Short-Term Results Under Pressure, but Order Growth and Investment Income Support 2H26 Recovery

Overview

This report reviews Hundsun's preliminary 1H26 results and updates earnings forecasts. Extended project cycles slowed revenue recognition, causing revenue and net profit attributable to the parent to fall below Goldman Sachs' expectations. Goldman Sachs therefore lowered its 2026–2028 core revenue, gross profit, and net profit forecasts and reduced its 12-month target price to Rmb32.71; however, given double-digit growth in contract orders, continued active capital markets, and the support of investment income for earnings, it maintains its Buy rating and expects revenue to recover in 2H26.

Core views

Short-term pressure mainly comes from extended project cycles rather than deterioration in order demand. Double-digit growth in contract orders is expected to translate into revenue subsequently, while a higher share of subscription revenue and product standardization are expected to drive modest gross margin improvement, and cost reduction and efficiency enhancement should help lower the expense ratio. Investment income from active capital markets will continue to support net profit, but its growth may slow due to the base effect. The equity incentive plan should help stabilize core talent, but its performance targets should be viewed as medium- to long-term operating goals rather than 2026 earnings guidance.

Analysis framework

The report combines preliminary 1H26 results with Goldman Sachs' original forecasts to conduct variance analysis, identifying key drivers such as revenue recognition, orders, investment income, and expense efficiency; it then revises 2026–2028 financial forecasts and determines the 12-month target price using a 50/50 blend of EV/Sales and two-stage DCF.

Methodology notes

• Valuation methodsEV/Sales

  Enterprise value to sales multiple

  This method is used to reflect the low marginal cost and strong scalability of software products, while incorporating the impact of market sentiment in the highly volatile software industry.

• Valuation methodsTwo-stage DCF

  Two-stage discounted cash flow

  This method is used to reflect the long-term positive cash flow brought by the company's solid market position and sustainable customer relationships, while considering near-term free cash flow pressure.

• Target price constructionEqual-weighted blended valuation

  EV/Sales and two-stage DCF each account for 50%

  Goldman Sachs combines the two valuation results with equal weights to balance the revenue expansion characteristics of the software business and long-term cash flow value.

• Multi-factor comparisonGS Factor Profile

  Comparison of growth, financial returns, valuation multiples, and composite percentiles

  This framework uses standardized rankings of forward-looking growth, return, and valuation metrics to compare the company with the market coverage universe and industry peers.

Asset mapping & comparison

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

• Hundsun (600570.SS)

  Core covered target

  Strengths

  Contract orders achieved double-digit growth, software products have strong scalability, and the company's market position and customer relationships are solid; subscription revenue, product standardization, and cost reduction and efficiency enhancement have the potential to improve margins.

  Weaknesses

  Extended project cycles have led to slower revenue recognition, 1H26 revenue and net profit attributable to the parent were significantly below Goldman Sachs' expectations, and the current valuation places some requirements on subsequent recovery.

  Comparison

  Goldman Sachs compares it with covered Chinese brokerage and asset-management-related companies, and uses an equal-weighted EV/Sales and two-stage DCF approach in the target price; the M&A Rank is 3, and the acquisition probability factor is not included in the target price.

  Risks

  Insufficient capital market recovery, weaker-than-expected customer IT spending or budget execution, pressure on gross margin due to declining product competitiveness or market share, and investment losses.

Key data

• 1H26 operating revenueRmb2.144bnDown 12% YoY and 11% below Goldman Sachs' expectations.
• 1H26 net profit attributable to the parentRmb262mnUp 1% YoY and 41% below Goldman Sachs' expectations.
• 1H26 net profit attributable to the parent excluding non-recurring gains and lossesRmb210mnUp 9% YoY.
• 2Q26 operating revenueRmb1.239bnDown 12% YoY and 17% below Goldman Sachs' expectations.
• 2Q26 net profit attributable to the parentRmb124mnDown 46% YoY and 59% below Goldman Sachs' expectations.
• Contract ordersDouble-digit growthManagement said 1H26 order growth laid the foundation for future revenue recovery.
• 2026–2028 forecast revisionsCore revenue -7%, gross profit -7%, net profit -5%All are average downward revisions versus previous forecasts.
• 2026 revenue growth forecastAbout 4%Based on the view that revenue will recover to some extent in 2H26.
• 2026 gross margin change forecast+0.5 percentage pointsExpected to benefit from a higher share of subscription revenue and improved product standardization.
• 2026 expense ratio change forecast-0.3 percentage pointsCost reduction and efficiency enhancement measures are expected to continue taking effect.
• 2026 investment income growth forecast10%Active capital markets still provide support, but the base effect may slow growth.
• 2026 net profit growth forecast8%Includes the contribution of investment income to overall earnings growth.
• Equity incentive coverage13% of total employeesCorresponding shares account for about 1.6% of total share capital, with an exercise price of Rmb22.81.
• 12-month target priceRmb32.71Previously Rmb34.77; implies 41.8% upside from the current price of Rmb23.07.

Impact & implications

The cuts to earnings forecasts and target price reflect delayed revenue recognition and weaker-than-expected 1H26 results, but the unchanged Buy rating indicates that Goldman Sachs believes the current pressure is more related to project delivery and recognition cadence. If double-digit orders can smoothly translate into revenue in 2H26, while gross margin and expense ratio improve as expected, earnings growth is likely to recover; conversely, continued lengthening of project cycles or weakening capital markets would reduce the strength of the recovery and the contribution from investment income.

Risks

• Capital market recovery falls short of expectations, potentially affecting both customer demand and investment income.
• Customer IT spending or budget execution is below expectations, causing order conversion and revenue recognition to continue to be delayed.
• Declining product competitiveness or loss of market share could lead to lower gross margin.
• Investment losses would weaken the support of investment income for net profit.
• The equity incentive assessment targets are not 2026 earnings guidance, and actual results may differ from those targets.

What to watch

• The pace at which double-digit contract orders translate into 2H26 revenue and changes in project cycles.
• Whether full-year 2026 revenue can achieve about 4% growth.
• Whether an increase in the share of subscription revenue and improved product standardization can drive a 0.5 percentage point improvement in gross margin.
• Whether cost reduction and efficiency enhancement measures can reduce the 2026 expense ratio by 0.3 percentage points.
• The performance of income from investments such as Ant Fund Sales and the level of capital market activity.
• The implementation, vesting conditions, and effect on core talent stability of the 2026 equity incentive plan.