China Securities Co., Ltd. released a research report stating that considering the company's return to profit and maintaining high-speed growth of operating cash flow, the ""buy"" rating is maintained. $KINGDEE INT'L (00268.HK)$ As a leading domestic industry cloud transformation leader, Kingdee International has accumulated strength and achieved a cloud revenue proportion of over 80%, and profit release is imminent. On the one hand, in the ERP industry, it benefits from the demand release driven by the triple drive of 'digitalization + localization + AI'; on the other hand, after years of investment and polishing, the product line for small and medium-sized enterprises has gradually entered a stable profit release period, and the large enterprise market continues to break through, gradually highlighting its own advantages.

Main viewpoints of Zhongxin Jiandao are as follows:

Currently, the cloud ratio exceeds 80%, and the total contract liabilities rank first in China's software industry.

The company has been deeply involved in the ERP field for decades, and has gradually completed the cloud SaaS transformation. In 24H1, the cloud revenue ratio reached 83.2%. On the product side, the revenue of Cangqiong & Xinghan in 2023 was 0.981 billion yuan, and the amount of signed contracts was 1.4 billion yuan; Xingkong has been the number one in IDC China's growing enterprise application software market share for 19 consecutive years, with revenue of 1.952 billion yuan in 2023. The core cloud product revenue and orders of the company continue to grow, reaching 3.367 billion yuan in contract liabilities as of 24H1, ranking first in China's software industry.

Industry driving forces (Beta): digitalization + domestication + AI, three driving forces to unleash demand.

1) Digitalization: By 2022, China's data economy has reached a scale of 50.2 trillion yuan, and ERP systems, as the core tools for enterprise digital management, directly benefit.

2) Localization: Considering the current high-end market of domestic ERP in China, the proportion of overseas vendors such as SAP is still relatively high. From the perspective of supply chain security, there is still a large space for domestic software ERP to replace in the large enterprise market.

3) AI: On one hand, AI has good integration points with ERP products in terms of data analysis and process execution, which can enhance user experience and efficiency. On the other hand, the cloud deployment requirements of AI large models also promote the improvement of enterprise acceptance of public cloud, which is beneficial to cloud ERP vendors.

Inherent advantage (Alpha): Cloud capabilities have been accumulated and breakthroughs are continuously made in the large enterprise market.

1) The small and medium enterprise market is the foundation, and profitability can be improved after achieving a stable state of cloudification. In the first half of 2024, Xingkong achieved a net amount renewal rate (NDR) of 95%, and an operating profit margin of 20%. Jindouyun achieved a net amount renewal rate (NDR) of 87% and an operating profit margin of 40% in the first half of 2024, both higher than the software era.

2) In the large enterprise market, the company achieved breakthroughs through products such as Cangqiong and Xinghan. In the first half of 2024, it achieved 275 new signed customers, a new contract amount of 0.9 billion RMB, and a subscription ARR growth rate of +29%. Through breakthroughs in the large enterprise market, the overall revenue ceiling is increased.