Kingdee's 1H26 earnings outlook showed solid fundamentals, and Nomura maintained a Buy rating

Overview

This report is Nomura's commentary on Kingdee 0268.HK's 1H26 earnings outlook. The company released the forecast after the July 7, 2026 close, with management expecting 1H26 revenue to rise 13% to 14% year on year, and profit to turn from a CNY98mn loss in the prior year period to CNY40mn to CNY60mn. Nomura sees the fundamentals improving due to subscription business scale effects, efficiency gains from AI, and strong growth in AI-native products.

Core views

The key view is that Kingdee's cloud ERP business remains resilient, with subscription revenue continuing to grow, and AI-native products growing strongly, contributing to higher revenue growth and improved profitability. Although the market is concerned that LLM peers may pressure Kingdee's core business, Nomura believes the company is progressively transforming into an AI-native company and can use generative AI to achieve more sustainable growth.

Analysis framework

The report primarily assesses fundamental trends through revenue, profit, and operating cash flow metrics from the earnings outlook, and maintains its target price using a DCF valuation framework. The analysis also incorporates cloud ERP subscription scale effects, AI-driven efficiency gains, and large-model competitive risk into its judgment.

Methodology notes

• Valuation methodsDCF

  DCF valuation

  Nomura uses the DCF valuation method to derive an HKD18.49 target price, assuming WACC of 11.1%, market risk premium of 7%, and perpetual growth rate of 4%, discounting cash flows to year-end 2024.

• relative_performanceNomura equity rating system

  Buy rating

  Nomura's Buy rating indicates the analyst expects the stock to outperform its benchmark over the next 12 months; the benchmark for this stock is the Hang Seng Index.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Kingdee 0268.HK

  Research target

  Strengths

  Core cloud ERP business is resilient; subscription revenue continues to grow; AI-native products are growing strongly; profit and operating cash flow have improved.

  Weaknesses

  The market still worries that LLM firms may disrupt the core business; cloud business turnaround still depends on the competitive environment and control of R&D spending.

  Comparison

  There is substantial upside potential with a target price of HKD18.49 versus the 2026-07-07 close of HKD6.34; rating remains Buy.

  Risks

  Cloud revenue growth below expectations, inability to turn around cloud performance due to competition or additional R&D spending, and intensified next-generation cloud platform competition from incumbent ERP vendors.

Key data

• 1H26E RevenueCNY3,608-3,639mnUp 13% to 14% year on year, driven by continued growth in subscription revenue and strong growth in AI-native products.
• 1H26E ProfitCNY40-60mn1H25 was a CNY98mn loss; the improvement is mainly due to subscription business scale effects and AI-driven efficiency gains.
• 1H26E Operating Cash FlowCNY130-150mn net inflow1H25 was a CNY18mn net outflow, reflecting improved operating efficiency and subscription model.
• RatingBuyRating maintained.
• Target PriceHKD18.49DCF target price maintained, implying 8.7x FY26F P/S.
• CloseHKD6.34Price date: July 7, 2026.

Impact & implications

The earnings outlook has strengthened the market's confidence in Kingdee's revenue growth, profit inflection, and cash flow improvement. If AI-native products continue to scale and the cloud ERP subscription model retains its scale effect, the company may ease valuation pressure from potential LLM substitution risk; however, short-term LLM-related disruptions may still affect market sentiment.

Risks

• Cloud revenue growth is slower than expected.
• The company is unable to turn around cloud performance due to competition or additional R&D spending.
• Next-generation cloud platform competition from incumbent ERP vendors intensifies.
• LLM-related competitive pressure may continue to disrupt expectations in the short term.

What to watch

• Whether actual 1H26 revenue, profit, and operating cash flow fall within the forecast ranges.
• The sustainability of subscription revenue and AI-native product growth.
• Whether AI-driven efficiency gains continue to improve margins.
• The competitive impact of LLM-related players on Kingdee's core cloud ERP business.
• Whether cloud business can continue to improve profitability under competitive pressure and R&D spend constraints.