Maintain the target price of 13.31 yuan and maintain the “Overweight” rating. Based on our predictions of the company's cloud services and traditional ERP business prospects, the 2024 and 2025 profit forecasts were raised, and the 2026 profit forecast was added. The estimated net profit for 2024-2026 is -0.31, 1.68 million yuan, and 386 million yuan, respectively. The target price of 13.31 yuan was maintained, and an “increase in weight” rating was given.
Subscription priority: Again showing results, the 2023 results are in line with expectations. In 2023, the company achieved a 17% increase in revenue of 5.78 billion yuan, a 46% loss reduction in net profit due to mother of 210 million yuan, and a 74% increase in net operating cash flow of 650 million yuan. Cloud service revenue of 4.5 billion yuan increased 21%, accounting for 79.3%, an increase of 3 pcts over the previous year, and the subscription priority strategy showed further results. Cloud subscription service ARR increased 33% to 2.86 billion yuan, related contract liabilities increased by 29.6%, Cangqiu+Xinghan/ Starry Sky/ Xiaowei Finance Cloud's revenue increased by 40.9%/16.2%/25.4% to 9.81/19.52/1,080 billion yuan, respectively, and the renewal rates of Sky+Xinghan/Starsky/ Star Sky remained high at 105.3%/97.2%/90.8%, respectively. The quality of operations improved significantly, gross margin increased by 2.56 pct, and marketing/management/R&D expenses decreased by 0.8/1.7/1.3 pct, respectively.
AI priority: large models accelerate ERP domestic replacement, Cosmic optimizes user experience. In 2023, the company released the Kingdee Cloud and Sky GPT model, pioneering the launch of the first major financial model in China. The product completely surpassed international manufacturers in project performance. Projects such as Weichai Leiwo, China Construction Bank, and Xiamen Xiangyu were successful, and new cooperation was reached with more than 50 top 500 enterprises and central state-owned enterprises.
Cosmic, a super intelligent AI management assistant for enterprise users, was released at the Kingdee Cloud Sky Summit (KCCS) on May 15, 2024. Based on the practice scenario accumulation and trillion-level training data of Kingdee's more than 7.4 million enterprises, it covers various business scenarios such as finance, manpower, supply chain, etc., and empowers all kinds of SaaS products for large, medium, and small markets. The combination of AI and traditional ERP software will make ERP software more interactive and user-friendly.
Revenue is growing steadily, employee expansion is slowing, compounded by an increase in gross margin, and an inflection point in profit is approaching. The company's cloud transformation has been effective, and the number of new customers has expanded rapidly. For example, Cangqiong+Xinghan signed 1,458 contracts in 2023, including 647 new signings, and gross margin is expected to continue to increase. The total number of employees grew by only 2.6% in 2023, the lowest level in recent years. The pace of the company's loss reversal is expected to accelerate, leading to an inflection point in profits.
Risk warning: Product development upgrades are not timely, and competition in the ERP and cloud service markets is intensifying