Kingdee (00268): Goldman Sachs maintains Neutral on Kingdee as AI-native products support growth while earnings estimates and the target price fall.

Overview

This earnings review examines whether Kingdee’s AI-native offerings, led by Lingee Enterprise AI OS and the Kingdee AI Suite, can extend subscription growth and improve profitability. Goldman Sachs sees these products as important growth engines but maintains Neutral after reducing earnings forecasts and its DCF target price.

Core views

Goldman Sachs identifies Kingdee’s AI-native products as a central future subscription-growth driver. Contract value for in-house Lingee, the Kingdee AI Suite and related offerings grew 159% year-on-year and 47% half-on-half in 1H26. Kingdee is integrating AI features into existing products such as Galaxy and Constellation while expanding AI-native products and its data cloud through partnerships with large clients. Lingee Enterprise AI OS addresses daily work and business analysis, management applications across functions including finance, sales and procurement, and development tools for individuals and enterprises. The company targets more than Rmb1bn of AI-native product revenue in 2026E. The 1H26 result was broadly in line on revenue but better on earnings. Revenue increased 14% YoY to Rmb3.625bn, matching both Goldman Sachs estimates and company guidance, with SMB enterprise revenue up 15% YoY and large- and medium-scale enterprise revenue up 9% YoY. Gross profit rose 17% YoY to Rmb2.456bn and gross margin was 67.7%. Operating income was a Rmb52m loss, versus a Rmb290m loss in 1H25, while net income reached Rmb54m versus a Rmb98m loss a year earlier. Net income was 35% above Goldman Sachs’s estimate and 24% above the midpoint of company guidance, because the operating-expense ratio benefited from a larger subscription business. For 2H26, Goldman Sachs expects 15% YoY revenue growth as AI-native products contribute more and profitability continues to improve. Its revised forecasts imply revenue of Rmb8.026bn in 2026E, Rmb9.187bn in 2027E and Rmb10.776bn in 2028E. It forecasts operating margin improving from 2.9% in 2026E to 4.8% in 2027E and 6.3% in 2028E, while net margin rises from 4.8% to 6.3% and 7.7%, respectively. The firm nevertheless lowers its earnings forecasts after incorporating the 1H26 results. Revenue forecasts are reduced by 0.3% for 2026E, 3% for 2027E and 2% for 2028E, mainly reflecting lower projected large-scale enterprise revenue. Net-income forecasts are cut by 4%, 10% and 7% for 2026E, 2027E and 2028E, respectively; revised figures are Rmb389m, Rmb580m and Rmb831m. Goldman Sachs also raises its assumed operating-expense ratio to reflect higher-than-expected R&D spending, while remaining positive on AI-native products as new growth engines. Valuation remains based on a two-stage DCF, rolled forward to 2027E to capture long-term cash-flow generation. Goldman Sachs lowers assumed stage-two free-cash-flow growth in 2032E-36E to 1% YoY from 2%-7% previously, applies 2% terminal growth, and discounts cash flows using a 12.1% WACC and cost of equity. The cost-of-equity inputs are beta of 1.4, a 3.0% risk-free rate and a 6.5% market-risk premium. These assumptions produce a 12-month target price of HK$10.50, down from HK$11.10; Goldman Sachs maintains Neutral.

Analysis framework

Goldman Sachs assesses the 1H26 revenue and profit outcome against its estimates and company guidance, separates growth by customer segment, and evaluates AI-native products as a subscription-growth driver. It then revises multi-year revenue, cost and earnings forecasts before applying a two-stage DCF valuation using explicit long-term free-cash-flow growth, terminal growth and discount-rate assumptions.

Methodology notes

• Valuation methodsDCF (Discounted Cash Flow)

  Two-stage DCF valuation

  Goldman Sachs values Kingdee by forecasting free cash flow, discounting it at a 12.1% WACC, and adding a terminal value based on 2% perpetual growth.

• Corporate Fundamentals and FinanceFree cash flow analysis

  Long-term free-cash-flow growth assumptions

  The target price incorporates lower assumed free-cash-flow growth of 1% annually in 2032E-36E, which reduces the long-term valuation outcome.

Asset mapping & comparison

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

• Kingdee (0268.HK)

  Primary covered company; AI-native products are expected to support subscription growth and profitability.

  Strengths

  AI-native contract value grew strongly; 1H26 net income exceeded Goldman Sachs estimates; subscription scale supported operating leverage.

  Weaknesses

  Large- and medium-scale enterprise growth was 9% YoY and lower large-enterprise revenue expectations drove forecast cuts.

  Risks

  Faster or slower AI adoption, a better or worse macro environment, and a higher or lower subscription-revenue contribution.

Key data

• 1H26 revenueRmb3.625bnUp 14% YoY; in line with Goldman Sachs estimates and company guidance.
• 1H26 net incomeRmb54mUp 35% YoY; 35% above Goldman Sachs estimates and 24% above midpoint guidance.
• AI-native product contract value growth159% YoY; 47% HoHFor offerings including Lingee and Kingdee AI Suite in 1H26.
• AI-native product targetOver Rmb1bn in 2026ECompany target supported by broader AI product offerings and features.
• 2026E/2027E/2028E net-income revisions-4%/-10%/-7%Mainly due to lower large-scale enterprise revenue expectations and higher R&D-related operating expenses.
• 12-month target priceHK$10.50DCF-derived; reduced from HK$11.10.
• Valuation assumptions12.1% WACC; 2% terminal growthStage-two FCF growth in 2032E-36E is modeled at 1% YoY.

Impact & implications

The report argues that expanding AI-native products can support Kingdee’s subscription growth and operating leverage, underpinning continued profitability improvement. However, lower large-enterprise revenue expectations, higher R&D expense assumptions and reduced long-term cash-flow growth lead to lower earnings forecasts and a reduced valuation target.

Risks

• AI adoption may be faster or slower than expected.
• The macro environment may be better or worse than expected.
• Subscription revenue may contribute more or less than expected.

What to watch

• Growth and monetization of Lingee, Kingdee AI Suite and other AI-native products.
• Progress toward the company’s target of more than Rmb1bn in AI-native product revenue in 2026E.
• Subscription-business scale and its effect on operating expenses and profitability.
• Large-scale enterprise revenue performance and R&D spending.