"Big Banks" UBS: Investors are unwilling to "foot the bill" for the long-term growth narrative of software stocks, lowering the target price for KINGDEE to 10.7 yuan

UBS report indicates that Kingdee International (00268.HK) achieved performance in line with expectations last year, not only reaching the double-digit revenue growth guidance but also turning profitable. Although the bank believes Kingdee can meet this year's performance guidance, which includes a 20% growth in subscription revenue, margin expansion, and over 20% growth in operating cash flow, the current valuation already reflects the improvement in financial conditions, and there remains uncertainty about whether profit margins can be further expanded or revenue growth accelerated after next year.

The bank states that the narrative around the artificial intelligence market is not optimistic for the software industry as a whole. With the accelerated iteration of large language models, discussions about terminal value are unlikely to yield clear conclusions in the short term. Investors are increasingly unwilling to "pay" for long-term growth narratives, and the focus has shifted to whether artificial intelligence can translate into concrete evidence of accelerated short-term revenue and cash flow generation. The bank has raised its revenue and gross profit forecasts for the company from this year to 2028 by 0% to 4%, but has lowered its free cash flow forecast, reflecting the development of artificial intelligence products.

The bank has changed its valuation method for Kingdee to discounted cash flow (DCF) to more accurately reflect the trends in medium to long-term free cash flow. The target price has been lowered from HKD 12.2 to HKD 10.7, with a rating of "Neutral."