China / Hong Kong Industry Focus

China Software Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity

22 February 2016

Investing for future growth

HSI: 19,286

Expect traditional ERP business to resume revenue growth

in 2H15F as the restructuring of distribution channels has
concluded; expect a high single-digit growth rate in 2016

Expect cloud business to grow at a CAGR of 80%+ in the

next few years, accounting for c.30% of Kingdees and
c.15% of Yonyous total revenue by FY17F

Chris KO
chris_ko@hk.dbsvickers.com

Step up investments for FY15-16F to build the enterprise

user base and scale for the cloud business

Recommendation & valuation

Maintain BUY on Kingdee for the long-term potential ;

and maintain FULLY VALUED on Yonyou due to its rich
valuation

Expect a high single-digit growth rate for ERP business in 2016.

The revenues from ERP businesses of Kingdee (268.HK, BUY)
and Yonyou (600588.CH, FULLY VALUED) declined by 3-4% in
1H15. We expect them to resume growth in 2H15F as the
restructuring of distribution channels from direct to indirect
sales has concluded. The restructuring should lead to a lower
revenue but improve the margins and overall profitability. In
FY16F, we expect high single-digit revenue growth rates for
the ERP businesses of Kingdee and Yonyou, due to more
adoption of ERP by enterprises driven by the rapid
development of e-commerce.
More aggressive investments needed to capture the cloud
business opportunity. We expect the cloud businesses of
Kingdee and Yonyou to grow at a CAGR of 80%+ in the next
few years amid more new product launches and more
marketing and sales initiatives to promote cloud applications.
The cloud business will be the new growth engine, which is
expected to account for c.30% of Kingdees and c.15% of
Yonyous total revenue by FY17F. However, we believe
intensive investments will be needed to build a large user base
to capture the growth opportunity in the next few years.
Accordingly, we have revised down our earnings estimates to
reflect the higher investment costs in FY15-16F and we expect
the cloud business to break even in FY17-18F.
Focusing on the long-term potential; maintain BUY on Kingdee.
We are optimistic on the ERP business in the medium term and
we believe the potential for cloud business is huge. The higher
operating losses for growing the cloud business in the near
term are justified by the future growth potential. We have
revised up Kingdees TP to HK$4.2 from HK$3.8 by rolling
forward to 30x FY17F PE (previously 30x FY16F PE), pegged to
its A-share major peer Yonyous historical average. Maintain
BUY on Kingdee. We maintain a FULLY VALUED rating on
Yonyou as it now trades at a rich valuation of 40x+ FY17F PE.
Our TP of Rmb14.0 for Yonyou is based on 30x FY17F PE, in
line with its historical average.

ed-TH / sa- DL

ANALYST
Tsz Wang TAM CFA +852 2971 1772
tw_tam@hk.dbsvickers.com

Co mp an y

Kingdee Int'l
(268 HK)
Yony ou
Netw ork
Tech.'A '
(600588 CH)

17F
PE ( x )

Mkt
c ap
U S$ m

Buy

19.5

1,034

F ully
V alued

43.9

4,579

Pric e T arg et U p s id e R ec o m
Pric e
%
HK$

2.75

4.2

RM B 20.39

14.0

Source: Thomson Reuters, DBS Vickers

53

(31)

Industry Focus
China Software Sector

improve the supply chain and inventory management of the ecommerce players with real-time consolidation of sales and
inventory data.

-4.1%
-3.0%
2.1%

1 H1 5 R ev en u e seg men t
y - o - y G ro w t h

K in g d ee

Y ony ou

Ch an jet

Large enterprise segment

Medium enterprise segment
Small enterprise segment

4.4%
-8.7%
10.4%

-7.5%
3.6%
2.8%

na
na
2.1%

Note: *the revenue includes software license and service

**Chanjet is a subsidiary of Yonyou
Source: Companies and DBS Vickers

E-commerce has become increasingly important to enterprises

as there are more online buyers (and sellers) with significant
transaction volume. According to iResearch, 300m people in
China purchase online, representing a penetration rate of
48.9%. The market for e-commerce is estimated to be
Rmb10tn and is expected to grow at 20% p.a. from FY14-17F.
Various marketing strategies and business models (such as
O2O) have arisen for e-commerce. Enterprises need to rely
more on enterprise software and cloud technology to integrate
and manage their sales channel, inventory, supply chain and
customer details in order to effectively deliver a good customer
experience and drive business growth.
The e-commerce business model will increase overall ERP
penetration, in our view. In order to streamline the business
process, some large e-commerce players have started pushing
their suppliers or retailers to adopt ERP software which in turn
can be integrated into their ERP systems. This will substantially

Page 2

FY18F

% chg

676
1,425
189

FY17F

1 H1 5

705
1,469
186

FY16F

1 H1 4

Kingdee (268.HK)
Yony ou (600588.CH)
Chanjet** (1588.HK)

%
20%
19%
18%
17%
16%
15%
14%
13%
12%
11%
10%

FY15F

T o t al R ev en u e* ( R mb m)

Rmb bn
45
40
35
30
25
20
15
10
5
0

FY14F

ERP revenue y-o-y growth %

China enterprise software market growth

FY13

ERP revenues of Kingdee and Yonyou declined in 1H15 but we

expect them to resume growth in 2H15F as the restructuring of
distribution channel has concluded. The restructuring from
direct to indirect sales led to revenue decline but improvement
in operating margin. It should improve overall profitability.
Going forward, we are positive on the ERP business and expect
a high single-digit growth rate p.a. The rapid development of
e-commerce encourages the adoption of ERP by enterprises.

FY12

Stable growth driven by e-commerce

FY11

Traditional ERP

Enterprise software revenue (LHS)

Growth rate (RHS)

Source: iReseach

Cloud, P2P lending and third-party payments

Chinese ERP players have been extending their business to the
cloud, peer-to-peer (P2P) lending and third-party payment
areas (collectively the new businesses) by leveraging on their
huge existing enterprise customer bases and product offerings.
They have recorded rapid growth in the operating figures of
the new businesses but the revenues are still insignificant,
resulting in initial operating losses. However, we believe the
market potential of the new businesses is huge and the
companies will benefit in the longer term.

Industry Focus
China Software Sector

New businesses of Kingdee and Yonyou

B u s in es s
Cloud

P2P lending

Third party
pay ments

K in g d ee
500k enterprise
customers as at
J un 2015

Y ony ou
420k enterprise
customers as at Sep
2015

M ainly on trade
finance and
factoring business

- y y fax.com
- Transaction v olume
reached c.Rmb1.7bn
for 9M 15
- 119k customers

The company is
considering to
obtain the license
through
acquisition

- Chanjet pay ment

- Transaction v olume
reached c.Rmb13bn
for 9M 15
- 13,716 customers

Source: Companies and DBS Vickers

For Kingdee, the cloud revenue grew by 82% y-o-y from

Rmb45m in 1H14 to Rmb82m in 1H15. The customer bases of
their cloud products are growing with strong momentums.
Cases in point are (1) the number of registered enterprises and
organisations for Cloud Hub increasing by 400% y-o-y to more
than 500k and (2) the number of paying enterprises for K/3
Cloud increasing by 250% y-o-y to more than 1,000. We
expect the cloud revenue to grow at a CAGR of 80% from
FY15-17F to account for c.30% of the total revenue by FY17F.
For Yonyou, the revenue from the new businesses in 9M15
reached c.Rmb82m while most of the products have been just
launched for less than a year. The operating performance for
Yonyous new businesses was also very strong with soaring
number of users and transaction volume. The number of
enterprise customers for the enterprise internet business has
increased by 180% to 420k as compared to the end of FY14.
The P2P lending business which was started in late 2014 has
recorded c.Rmb1.7bn in transaction volume. The transaction

volume of Yonyous third-party payment business has also

increased by 286% y-o-y to Rmb13bn as compared to the end
of FY14. We expect the revenues from new businesses to grow
at a CAGR of 100%+ from Rmb160m in FY15F to Rmb850m
in FY17F and account for c.15% of the total revenue.
Investing for the future
We expect the investments by Chinese ERP players into cloud,
P2P lending and third-party payment businesses to further
increase. The investments include R&D expenses for product
development and marketing & sales expenses to acquire
enterprise customers and users. The initial revenue generated is
insufficient to cover the investment costs, resulting in initial
operating losses. In FY15F, we forecast the operating losses
from the new businesses for Kingdee to be Rmb100-150m and
that for Yonyou to be Rmb450-500m. In 2016, we believe the
investments as well as operating loss for Kingdee's cloud
business will increase by more than 50%, which is negative to
the near-term earnings. For Yonyou's cloud business, we
believe its operating loss will narrow in FY16F as the revenue
growth outpaces investment growth.
Operating losses from new businesses for Kingdee and
Yonyou
B u s in ess

K in g d ee

Y ony ou

F Y15F Rev enue for the new

businesses
F Y15F Operating loss from the
new businesses

Rmb191m

Rmb160m

Rmb100m150m

Rmb450m500m

Source: Companies and DBS Vickers

Page 3

Industry Focus
China Software Sector

Kingdee - Cloud business operating summaries (1H15)

Product
Cat egory

Product
name

Rank ing

No. users

No. of ent erprise

cust omers

Rev enue grow t h

(y - o- y )

Mobile Office
Cloud

Cloud Hub

No.1 Mobile Office Cloud

in China

4.5m enterprise users

(+125% y-o-y)

500k registered enterprises &

organisations (+400% y-o-y)

+96%

Finance Cloud

Youshang.com No.1 Accounting Cloud in

China

N/A

SaaS revenue +75%

ERP Cloud

K/3

No. 1 Online ERP Cloud in

China

55k paying users (+30% yo-y)

3m Wise Note customers
63k paying users
(+186% y-o-y)

1,000 paying enterprises

(+250% y-o-y)

+100%

Industry Cloud

Kuaidi100

No. 1 Express Data Cloud

in China

5.8bn parcel searches in

1H15 (+80% y-o-y)

N/A

Industry Cloud revenue

+76% y-o-y

Industy Cloud

Kingdee
Healthcare

No. 1 in Healthcare
financial management

650k registered users

(+1,900% y-o-y)

150 registered hospitals

N/A

Source: Company and DBS Vickers

Yonyou - New businesses operating summaries (1H15)

Product Cat egory

Product name

No. users

No. of ent erprise cust omers

Rev enue grow t h (y - o- y )

Office cloud

N/A

Cloud Platform

iUAP

8,000 users

P2P Lending

yyfax.com

119k users

420k customers
(+180% vs FY14)
16k registered customers
more than a hundred paying
customers
77 third party application
developers
N/A

c.Rmb32m

CRM cloud

Enterprise internet
service
Yonyou Chaoke

N/A

13,716 merchants

Third-party payments Chanjet Payment

Source: Company and DBS Vickers

Page 4

N/A

included in Enterprise internet service

N/A
- Revenue: Rmb43m
- Transaction volume: c.Rmb1.7bn
(+1,338% vs FY14)
- Revenue: c.Rmb7m
- Transaction volume: Rmb13bn
(+286% y-o-y)

Industry Focus
China Software Sector

Cloud business

Revenue of China's SaaS platform market

Rmb bn
12

%
140%

10

120%
100%

80%

60%

40%

FY14F

FY18F

0%
FY17F

FY16F

20%
FY15F

2
FY13

Cloud business is the major revenue contributor among the

new businesses. Kingdee and Yonyou provide enterprises with
management software and applications through cloud
technology including software-as-a-service (SaaS) and SaaS
platform. SaaS is a software provision model which provides
software to customers via internet and is usually charged on a
subscription basis. SaaS platform is based on SaaS model and
provides various management software for the enterprises.
According to iResearch, the revenue of SaaS Enterprise
Software market is expected to grow from Rmb4.4bn in 2014
to Rmb20.6bn in 2018, representing a CAGR of c.50%. For
SaaS platform, the revenue is expected to grow from
Rmb1.3bn in 2014 to Rmb10.4bn in 2018, representing a
CAGR of c.70%.

SaaS platform revenue (LHS)

Growth rate (RHS)

30%
10

20%

5
FY18F

FY17F

FY16F

FY15F

FY13

FY12

FY14F

10%

SaaS enterprise software revenue (LHS)

Growth rate (RHS)

0%

'000 k
600

%
140%

500

120%
100%

400

80%

300

60%

200

40%

100
0

20%
0%

Source: iResearch

FY18F

40%

15

FY17F

50%

FY16F

20

Number of paying enterprise customers of SaaS

platforms in China

FY15F

60%

FY14F

Rmb bn
25

Source: iResearch

FY13

Revenue of China's SaaS enterprise software market

No of paying customers of SaaS platform (LHS)

Growth rate (RHS)

Source: iResearch

Page 5

Industry Focus
China Software Sector

P2P lending
P2P lending refers to the lending of money by one party to
another unrelated party through the platform on the internet
without the involvement of traditional financial institutions
such as banks. The platform acts as an intermediary to bridge
the lenders/investors and the borrowers and charges the
borrowers finance costs. According to iiMedia Research, P2P
lending in China experienced a high-growth stage with 230%
CAGR from 2012 to 2014, amounting to a total of transaction
volume of Rmb260bn. The expected growth rate in 2015 is
97.5%, to Rmb513bn. In 2016, we expect the industry growth
rate to be slower due to stricter regulations.
We believe Yonyous P2P lending platform, yyfax.com, should
benefit from the recently proposed rules on P2P lending
platforms ([
]) released by China Banking Regulatory Commission
(CBRC). As at Nov 2015, there were 3,769 P2P platforms and
one-third of them were found to be problematic or fraudulent,
according to CBRC. Management believes that yyfax.com is
operating according to the regulations and Yonyou has
sufficient resources to invest into the platform to build a larger
user base. Yonyou will grab market share from the noncomplying platforms. The regulations will allow a healthy
industry development and give consumers more confidence.
CBRC released the proposed rules to regulate the P2P lending
platforms and asked for comments from the public in Dec
2015. The rules design the P2P lending platforms as
information intermediaries between borrowers and lenders.
The platform should sufficiently disclose the basic information
of the borrowers and the projects that are applying for
financing. P2P lending platforms are required to publish their
operating figures on their websites from time to time. The
money from the lenders to the borrowers should not flow
through the information intermediaries. Instead, banks should
be appointed to be the custodians for the lenders.

Page 6

P2P lending market growth

RMB bn
600

350%

500

300%
250%

400

200%

300

150%

200

100%

100

50%

0%
FY13

FY14

FY15F

P2P Lending Transaction Vol. (LHS)

Growth rate (RHS)

Source: iiMedia

Third-party payments
Third-party payments refer to the payment platform offered by
third parties to the buyers and sellers in trading activities.
Commonly known examples of third-party payment platforms
are Alipay, Paypal, CNEPay and Lakala. The gross merchandise
value (GMV) of third-party online payments in China
experienced a high growth of c.50% CAGR between 2011 and
2014 to Rmb8.1tn, according to iResearch. For third-party
mobile payments in China, the GMV experienced a 300%+
CAGR from 2011-2014. Going forward, the markets for thirdparty online and mobile payments are forecasted to maintain
high growth rates of c.30% p.a. from 2014-2018, according to
iResearch.

Industry Focus
China Software Sector

China's third-party online payment gross merchandise

value
RMB tn
25

80%
70%

20

60%
50%

15

40%
10

30%
20%

10%
0%

0
FY12

FY13

FY14 FY15F FY16F FY17F FY18F

Gross merchandise value (LHS)
Growth rate (RHS)

Source: iResearch

China's third-party mobile payment gross merchandise

value
RMB tn
20
18
16
14
12
10
8
6
4
2
0
FY12 FY13 FY14 FY15F FY16F FY17F FY18F
Gross merchandise value (LHS)
Growth rate (RHS)

Source: iResearch

800%

Earnings revision and recommendation

We expect Kingdee and Yonyou to release their annual results
for FY15F in mid-March. We reckon that their recent
corrections of share prices have partly reflected the higher
operating losses from their cloud businesses.
Kingdee. We have revised down our earnings estimates by
14% to Rmb202m in FY15F and by 35% to Rmb200m in
FY16F due to higher investments into the cloud business. We
estimate the operating losses from cloud business to be
Rmb100-150m in FY15F and Rmb180-230m in FY16F. This
may bring short term pressure to the stock price, but we
believe that the cloud business has huge potential and the
investments now will benefit the company in the longer term.
We expect the cloud business to break even in FY17-18F. For
the ERP business, we forecast the revenue to grow at a low
single-digit rate in FY15F and a high single-digit rate in FY16F.
While we expect the ERP business to be driven by rapid
development of e-commerce, the slower growth in FY15F was
largely due to the restructuring of distribution channel from
direct to indirect sales. Thanks to operating leverage, we
expect the operating profit from the ERP business to grow at
mid-teens from FY15-16F. We maintain BUY on Kingdee with
a TP of HK$4.2 based on 30x FY17F PE (vs previous 30x FY16F
PE), pegged to its A-share major peer Yonyous historical
average.

700%
600%
500%
400%
300%
200%
100%
0%

Yonyou. We have revised down our earnings estimates by 33%

to Rmb331m in FY15F and by 23% to Rmb496m in FY16F
mainly due to higher operating losses from the new businesses.
We estimate the new businesses to incur operating losses of
Rmb450-500m in FY15F and Rmb350-400m in FY16F. We
believe the operating losses for cloud business will peak in
FY15F and break even in FY17-18F. For the ERP business, we
expect slower growth at a low single-digit rate in FY15F partly
due to the restructuring of distribution channel and economic
slowdown. Going forward, we forecast high single-digit rates
for ERP revenue growth, driven by the rapid development of ecommerce. We estimate the operating profits of ERP business
to grow at mid-teens due to the revenue growth and operating
leverage. We believe the new businesses have good long-term
potential. But the market is over-optimistic on the near-term
earnings contribution; and we think its high valuation is
unsustainable. We maintain a FULLY VALUE rating on the stock
with a TP of Rmb14.0 based on 30x FY17F PE, which is in-line
with its historical average.

Page 7

Industry Focus
China Software Sector

Peers valuation

Co d e

Pric e
L o c al$

268 HK
1588 HK
600588 CH
600718 CH
600536 CH
002063 CH
300170 CH
600271 CH
600570 CH
600446 CH
300380 CH
300085 CH
300378 CH
QA DB US

2.75
12.82
20.39
21.18
24.94
15.1
15.05
55.91
43.6
32.89
47.26
44.77
45.75
18.67

Co mp an y Name
Kingdee Intl.*
Chanjet Info.Tech.'H'
Yony ou Network Tech.'A '*
Neusoft 'A'
China Nat. Software 'A '
YGSOF T 'A '
Hand Enterprise 'A'
Aisino 'A' Susp - Susp.12/10/1
Hundsun Technologies 'A'
Shenzhen Kingdom Tech. 'A'
Shanghai Amarsoft Itech. 'A'
Shenzhen Infogem Techs. 'A'
Digiwin Software 'A '
QA D 'A '#
A v erag e

# FY16: FY17; FY17: FY18

Source: Thomson Reuters, *DBS Vickers

Page 8

Mkt
Cap F isc al
US$ m
Yr
1,034
358
4,579
4,035
1,891
1,381
1,912
7,915
4,130
4,211
996
3,609
1,408
350

Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
Dec
J an

PE
16F
x

PE
17F
x

PEG
17F
x

P/ S
16F
x

P/ S
17F
x

33.5
19.5
18.6
19.0
58.2
43.9
57.6
41.4
n.a.
n.a.
22.6
23.7
40.1
29.1
22.6
16.4
49.1
34.8
81.2
61.5
121.2
96.4
255.8 127.9
77.9
50.3
23.8
21.5

0.3
(8.7)
1.4
1.1
n.a.
(5.1)
0.8
0.4
0.8
1.9
3.8
1.3
0.9
2.0

3.52
5.17
5.76
2.94
n.a.
6.68
7.31
1.84
11.28
8.89
19.99
31.72
6.47
1.22

2.91
4.01
5.05
2.62
n.a.
6.29
5.69
1.60
8.78
7.39
16.00
22.76
5.02
1.18

66.3

0.1

8.7

6.9

45.0

EV / S
16F
x

EV / S
17F
x

3.86 3.19
n.a.
n.a.
8.26 7.24
n.a.
n.a.
n.a.
n.a.
9.45 8.91
9.11 7.10
1.40 1.22
16.48 12.84
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
8.1

6.7

Industry Focus
China Software Sector

Kingdee - PE band chart

Kingdee - PB band chart

Share Price (HK$)

8

6.4x

Share Price (HK$)

8
75x

7
6

57x

5
4

40x

5.0x

7
6

3.6x

5
4

2.2x

3
2
1

22x

5x

Source: Thomson Reuters, DBS Vickers

Source: Thomson Reuters, DBS Vickers

Yonyou - PE band chart

Yonyou - PB band chart

Share Price (RMB)

140

Share Price (RMB)

80

120

70

132x

30

72x

20

2016

2015

2014

10

1.8x

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Source: Thomson Reuters, DBS Vickers

5.8x

Jan-11

13x

9.8x

Jan-10

20

40

Jan-09

40

192x

Jan-08

60

13.8x

50

Jan-07

80

17.8x

60

Jan-06

251x

Jan-05

100

2013

2012

2011

2010

2009

2008

2007

2006

2005

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

0
2005

0.8x

Source: Thomson Reuters, DBS Vickers

Page 9

China / Hong Kong Company Guide

Kingdee
Version 2 | Bloomberg: 268 HK Equity | Reuters: 0268.HK

Refer to important disclosures at the end of this report

DBS Group Research . Equity

22 February 2016

ERP funding the future growth

BUY
Last Traded Price: HK$2.75 (HSI : 19,286)
Price Target: HK$4.20 (53% upside) (Prev HK$3.80)
Potential Catalyst: Stronger growth in cloud revenue & profitability
Where we differ: We expect higher operating losses from cloud
business and lower earnings than consensus
Analyst
Tsz Wang TAM CFA, +852 2971 1772 tw_tam@hk.dbsvickers.com
Chris KO chris_ko@hk.dbsvickers.com

Whats New

Expect traditional ERP business to resume growth

in 2H15F as the restructuring of distribution
channels has concluded
Expect the cloud business to grow at a CAGR of
80% from FY15-17F to account for 30% of the total
revenue
More investment needed in FY15-16F to capture
the cloud business opportunity, leading to initial
operating losses and downward earnings revision

Price Relative
HK$

243

4.8

193

3.8
143
2.8
93

1.8
0.8
Feb-12

Feb-13

Kingdee (LHS)

Forecasts and Valuation

FY Dec (RMB m)
Turnover
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex)
Net Profit Gth (Pre-ex) (%)
EPS (RMB)
EPS (HK$)
EPS Gth (%)
Diluted EPS (HK$)
DPS (HK$)
BV Per Share (HK$)
PE (X)
P/Cash Flow (X)
P/Free CF (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
Earnings Rev (%):
Consensus EPS (RMB)
Other Broker Recs:

Feb-14

43
Feb-16

Feb-15

Relative HSI INDEX (RHS)

2014A
1,547
575
226
197
197
55.9
0.08
0.09
53.7
0.09
0.01
0.92
30.0
11.7
13.5
10.8
0.5
3.0
0.1
10.5

2015F
1,653
553
237
202
202
2.3
0.07
0.08
(8.9)
0.08
0.01
1.44
32.9
15.2
15.9
9.8
0.5
1.9
CASH
7.4
(13.7)
0.09
B: 7

2016F
1,918
548
235
200
200
(0.8)
0.07
0.08
(1.7)
0.08
0.01
1.49
33.5
15.1
15.8
9.7
0.4
1.8
CASH
5.6
(35.0)
0.11
S: 0

Source of all data: Company, DBSV, Thomson Reuters, HKEX

ASIAN INSIGHTS
ed-TH/ sa- DL

ERP business resumes growth after restructuring of sales channel. We

expect the revenue from ERP business to resume growth in 2H15F as
the restructuring of sales channel has concluded. We forecast the
revenue from ERP business to grow at a low single-digit rate to
Rmb1,462m in FY15F. The restructuring from direct to indirect sales led
to revenue decline but improvement in operating margin. It should
improve overall profitability. We expect the operating profit to grow at
a double-digit rate in FY15F. We are positive on the medium-term
outlook of the ERP business and expect high single-digit growth rates in
the coming years.
Continuing to invest for future growth. We expect the revenue from
the cloud business to grow at 80% p.a. from FY15-17F to account for
30% of the total revenue. The company currently focuses on growing
the number of enterprise customers rather than the monetisation
model. Therefore we believe more investments into the cloud business
will be needed for R&D and marketing & sales. We estimate the
operating losses from the cloud business to be Rmb100-150m in FY15F
and Rmb180-230m in FY16F. We forecast it to break even in FY17-18F.

Relative Index

6.8
5.8

Started cloud business by leveraging on ERP's market leading position.

Kingdee is the second largest Chinese provider of ERP software in
China with a focus on small and medium enterprises. It has started
investing into the cloud business by leveraging on its large existing
customer base. We are positive on the traditional ERP business in the
medium term and expect high single-digit growth rates in the coming
years. We also believe the huge potential of the cloud business and the
investment now will benefit Kingdee in the longer term. We have a
BUY rating on Kingdee with a TP of HK$4.2 based on 30x FY17F PE,
pegged to its A-share major peer Yonyous historical average.

2017F
2,319
746
406
346
346
73.0
0.12
0.14
71.4
0.13
0.02
1.61
19.5
10.5
10.9
6.8
0.8
1.7
CASH
9.1
(5.8)
0.14
H: 2

Valuation:
We believe that the cloud business has huge potential and the
investments will benefit Kingdee in the longer term. We maintain BUY
on Kingdee with a TP of HK$4.2 based on 30x FY17F (vs previous 30x
FY16F PE), pegged to its A-share major peer Yonyous historical average.
Key Risks to Our View:
Earnings risk. The revenue recovery of traditional ERP business may be
slower than expected, and this could also result in less operating
leverage. Any earnings disappointment could lead to PE contraction.
Persistent valuation discount. The valuation discount to A-share peers
may not narrow or even widen due to different stock market
sentiments.
At A Glance
Issued Capital (m shrs)
2,925
Mkt. Cap (HK$m/US$m)
8,043 / 1,034
Major Shareholders
Xu Shao Chun (%)
26.9
JD.com (%)
10.0
FMR LLC (%)
8.1
Credit Suisse Group AG (%)
7.9
Free Float (%)
73.1
3m Avg. Daily Val. (US$m)
8.0
ICB Industry : Technology / Software & Computer Services

VICKERS SECURITIES

Company Guide
Kingdee

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:
ERP business growth. We expect Kingdees traditional ERP
business to register a high single-digit revenue growth,
supported by more e-commerce business activities.
Enterprises need to rely more on enterprise software and
cloud technology to integrate and manage their sales channel,
inventory, supply chain and customer details. One example is
that JD.com promoted Kingdees ERP products to its suppliers
for information integration to enhance supply chain
management. Note that the company has undergone
restructuring in its sales channel, from direct sales to indirect
sales, leading to a revenue decline but gross profit margin
uplift in the past two years. The transition has been
completed. We forecast revenue to resume growth and
continue to improve due to operating leverage.

ERP rev growth

7.50
6.49
5.48
4.47
3.46
2.45
1.44
0.43
-0.59
-1.60
-2.61
-3.62
-4.63
-5.64
-6.65
-7.66
-8.68
-9.69
-10.70
-11.71
-12.72
-13.73

7.72

8.01

2016F

2017F

1.49

-6.77

-12.48
2013A

2014A

2015F

Cloud rev growth

86
80

80

80

2015F

2016F

2017F

70.1
52.6
35.1
17.5

Cloud business growth. The cloud business accounted for

11% of the total revenue in 1H15. Having a growth of 82%
for the cloud business in 1H15, we forecast it to grow at a
CAGR of 80% from FY14-17F. We expect this segment to
account for 30% of the revenue by FY17F. We believe that
the company has the first-mover advantage in China for
being one of the earliest companies to develop cloud-based
products, including mobile office cloud, finance cloud, ERP
cloud and Express data cloud.

0.0
2014A

Operating profit margin

15.6

19.1

19.1

19.5

17.6
14.8

14.2

11.7
7.8
3.9

1.

2.
3.
4.

Cloud hub, ranked no.1 mobile office cloud in China,

has 4.5m registered users and 400k registered
enterprises.
Finance Cloud, ranked no.1 accounting cloud in China,
has 55k paying users.
K/3, ranked no.1 online ERP cloud in China, has 63k
paying users and 1,000 paying enterprises.
Kuaidi100, ranked no.1 express data cloud in China,
has 5.8bn parcel searches in 1H15.

0.0
2013A

2014A

2015F

2016F

2017F

Source: Company, DBS Vickers

Earnings contribution from the cloud business remains small

at the moment. But it has stronger potential than the
traditional ERP business, and the market is willing to give a
higher valuation. The company may also consider spinning off
its various cloud products in the future.

ASIAN INSIGHTS
Page 11

VICKERS SECURITIES

Company Guide
Kingdee

Leverage & Asset Turnover (x)

Balance Sheet:
Healthy financial position. As at the end of 1H15, the company
improved its financials to a net cash position of Rmb708m due
to the issuance of shares to JD.com on 16 May 2015 to raise
Rmb1.3bn.

0.5

1.00

0.5
0.5

0.80

0.4
0.4

0.60

0.4
0.4

0.40

0.4
0.3

0.20

Share Price Drivers:

Narrowing of valuation discount to A-Share peers. Kingdee now
trades at a discount to Yonyous c.40x FY15 PE. We expect
Kingdees valuation to catch up with Yonyou which is its AShare major peer, thanks to the launch of HK-Shanghai stock
connect. The re-rating is also supported by the positive business
outlook.

0.3
0.3

0.00
2013A

2014A

2015F

Gross Debt to Equity (LHS)

2016F

2017F

Asset Turnover (RHS)

Capital Expenditure
RM
160.0
140.0
120.0
100.0
80.0
60.0

Stock sentiment supported by favourable policies. There may be

policies released by the government to help more enterprises
adopt cloud services. The market may therefore give a higher
valuation premium to the company.

40.0
20.0
0.0
2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE
10.0%

Key Risks:
Cyclical uncertainties
Product demand slows down due to poor economic activity.

8.0%

6.0%

4.0%

Company Background:
Kingdee is the second largest Chinese provider of ERP software
in China with a focus on small and medium enterprises.

2.0%

0.0%
2013A

2014A

2015F

2016F

2017F

Forward PE Band
x
80
70
60
50
40
30
20
10
0

+1SD: 32.3x
Avg: 19.6x

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

-1SD: 6.8x

PB Band
(x)
5.4
4.9
4.4
3.9

+2sd:3.85x

3.4

+1sd:3.16x

2.9
2.4

Avg:2.48x

1.9

1sd:1.79x

1.4
0.9
Feb-12

2sd:1.1x
Feb-13

Feb-14

Feb-15

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES
Page 12

Company Guide
Kingdee

Key Assumptions
FY Dec
ERP rev growth
Cloud rev growth
Operating profit margin

Source: Company, DBS Vickers

2013A

2014A

2015F

2016F

2017F

(12.5)
N/A
14.8

(6.8)
86.0
19.1

1.5
80.0
17.6

7.7
80.0
14.2

8.0
80.0
19.1

Segmental Breakdown (RMB m)

FY Dec
Revenues (RMB m)
Sales of software license
Service
Cloud
Others
Total

2013A

2014A

2015F

2016F

2017F

750
747
57
48
1,602

752
648
106
41
1,547

795
626
191
40
1,653

860
674
344
40
1,918

934
727
618
40
2,319

2013A
1,602
(396)
1,206
(967)
239
0
0
(102)
0
0
137
(17)
7
0
126
126
532

2014A
1,547
(271)
1,276
(976)
300
0
(1)
(73)
0
0
226
(25)
(3)
0
197
197
575

2015F
1,653
(331)
1,322
(1,031)
291
0
0
(54)
0
0
237
(31)
(4)
0
202
202
553

2016F
1,918
(422)
1,496
(1,223)
273
0
0
(38)
0
0
235
(31)
(4)
0
200
200
548

2017F
2,319
(464)
1,855
(1,411)
444
0
0
(38)
0
0
406
(53)
(7)
0
346
346
746

(9.3)
288.8
N/A
N/A

(3.5)
8.0
25.7
55.9

6.9
(3.8)
(3.0)
2.3

16.1
(0.8)
(6.2)
(0.8)

20.9
36.2
62.7
73.0

75.3
14.9
7.9
7.6
3.2
6.3
0.0
2.3

82.5
19.4
12.7
10.5
4.7
7.3
15.2
4.1

80.0
17.6
12.2
7.4
4.1
5.7
15.0
5.3

78.0
14.2
10.4
5.6
3.6
4.7
15.0
7.1

80.0
19.1
14.9
9.1
5.9
7.3
15.0
11.7

Source: Company, DBS Vickers

Income Statement (RMB m)

FY Dec
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Dividend Income
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)

Source: Company, DBS Vickers

ASIAN INSIGHTS
Page 13

VICKERS SECURITIES

Company Guide
Kingdee

Interim Income Statement (RMB m)

FY Dec

1H2013

2H2013

1H2014

2H2014

1H2015

Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.

745
(189)
556
(495)
61
0
0
(52)
0
9
(6)
6
9
9

857
(207)
650
(472)
177
0
0
(50)
0
127
(11)
1
118
118

750
(144)
606
(469)
137
0
0
(51)
0
87
(6)
1
81
81

797
(127)
670
(507)
163
0
(1)
(23)
0
139
(20)
(4)
116
116

758
(158)
599
(469)
130
0
0
(32)
0
98
(8)
1
92
92

Growth
Revenue Gth (%)
Opg Profit Gth (%)
Net Profit Gth (%)

(4.5)
N/A
N/A

(13.0)
72.5
67.5

0.7
124.5
845.6

(7.1)
(8.3)
(1.9)

1.1
(5.1)
12.6

Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)

74.7
8.2
1.2

75.8
20.7
13.7

80.9
18.3
10.9

84.0
20.4
14.5

79.1
17.2
12.1

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets

Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets

896
2
1,450
1,003
4
277
296
3,928

860
2
1,428
1,554
4
244
301
4,393

834
2
1,427
2,605
4
257
316
5,444

804
2
1,455
2,775
4
270
332
5,642

770
2
1,513
3,092
5
283
349
6,013

ST Debt
Creditors
Other Current Liab
LT Debt
Other LT Liabilities
Shareholders Equity
Minority Interests
Total Cap. & Liab.

420
363
169
1,155
66
1,750
4
3,928

546
303
181
1,291
74
1,989
9
4,393

546
318
189
811
79
3,487
13
5,444

546
334
197
811
79
3,657
17
5,642

546
351
206
811
101
3,973
25
6,013

45
(572)
67.2
1,602.6
14.0
0.4
1.7
1.3
0.3
0.3
8.8
3.3

66
(283)
61.5
(26,020.0)
(307.2)
0.4
2.0
1.7
0.1
0.1
3.8
3.2

70
1,248
55.3
1,649.5
21.4
0.3
3.0
2.7
CASH
CASH
1.5
4.0

75
1,418
50.1
810.5
10.5
0.3
3.1
2.8
CASH
CASH
1.5
4.1

80
1,735
43.5
774.9
10.0
0.4
3.4
3.1
CASH
CASH
1.5
4.2

Source: Company, DBS Vickers

Balance Sheet (RMB m)

FY Dec

Non-Cash Wkg. Capital

Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
Capex to Debt (%)
Z-Score (X)

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES
Page 14

Company Guide
Kingdee

Cash Flow Statement (RMB m)

FY Dec

2013A

2014A

2015F

2016F

2017F

137
294
(1)
0
0
(8)
(7)
415
(139)
(217)
(1)
0
(96)
(454)
0
(17)
16
0
(1)
0
(40)
0.17
0.11

226
275
(5)
1
0
5
5
507
(70)
(211)
0
0
(110)
(391)
0
273
14
0
287
0
403
0.20
0.17

237
265
(25)
0
0
(4)
(34)
438
(20)
(214)
0
0
31
(203)
(30)
(480)
1,327
0
817
0
1,051
0.15
0.15

235
275
(31)
0
0
(5)
(30)
444
(20)
(253)
0
0
30
(243)
(30)
0
0
0
(30)
0
171
0.15
0.15

406
303
(31)
0
0
(5)
(30)
643
(20)
(306)
0
0
30
(296)
(30)
0
0
0
(30)
0
317
0.22
0.21

Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
(Pft)/ Loss on disposal of FAs
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (RMB)
Free CFPS (RMB)

Source: Company, DBS Vickers

Target Price & Ratings History

S.No. Dat e

1:
2:
3:
4:

18-Mar-15
29-J un-15
20-Aug-15

Closing
Pric e
HK$2.85
HK$5.01
HK$2.93

T arget
Pric e
HK$3.20
HK$6.80
HK$3.80

Rat ing
Buy
Buy
Buy

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

Jul-15

Jun-15

May-15

Apr-15

Aug-15

Mar-15

Feb-15

HK$
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0

Source: DBS Vickers

ASIAN INSIGHTS
Page 15

VICKERS SECURITIES

China / Hong Kong Company Guide

Yonyou Network Technology

Version 2 | Bloomberg: 600588 CH Equity | Reuters: 600588.SS

Refer to important disclosures at the end of this report

DBS Group Research . Equity

22 February 2016

FULLY VALUED

Priced beyond perfection

Lofty valuation is vulnerable. The stock is trading at a high PE of 40x+

FY17F earnings, which has fully priced in the growth potential of its
Potential Catalyst: Slower-than-expected earnings growth in the coming new business initiatives. The new segments require start-up
results
investments and we believe that the market is overly optimistic on its
Where we differ: We expect new businesses to take a longer time to
near-term earnings contribution and any earnings disappointment
contribute to earnings
would lead to pressure on share price.
Last Traded Price: RMB20.39 (CSI300 Index : 3,052)
Price Target: RMB14.00 (31% downside) (Prev RMB17.00)

Analyst
Tsz Wang TAM CFA, +852 2971 1772 tw_tam@hk.dbsvickers.com
Chris KO chris_ko@hk.dbsvickers.com

Whats New

Expect traditional ERP business to resume growth

in 2H15F as the restructuring of distribution
channels has concluded
Fast growth in cloud at a CAGR of 100%+ from
FY15-17F to account for c.15% of the total revenue
Lower earnings estimates due to significant
operating loss from the initial investment into
cloud business in FY15-16F

Price Relative
RMB

Relative Index

75.0

352

65.0

302

55.0

252

45.0
202
35.0
152

25.0

102

15.0
5.0
Feb-12

Feb-13

Feb-14

52
Feb-16

Feb-15

Yonyou Network Technology (LHS)

Relative SHSZ300 Index (RHS)

Forecasts and Valuation

FY Dec (RMB m)
Turnover
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex)
Net Profit Gth (Pre-ex) (%)
EPS (RMB)
Core EPS (RMB)
EPS Gth (%)
Core EPS Gth (%)
Diluted EPS (RMB)
DPS (RMB)
BV Per Share (RMB)
PE (X)
Core PE (X)
P/Cash Flow (X)
P/Free CF (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
Earnings Rev (%):
Consensus EPS (RMB)
Other Broker Recs:

2014A
4,374
797
612
550
550
0.4
0.39
0.39
(0.7)
(0.7)
0.39
0.30
3.40
51.8
51.8
35.5
68.3
35.3
1.5
6.0
CASH
15.3

2015F
4,584
574
369
331
331
(39.8)
0.23
0.23
(40.5)
(40.5)
0.23
0.14
3.93
87.2
87.2
75.6
nm
47.2
0.7
5.2
CASH
6.8
(32.9)
0.32
B: 7

2016F
5,185
772
553
496
496
49.7
0.35
0.35
49.7
49.7
0.34
0.20
4.07
58.2
58.2
48.6
148.9
35.3
1.0
5.0
CASH
8.5
(22.9)
0.49
S: 2

2017F
5,917
969
733
657
657
32.5
0.46
0.46
32.5
32.5
0.45
0.27
4.25
43.9
43.9
37.2
76.8
28.1
1.3
4.8
CASH
10.8
(21.5)
0.64
H: 1

Traditional ERP business is stable. Yonyou is a leading Chinese

enterprise software or enterprise resource planning (ERP) provider in
China with c.20% market share. We forecast its traditional ERP
business to register high single-digit revenue growth in the coming
two years, which is supported by more ERP applications for the
increasing e-commerce activities in China.
New initiatives focus on internet businesses. Yonyou recently
expanded into cloud services, third-party payments and P2P
lending which are new and fast-growing segments. We expect
these new initiatives to contribute c.15% to total sales by
FY17F. However, the segments are still incurring losses and will
erode FY15F and FY16F earnings growth as we do not expect
breakeven to be earlier than FY17F.
Valuation:
The stock is trading at a 40x+ FY17F PE, above its 10-year
average of 30x. We agree that new business initiatives have good
long-term potential. But the market is simply over-optimistic, and
we think the high valuation is unsustainable. We have a FULLY
VALUED rating and a TP of Rmb14.0 on Yonyou, based on 30x
FY17F PE which is its historical average.
Key Risks to Our View:
Stronger-than-expected business growth. There are
uncertainties on the new businesses including their breakeven
points and profitability. Stronger-than-expected execution will
provide upside risk to our view.
Stock sentiment supported by favourable policies. There may
be policies released by the government to help more
enterprises adopt ERP services. The market may therefore give
a higher valuation premium to the company.
At A Glance
1,465
Issued Capital (m shrs)
29,865 / 4,579
Mkt. Cap (RMBm/US$m)
Major Shareholders
Wang Wenjing (%)
44.7
55.3
Free Float (%)
3m Avg. Daily Val. (US$m)
96.5
ICB Industry : Technology / Software & Computer Services

Source of all data: Company, DBSV, Thomson Reuters, HKEX

ASIAN INSIGHTS
ed-TH/ sa- DL

VICKERS SECURITIES

Company Guide
Yonyou Network Technology

Traditonal ERP business growth %

CRITICAL DATA POINTS TO WATCH

6.67

Earnings Drivers:
Traditional ERP business. Yonyou has a leading market share
of c.20% in the enterprise software market in China. We
expect this segment to grow at high single digits in the
coming years, thanks to increasing enterprise software
penetration. This is partly supported by more ERP applications
for rising e-commerce activities in China.

5.78
4.90
4.02
3.13
2.2

2.25
1.36

0.48
- 0.40
2013A

New business initiatives. The company has recently expanded

into cloud services, third-party payments and P2P lending
which are in the new and fast-growing segments. We expect
the new businesses to contribute c.15% to total sales by
FY17F. However, these segments require significant start-up
investments. They are still incurring losses presently and will
erode FY15F and FY16F earnings growth, as we do not
expect the segments to break even before FY17F.
(1) Cloud business. Yonyou is developing cloud-based
enterprise software applications and related value-added
services, in order to capture the business opportunities
brought by internet+, e-commerce and mobile internet.
We estimate that cloud business will account for c.8% of
total revenue in FY17F.
(2) P2P lending. Yonyou launched its P2P lending platform
yyfax.com in Oct 2014. P2P lending, together with thirdparty payments, will enable the company to provide a onestop solution on financial management. We estimate that P2P
lending will account for c.1% of total revenue in FY17F.

-0.37
2014A

2015F

2016F

2017F

New businesses business growth %

181

185
148
111

89
74
37
0
2016F

2017F

Gross margin
70.0

67.5

67.5

68.7

67.9

2014A

2015F

2016F

2017F

62.3
56.0
42.0
28.0
14.0
0.0
2013A

Source: Company, DBS Vickers

(3) Third-party payments. Yonyou plans to integrate its thirdparty payment system - Chanpay - into its ERP software
products to facilitate payment services, especially between
enterprises, and between enterprises and government bodies.
This will enhance the overall product functionality, which will
help raise overall customer satisfaction and stickiness.
Moreover, data collected will be of great value to other
services such as internet financing.

ASIAN INSIGHTS
Page 17

VICKERS SECURITIES

Company Guide
Yonyou Network Technology

Leverage & Asset Turnover (x)

Balance Sheet:
Strong financials. We estimate a net cash position of
Rmb2,270m in FY15F. Going forward, despite making more
investments into the new businesses, we believe the companys
balance sheet will remain healthy.

Share Price Drivers:

Earnings at risk. We believe the strong potential from the new
businesses is fully priced in with its rich valuation and the market
is too optimistic on profitability and breakeven timeline for the
new businesses. The new businesses are at an early development
stage and ongoing losses will erode operating profits and
margins for FY15F and FY16F, based on our current estimates.
There is downside earnings risk, which may disappoint the
market and hence pressure the stock price. Moreover, the cloud
platform business on which third-party developers can develop
and sell cloud-based ERP is more challenging (than just
developing apps), as it is not easy to build a customer base with
a certain level of stickiness.

0.7
0.60
0.7
0.50
0.6

0.40

0.6

0.30
0.20

0.5

0.10

0.5

0.00

0.4
2013A

2014A

2015F

Gross Debt to Equity (LHS)

2016F

2017F

Asset Turnover (RHS)

Capital Expenditure
RM
405.0
400.0
395.0
390.0
385.0
380.0
375.0
370.0
365.0
2013A

2014A

2015F

2016F

2017F

Capital Expenditure (-)

ROE
16.0%

Key Risks:
Uncertainty on new businesses
Investment risks on new businesses

14.0%
12.0%
10.0%
8.0%

More competition in cloud and mobile products

6.0%
4.0%

Slower IT spending amid economic slowdown

2.0%
0.0%
2013A

Company Background:
Yonyou is a leading Chinese enterprise management software
provider in China with c.20% market share. The company has
been focusing more on government and state-owned enterprise
customers.

2014A

2015F

2016F

2017F

Forward PE Band
(x)
266.6
216.6
166.6

+2sd:150.3x

116.6

+1sd:103.5x

66.6

Avg:56.6x

16.6

1sd:9.7x

Feb-12
-33.4

Feb-13

Feb-14

Feb-15

PB Band
(x)
18.5

13.5

+2sd:11.62x
8.5

+1sd:8.29x
Avg:4.95x

3.5

1sd:1.61x
Feb-12
-1.5

Feb-13

Feb-14

Feb-15

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES
Page 18

Company Guide
Yonyou Network Technology

Key Assumptions
FY Dec
Traditonal ERP business
growth %
New businesses growth
%
Gross margin

Source: Company, DBS Vickers

2013A

2014A

2015F

2016F

2017F

2.2

(0.4)

1.0

7.0

7.0

N/A

N/A

N/A

181.0

88.9

62.3

67.5

67.5

68.7

67.9

Segmental Breakdown (RMB m)

FY Dec
Revenues (RMB m)
Traditonal ERP
New businesses
Others
Total

2013A

2014A

2015F

2016F

2017F

4,303
0
60
4,363

4,277
10
87
4,374

4,330
160
94
4,584

4,633
450
101
5,185

4,958
850
109
5,917

2013A
4,363
(1,645)
2,717
(2,326)
391
334
0
(78)
0
0
647
(78)
(21)
0
548
548
822

2014A
4,374
(1,421)
2,954
(2,571)
382
314
0
(84)
0
0
612
(42)
(19)
0
550
550
797

2015F
4,584
(1,489)
3,096
(2,946)
150
314
0
(94)
0
0
369
(26)
(12)
0
331
331
574

2016F
5,185
(1,625)
3,559
(3,268)
291
356
0
(94)
0
0
553
(39)
(18)
0
496
496
772

2017F
5,917
(1,899)
4,018
(3,599)
420
407
0
(94)
0
0
733
(51)
(24)
0
657
657
969

3.0
37.4
83.7
44.3

0.3
(3.0)
(2.3)
0.4

4.8
(28.0)
(60.9)
(39.8)

13.1
34.5
94.7
49.7

14.1
25.5
44.0
32.5

62.3
9.0
12.6
17.6
8.2
7.2
53.2
5.0

67.5
8.7
12.6
15.3
6.9
6.0
63.9
4.5

67.5
3.3
7.2
6.8
3.4
1.9
60.0
1.6

68.7
5.6
9.6
8.5
4.6
3.2
60.0
3.1

67.9
7.1
11.1
10.8
6.0
4.5
60.0
4.5

Source: Company, DBS Vickers

Income Statement (RMB m)

FY Dec
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Dividend Income
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)

Source: Company, DBS Vickers

ASIAN INSIGHTS
Page 19

VICKERS SECURITIES

Company Guide
Yonyou Network Technology

Interim Income Statement (RMB m)

FY Dec

1H2013

2H2013

1H2014

2H2014

1H2015

Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
Pre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.

1,539
(564)
975
(952)
23
146
0
(37)
0
132
(55)
(7)
69
69

2,823
(1,081)
1,742
(1,374)
369
188
0
(41)
0
515
(23)
(14)
479
479

1,554
(558)
996
(1,059)
(63)
155
0
(40)
0
52
(41)
1
11
11

2,820
(862)
1,957
(1,512)
446
159
0
(44)
0
560
(1)
(20)
539
539

1,515
(577)
938
(1,163)
(225)
170
0
(47)
0
(102)
(43)
(23)
(169)
(169)

Growth
Revenue Gth (%)
Opg Profit Gth (%)
Net Profit Gth (%)

(10.3)
(76.0)
(48.5)

12.0
213.1
95.3

1.0
N/A
(83.7)

(0.1)
20.9
12.6

(2.5)
(254.9)
N/A

63.3
1.5
4.5

61.7
13.1
17.0

64.1
(4.1)
0.7

69.4
15.8
19.1

61.9
(14.8)
(11.1)

2013A

2014A

2015F

2016F

2017F

Net Fixed Assets

Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets

1,597
0
1,895
2,100
22
1,394
222
7,230

1,810
0
2,058
2,963
22
1,476
481
8,811

2,042
0
2,116
4,363
24
1,550
481
10,575

2,264
0
2,169
4,259
25
1,627
481
10,825

2,473
0
2,218
4,241
26
1,709
481
11,147

ST Debt
Creditors
Other Current Liab
LT Debt
Other LT Liabilities
Shareholders Equity
Minority Interests
Total Cap. & Liab.

1,020
363
1,628
833
23
3,227
136
7,230

1,268
400
1,862
824
14
3,986
456
8,811

1,268
420
1,845
824
14
5,735
468
10,575

1,268
441
1,858
824
14
5,933
486
10,825

1,268
463
1,871
824
14
6,196
510
11,147

Non-Cash Wkg. Capital

Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
Capex to Debt (%)
Z-Score (X)

(353)
247
112.9
76.8
4.9
0.7
1.2
1.2
CASH
CASH
20.5
NA

(283)
871
119.7
105.5
6.2
0.5
1.4
1.3
CASH
CASH
18.5
NA

(211)
2,270
120.5
108.7
6.1
0.5
1.8
1.7
CASH
CASH
19.1
NA

(166)
2,167
111.8
104.8
5.9
0.5
1.8
1.7
CASH
CASH
19.1
NA

(118)
2,148
102.9
94.0
5.3
0.5
1.8
1.7
CASH
CASH
19.1
NA

Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)

Source: Company, DBS Vickers

Balance Sheet (RMB m)

FY Dec

Source: Company, DBS Vickers

ASIAN INSIGHTS

VICKERS SECURITIES
Page 20

Company Guide
Yonyou Network Technology

Cash Flow Statement (RMB m)

FY Dec

2013A

2014A

2015F

2016F

2017F

647
97
(78)
0
0
(16)
161
810
(379)
(437)
0
0
121
(695)
(192)
97
148
229
282
1
397
0.60
0.31

612
101
(42)
0
0
(45)
179
804
(387)
(269)
0
0
56
(600)
(291)
336
764
(159)
649
(1)
853
0.61
0.30

369
110
(26)
0
0
(55)
(16)
382
(400)
0
0
0
0
(400)
(351)
0
0
1,769
1,417
0
1,399
0.31
(0.01)

553
124
(39)
0
0
(58)
13
594
(400)
0
0
0
0
(400)
(199)
0
0
(99)
(298)
0
(104)
0.46
0.14

733
143
(51)
0
0
(61)
13
776
(400)
0
0
0
0
(400)
(298)
0
0
(97)
(394)
0
(18)
0.59
0.27

Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
(Pft)/ Loss on disposal of FAs
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (RMB)
Free CFPS (RMB)

Source: Company, DBS Vickers

Target Price & Ratings History

S.No. Dat e

RMB
80.0

70.0

1:
2:
3:
4:

60.0
50.0

Closing
Pric e
29-J un-15 RMB46.34
22-J ul-15 RMB42.56
31-Aug-15 RMB27.43

T arget
Rat ing
Pric e
RMB32.00 F ully V alued
RMB32.00 F ully V alued
RMB17.00 F ully V alued

40.0
30.0
20.0

Feb-16

Dec-15

Sep-15

Jul-15

Feb-15

0.0

May-15

10.0

Source: DBS Vickers

ASIAN INSIGHTS
Page 21

VICKERS SECURITIES

Industry Focus
China Software Sector
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers (Hong Kong) Limited (DBSVHK) This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers
Securities (Singapore) Pte Ltd and DBSVHK, its respective connected and associated corporations and affiliates only and no part of this document may be (i)
copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVHK.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVHK, its
respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the DBS Group))
do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This
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and may also perform or seek to perform broking, investment banking and other banking services for these companies.
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valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore,
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(a)
(b)

such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
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COMPANY-SPECIFIC / REGULATORY DISCLOSURES
DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended in this report as of 17 Feb 2016.
1.
2.

Page 22

Compensation for investment banking services:

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities
as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to
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discussed in this document should contact DBSVUSA exclusively.

Industry Focus
China Software Sector

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In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,
professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Vickers (Hong Kong) Limited

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18 Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong
Tel: (852) 2820-4888, Fax: (852) 2868-1523

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