AI-Native Products Enter Fast Track of Commercialization; Maintain Buy but Lower Target Price to HKD 11.87

Overview

Kingdee announced its 1H26 results on August 11, 2026, and held an earnings call on August 12. The report believes the company’s cloud services and subscription businesses continued to grow, commercialization of AI-native products accelerated significantly, and profitability and gross margin improved. Nomura lowered FY26-27F revenue and earnings forecasts due to weaker SME IT spending, business model transformation, and increased R&D and marketing investment, but still believes AI agents and enterprise AI operating systems will become new growth engines.

Core views

First, the revenue structure continues to migrate toward subscriptions and high-value AI products, driving gross margin improvement and a return to profitability. Second, Lingee and Kingdee AI Suite are growing rapidly, with AI-native products showing high growth in revenue, subscription revenue, and contract value, and commercialization entering an acceleration phase. Third, short-term growth is constrained by weaker SME IT budgets and rising R&D and marketing investment, so FY26-27F forecasts have been lowered. Fourth, over the medium to long term, AI-native products are expected to drive renewed revenue acceleration and margin expansion, and management maintains its target for AI+SaaS and AI-native solutions to each contribute 50% of revenue by 2030.

Analysis framework

The report combines 1H26 actual results, management’s FY26E guidance, product commercialization progress, and changes in business structure to revise FY26-28F revenue and earnings forecasts, and compares them with WIND consensus expectations. Valuation uses a discounted cash flow model, while also referencing FY27F P/E and the Hang Seng Index as a relative performance benchmark.

Methodology notes

• Valuation methodsDiscounted Cash Flow Model

  Estimate a stock’s intrinsic value by discounting future free cash flows

  The HKD 11.87 target price is based on a DCF model, assuming WACC of 11.4%, market risk premium of 7.0%, and terminal growth rate of 2.0%, with cash flows discounted to end-2026.

• Earnings ForecastResults- and Guidance-Driven Forecasting

  Revise forecasts based on actual results, management guidance, and changes in business structure

  The report incorporates SME IT spending, subscription model transformation, AI product growth, and R&D and marketing investment into FY26-28F revenue and earnings forecasts.

• Relative ValuationP/E Comparison

  Use forecast earnings to assess current valuation and the multiple implied by the target price

  The target price implies 42.9x FY27F EPS, while the stock is currently trading at 29.6x FY27F P/E.

Asset mapping & comparison

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

• Kingdee International (0268.HK)

  Core subject of the report, Buy rating maintained

  Strengths

  Cloud services and subscription revenue maintain double-digit growth, AI-native products are commercializing rapidly, gross margin has improved and profitability has returned, and the balance sheet remains in a net cash position.

  Weaknesses

  SME customer IT spending is affected by the macro environment, revenue recognition and profit release may come under pressure during the business model transformation, and R&D and marketing investment is high.

  Comparison

  Nomura’s FY26F revenue forecast is 1% below WIND consensus, while FY27-28F revenue forecasts are 1%-6% above; its FY26-28F earnings forecasts are 1%-32% above consensus, mainly because it is more positive on AI products driving margin improvement.

  Risks

  Cloud revenue growth falling short of expectations, intensifying competition in next-generation cloud platforms, and additional R&D investment causing cloud business profitability improvement to fall short of expectations.

• Hang Seng Index

  Relative performance benchmark for the stock rating

  Strengths

  Used to measure Kingdee’s stock relative performance over the next 12 months.

  Weaknesses

  The overall performance of the index may be affected by macroeconomic conditions, liquidity, and market risk appetite.

  Comparison

  The "Buy" rating means the analyst expects Kingdee to outperform the Hang Seng Index over the next 12 months.

  Risks

  Systemic market volatility may affect the realization of the target price and relative returns.

Key data

• 1H26 RevenueCNY 3.6bnUp 13.6% YoY.
• 1H26 Net ProfitCNY 54.5mn1H25 recorded a net loss of CNY 97.7mn, marking a return to profitability.
• Cloud Services RevenueCNY 3.1bnUp 16.6% YoY, accounting for 86.0% of total revenue.
• Subscription RevenueCNY 2.0bnUp 20.4% YoY.
• Subscription Annual Recurring RevenueApproximately CNY 4.4bnUp 18.3% YoY.
• 1H26 Gross Margin67.7%Up 2.1 percentage points YoY.
• AI-Native Product RevenueCNY 296mnUp 189.0% YoY; among this, subscription revenue was CNY 146mn, up 282.9% YoY.
• AI-Native Product Contract ValueCNY 605mnUp 159.2% YoY.
• FY26E AI-Native Product TargetRevenue exceeding CNY 1bnLingee targets signing 10,000 contracts in FY26E.
• Target Price and UpsideHKD 11.87 / 44.6%Based on the closing price of HKD 8.21 on August 12, 2026.

Impact & implications

In the short term, lowered revenue forecasts and increased R&D and marketing investment may limit the pace of profit release, and the substantial target price cut also reflects more conservative valuation assumptions. Over the medium to long term, the rapid growth of AI-native products, Lingee’s "seat fee + Token credits" model, and the increasing share of subscription revenue are expected to enhance revenue visibility and drive gross margin and net margin expansion. If FY26E targets for AI-native revenue, contract signing, and cash flow are achieved, the market may reassess the value of Kingdee’s transformation from a traditional ERP vendor into an AI-native enterprise.

Risks

• Cloud services revenue growth is slower than expected.
• Competition from traditional ERP vendors intensifies in next-generation cloud platforms and AI enterprise software.
• Additional R&D and marketing investment may delay profitability improvement in the cloud business.
• SME IT spending remains weak, leading to revenue growth below forecasts.
• Commercialization of AI-native products, Lingee contract signing, or Token usage falls short of management targets.
• Macroeconomic conditions and market valuation volatility may hinder realization of the target price.

What to watch

• Whether FY26E total revenue can maintain double-digit growth.
• Whether FY26E revenue from AI-native products can exceed CNY 1bn.
• Whether Lingee can complete its target of 10,000 contracts in FY26E, and the customer adoption rate of the "seat fee + Token credits" model.
• Whether subscription revenue can maintain approximately 20% YoY growth.
• Whether 2H26E AI-native product revenue is higher than 1H26.
• Whether adjusted net margin can reach approximately 7%, and whether operating cash flow can grow by more than 20% YoY.
• Trends in SME IT spending and overseas revenue growth.
• The impact of R&D and marketing investment on short-term margins and long-term product competitiveness.