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Kingdee:Cloud profitability still remote

发布时间:2016-05-13    研究机构:麦格理证券

Event.

We met with Kingdee at our Greater China Conference last week, andinvestors cared most about competition in the mobile office cloud space andthe outlook and profitability of Kingdee’s cloud business. The following are keytakeaways.

Impact.

Market leadership in ERP. Kingdee continues to be one of the marketleaders, with more than 1mn ERP and 3mn cloud customers in China. Theprofitable ERP business funds the fast-growing but loss-making cloudbusiness. The company target is for single-digit-percent growth for non-cloudERP revenue this year. Kingdee continues to enrich its products with tie-upswith JD, Kingsoft and more.

Cloud profitability still remote. ERP cloud currently accounts for about 60%of cloud revenue, and Youshang, Kuaidi100 and CloudHub the remaining40%. For ERP cloud, 20% is on the public cloud and 80% on a private cloud.

Manufacturing is the biggest industry in the cloud, with a 30%+ revenuecontribution, followed by property at 10%+ and retail at about 10%. Theprofitability of the ERP cloud and Youshang, which is at a more mature stageof the product cycle, should improve as their client base grows bigger ? butthis is more a multi-year story, and it will take time to achieve scale. CloudHubcurrently charges only for private cloud settings, while the public cloudremains free. A customer base of more than 1mn registered enterprises onCloudHub has set the foundation for further conversion into paying customers.

To monetize the public cloud platform, Kingdee is also looking to open it up tothird-party app developers.

Competition in mobile office cloud intensifies. New entrants in the space,including Alibaba’s Ding Ding and Tencent’s Enterprise Weixin, are strong insocial networking features as well as promotion, with much bigger advertisingbudgets. Kingdee reiterated the leadership of CloudHub among large-scaleenterprise customers. On the other hand, the company also welcomedcompetition in the space, which hopefully can raise awareness of mobileoffice cloud among enterprises and educate the market.

Earnings and target price revision.

No change.

Price catalyst.

12-month price target: HK$3.40 based on a Sum of Parts methodology.

Catalyst: cloud take-off, deal flow, returning excess cash to shareholders.

Action and recommendation.

We prefer Yonyou (600588 CH, Rmb17.49, Outperform, TP: Rmb29.00) toKingdee for Yonyou’s No. 1 market leadership in China’s ERP market as wellas its growth drivers, from cloud and Internet finance. Please refer to our 29April 16 Yonyou initiation report as well as our 29 April 16 China softwarereport for our views.

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