HSBC Research lowers KINGDEE INT'L target price to 17.7 yuan, maintains "Buy" rating

HSBC Research published a report stating that Kingdee (00268.HK) stock price has risen 24% year-to-date, as investors worry that artificial intelligence may replace software. The bank believes that enterprise resource planning involves complex workflows and deep industry knowledge, with enterprise clients having high expectations for system stability and low tolerance for errors. The bank believes that artificial intelligence can be integrated as a tool into enterprise resource planning systems rather than replacing them. Meanwhile, although subscription revenue accounted for 53% of total revenue in the first half of 2025, unlike the U.S. software sector, due to more intense competition in the Chinese market, Kingdee charges based on the number of modules used by enterprises rather than by seats. Conversely, strong artificial intelligence orders can drive revenue growth.

Kingdee's artificial intelligence orders reached RMB 150 million in the first half of 2025, and the bank expects artificial intelligence orders to exceed RMB 300 million in 2025. Looking ahead, the bank believes that the market has not fully reflected the potential of artificial intelligence and the profit recovery brought about by ongoing cloud transformation. The bank expects the company's net profit margins for 2025, 2026, and 2027 to be 1%, 4%, and 8%, respectively.

The bank's revenue forecasts for Kingdee from 2025 to 2027 remain largely unchanged. Due to the recent shortage of central processing units and the explosive growth in demand for artificial intelligence computing leading to price increases in public cloud services, the gross profit margin forecasts for the period have been adjusted down by about 1 percentage point. Additionally, due to the efficiency improvements brought by the application of artificial intelligence coding tools and one-time expenses related to layoffs, the bank has raised the company's expense forecasts for 2026 to 2027. In summary, the bank has lowered its net profit forecasts for 2025 to 2027 by 14% to 25%. The bank's revenue forecast for the company in 2026 is RMB 7.8 billion, maintaining its "Buy" rating, with the target price adjusted from HKD 18.2 to HKD 17.7