Inspur International reported 1H19 revenue of HK$1.5bn （+16% YoY）， beating expectations, and netprofit of HK$113m （-16% YoY）。 We note the firm’s 1H19 results were impacted by the 6.5%devaluation of the renminbi. Cloud revenue grew 104% YoY （+116% YoY if we remove the forexeffect）， while revenue from the traditional ERP business rose 16% YoY （+23% YoY）。 We maintain ourfull-year ERP revenue YoY growth forecast at 10% due to macroeconomic uncertainty in 2H19, andraise our cloud revenue YoY growth forecast from 90% to 100%. We maintain our EPS forecasts ofHK$0.23 in 19E （-20.7% YoY） and HK$0.24 in 20E （+4.3% YoY）， and lower our 21E forecast fromHK$0.28 to HK$0.26 （+8.3% YoY）。 We raise our target price from HK$5.00 to HK$5.10, based on 8x19E PE for ERP and 8x 19E PS for cloud. With 35% upside, we maintain our BUY rating.
Surging cloud revenue Cloud revenue increased 104% YoY to HK$161m in 1H19. If we remove theexchange rate effect, cloud revenue growth reaches 116% YoY. We raise our cloud revenue YoYgrowth forecast from 90% to 100% in 19E, and forecast 80% YoY growth to HK$696m in 20E. GSCloud is the main cloud revenue contributor. We note GS Cloud is not an upgrade from GS offlineproducts, while modules developed are not mature yet. Some of the cloud modules have comeonline with better application and positive feedback, like HCM Cloud 3.0, OA Cloud, and iGo Cloud,while many other modules are still at the research and development （R&D） stage and expected tobe released in 2H19.
Stronger-than-peers ERP revenue growth. Revenue generated by the firm’s traditional ERP businessgrew 16% YoY （+23% YoY if we remove the exchange rate effect）， significantly outperforming theindustry average growth. We attribute this to the company’s knowhow in specific areas such asfinancial sharing, intelligent manufacturing, enterprise big data, and network operation supportsystem （OSS）。 The firm’s internet of things （IoT） business consists of hardware sales for integratedsolutions in the communication and agriculture industries. We note software applications benefitedfrom the company’s 37% YoY hardware sales growth. The newly launched Enterprise Brain 3.0 is arules-driven ERP system that helps companies achieve automation and intelligent upgrades. Wemaintain our full-year ERP revenue YoY growth forecast at 10% due to macroeconomic uncertaintyin 2H19.
Maintain BUY. We maintain our EPS forecasts of HK$0.23 in 19E （-20.7% YoY） and HK$0.24 in 20E（+4.3% YoY）， and lower our 21E forecast from HK$0.28 to HK$0.26 （+8.3% YoY）。 We raise our targetprice from HK$5.00 to HK$5.10, based on 8x 19E PE for ERP and 8x 19E PS for cloud. With 35% upside,we maintain our BUY rating.