replacement process of state-owned enterprise ERP may accelerate comprehensively; in addition, the company continues to expand into new verticals such as medical, auto parts, etc., and short-term profitability is expected to further improve.

2) Denominator end: Large enterprises have overall advantages over small and medium-sized enterprises in terms of payment ability (In 2023, Xinghan & Cangqiong / Xingkong / Xingchen & Jingdouyun ARPU were 0.6728 / 0.0501 / 0.003 million yuan respectively) and renewal willingness (In the first half of 2024, Xinghan & Cangqiong / Xingkong / Xingchen / Jingdouyun NDR were 97% / 95% / 92% / 87% respectively), and under the trend of increasing proportions, they are expected to drive the gradual shift of the company's business focus from outward expansion to internal growth. Based on cost optimization, it can further strengthen high-performance certainty and improve business risk exposure.

The company's semi-annual repurchase amount reached 0.53 billion Hong Kong dollars, emphasizing shareholder returns and employee incentives.

During the first half of 2024, the company repurchased a total of 0.53 billion Hong Kong dollars worth of stocks (including cancellation and employee incentives), of which the company purchased 0.014 billion shares on the stock exchange under the share incentive plan, with a total value of 0.133 billion Hong Kong dollars.