The company's revenue is expected to grow 16.2%-17.2% in 2023, and ARR is about 32.8% year-on-year. The company expects to achieve revenue of approximately RMB 56.5-5.70 billion in 2023, an increase of 16.2%-17.2% over the previous year, and the overall growth rate will remain stable throughout the year. Net cash flow from operating activities was approximately RMB 63-670 million (year-on-year increase of approximately 68.3%-78.9%), corresponding to 2023H2 cash flow of 80,000-840 million yuan (year-on-year increase of 44.3%-51.5%). Equity holders should account for the current loss of approximately RMB 17—250 million (year-on-year reduction of about RMB 14—220 million), and the loss rate narrowed year-on-year. 2023H2 turned a loss into a profit, corresponding profit of 0.3 to 110 million yuan. It is estimated that Kingdee Cloud subscription service will achieve annual recurring revenue (ARR) of approximately RMB 2.85 billion in 2023, an increase of about 32.8% over the previous year.
The ARR growth rate was slightly lower than expected, mainly due to customers being relatively cautious about corporate expenses under macroeconomic pressure, and some customers experienced delays in opening or overdue renewals. The company's overall revenue growth rate remains stable. The ARR is expected to be 2.85 billion yuan in 2023. ARR is slightly lower than the previous target of 3 billion yuan, but the absolute growth rate is still 33%. The main reasons for ARR falling short of expectations are: 1) Macroeconomic factors. Companies have limited budgets and are relatively cautious about spending at the end of the year, and are planning to postpone starting subscriptions until after the year. ARR is not reflected in this quarter based on the service launch time. 2) Some customers have overdue renewals and are unable to complete the order confirmation process. 3) Medium and large enterprises are under pressure to sprint and order delivery at the end of the year. Although ARR is slightly lower than the previous guidance target of 3 billion yuan, the industry-wide perspective is still excellent, and the company's growth logic is still stable.
The quality of operations continues to improve, and the quality of profit and cash flow continues to improve. 2023H2 is expected to turn a loss into a profit, corresponding profit of 0.3 to 110 million yuan, and 2023H2 operating cash flow of 80—84 million yuan. Overall, although growth on the subscription side has slowed due to macroeconomic and other factors, business quality has improved, profit and cash flow trends have improved, and the long-term cloud and SaaS penetration growth logic remains stable.
Risk warning: Risk of macroeconomics falling short of expectations, declining investment in enterprise information technology, and deterioration of the competitive landscape.
Investment advice: The company expects cloud subscriptions to ARR 2.85 billion in 2023. Affected by changes in the macro environment and the progress of orders from large companies, Kingdee Cloud's revenue growth rate has slowed this year. However, the profit side trend is improving, the quality of operations continues to improve, and the operating loss rate of cloud services has narrowed markedly. Based on the above reasons, we slightly lowered our revenue forecast. The estimated revenue for 2023-2025 is $56.78/66.62/7.853 billion yuan (previous value was 5.9.4/72.3/8.76 billion yuan), with a year-on-year growth rate of 16.7%/17.3%/17.9%. The profit forecast was slightly raised. Net profit due to mother for 2023-2025 is expected to be -2.1/-1.0/0.78 billion (previous value was -2.18/-1.23/66 million), and PS = 5.9/5.0/4.3x corresponding to the current stock price. Maintain an “Overweight” rating.