Kingdee reported 1H25 results: revenue was RMB3.19bn, up 11.2% YoY (1H24: 11.9%; 2H24: 8.8%), inline with our forecast and Bloomberg consensus; net loss attributable to ordinary shareholders was RMB97.7mn (1H24: loss of RMB217.9mn), shy of Bloomberg consensus loss of RMB73mn due to slightly higher-than-expected operating expenses. Management shared key progresses and development targets regarding its three key strategic focuses: 1) subscription: cloud subscription revenue grew 22.1% YoY in 1H25 and accounted for 52.8% of total revenue; 2) AI: AI contract value exceeded RMB150mn in 1H25, and management guided for AI-related revenue to contribute >30% of total revenue in 2030; 3) globalization: management expects international business revenue to contribute 5-10% of total revenue in 3-5 years.
　　We remain positive that Kingdee is one of the key beneficiaries in the AI application era in our coverage universe, and believe progress on AI monetization and recovery in revenue growth, along with recovery in macro and increased digitalization demand could serve as key drivers for its stock price.
　　Our 2025-2027E revenue forecast remains unchanged, and our TP is fine tuned to HK$19.2 (was HK$19.3), based on 8.4x 2025E EV/sales (was 8.5x), inline with the two-year mean plus two s.d. Maintain BUY.
　　Cloud subscription revenue delivered solid growth. In 1H25, Kingdee’s
　　cloud services revenue grew 11.9% YoY to RMB2.67bn (83.7% of total revenue; +0.5ppt YoY), recovering from 10.2% YoY growth in 2H24, among which cloud subscription revenue reached RMB1.68bn, up 22.1% YoY and accounted for 52.8% of total revenue. Cloud subscription annual recurring revenue (ARR) reached RMB3.7bn, up 18.5% YoY (2024: 20.0%), and contract liabilities of the cloud subscription business amounted to RMB3.38bn, up 24.7% YoY (1H24: 28.2%). By segment, cloud subscription revenue for Cloud Cosmic & Constellation (C&C)/ Galaxy/Stella & Jingdou grew 41.1/19.0/23.8% YoY in 1H25, and net dollar retention rate for C&C/Galaxy reached 108%/94% in 1H25 (2024: 108%/95%).
　　AI-related monetization has more visibility. Kingdee highlighted that AI
　　contract value exceeded RMB150mn in 1H25, and key clients such as Hisense Group, Tongwei, China Jinmao and CRRC Tangshan have signed up AI-related contracts with Kingdee. It has launched the Cosmic AI Agent Platform 2.0 along with a series of native AI agents. Kingdee also focuses on tax and financial management scenarios for SMEs, and its AI Assistant has an active user base of 170,000 enterprises as of 1H25. Kingdee Cloud Stellar has launched AI-powered tax and financial applications, helping thousands of SMEs improve overall bookkeeping efficiency by 80%, invoicing efficiency by 40%, and tax filing efficiency by 60% in 1H25, according to the company. Management targets >30% total revenue to be generated from AI-related products in 2030.
　　Maintained guidance for breakeven and >RMB1bn OCF generation for
　　2025. In 1H25, net loss attributable to Kingdee was RMB97.7mn, narrowed from RMB217.9mn in 1H24, and loss margin was narrowed to 3.1% (1H24: 7.6%). Management maintained its target of achieving net profit breakeven and over RMB1.0bn OCF in 2025E. Also, it guided for over RMB3.0bn OCF for 2030E. Management reiterated its strategic focus of “AI First, Subscription First, and Globalization”, and targeted 5-10% of revenue generation from international business over 3-5 years.