＜Research＞M Stanley Drops KINGDEE INT'L (00268.HK) TP to $10; Weak SME Demand Brings Downside Risk to Guidance

　　Morgan Stanley expected in a research report that KINGDEE INT'L (00268.HK) -0.280 (-4.154%) Short selling $11.22M; Ratio 3.410% will log 12% YoY growth in 1H24, lower than its earlier guidance of 15% to 20% YoY growth. Meanwhile, the company's cloud subscription service annual recurring revenue (ARR) growth rate is expected to rise by only 25%, lower than the guidance of 30%, mainly due to the weak demand from small and medium-sized enterprises (SMEs), which lacked resilience in IT budgets, in turn dragging down new bookings performance. The company's guidance thus saw downside risk. As for large enterprises, the demand for cloud computing should be solid and the company's market share growth should be sustainable.

　　The broker expected KINGDEE's operating expenses to grow moderately by 5.5%, with a normalised net loss of RMB226 million for 1H24, narrowing by 20% YoY.

　　Morgan also lowered its revenue forecasts on KINGDEE for FY24/FY25/FY26 by 2%, 3.5% and 5% respectively, reflecting the weak macro-economy in 1H24 and the 26% ARR compound annual growth rate assumption. The broker also cut its assumptions on the company's operating expenses, but at a lower rate than the downward revision to its revenue forecast.

　　The broker now expected KINGDEE to record a net loss of RMB97 million in FY24, and expected break-even to be delayed to FY25. Considering the stable bookings for cloud services for large enterprises, the company's operating cash flow target of RMB900 million for the whole year is still expected to be achieved.

　　Considering the above factors, Morgan Stanley chopped KINGDEE's target price from HK$14.6 to HK$10, while maintaining its Overweight rating, and expected its underlying business to outperform the industry.

　　(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-07-15 16:25.)