HSBC maintains Kingdee Buy rating with a target price of HKD17.70

Overview

This is a research meeting summary on Kingdee published by HSBC after the 2026 Global Investment Summit. The core conclusion is that in 1Q26, Kingdee showed improving demand momentum in ARR, revenue, cash collection, and AI product orders, while cost control and AI feature upgrades support gross margin and profit recovery.

Core views

HSBC believes Kingdee will benefit from favorable industry tailwinds such as AI, localization, and easing competition. 1Q26 ARR grew 19% year-over-year to RMB4.2bn, and management guided full-year ARR to grow 18%-19% year-over-year; revenue growth rose from 12% in 2025 to above 13% in 1Q26. AI Suite order performance has been stronger than internal expectations, while the full-year AI Suite revenue target of RMB1bn remains unchanged, and management expects demand to accelerate from 2Q as more AI products are launched in May.

Analysis framework

The report analyzes summit management discussions, 1Q26 operating indicators, product order performance, cost control progress, and relative valuation. On valuation, HSBC continues to use a price-to-sales multiple approach, using 2026 forecast revenue of RMB7.8bn, RMB-HKD exchange rate of 1.16, and a 7x 2026 target PS to calculate the target price.

Methodology notes

• Valuation methodsprice-to-sales multiple

  PS valuation method

  HSBC referenced Kingdee’s historical average PS of 8.6x since 2018, a 14% revenue CAGR from 2018-2024, and paired this with expected revenue CAGR of 12% for 2024-2027, applying a 7x 2026 target PS.

• fundamental_analysisARR and revenue momentum

  ARR and revenue momentum tracking

  The report gauges visibility and strength of enterprise software demand through ARR growth, revenue growth, renewal rates, cash collections, and collections adjusted for contract liabilities.

Asset mapping & comparison

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

• Kingdee 0268.HK

  Research coverage target, with HSBC maintaining a Buy rating.

  Strengths

  Improving ARR and revenue momentum, strong AI Suite order performance, higher customer prepayments, strict cost control, and AI ERP capabilities with pricing premium.

  Weaknesses

  Seasonal fluctuations in Constellation net retention in 1Q26 and early-stage enterprise awareness of AI agents and Agent applications.

  Comparison

  Kingdee currently trades at 3.3x forward one-year PS, below Yonyou's 3.9x. The report believes the two companies' historical PS multiples are close and Kingdee valuation has room to recover.

  Risks

  Weak macro demand, intensified competition in the AI era, and uncertainty around AI commercialization progress.

Key data

• 1Q26 ARRRMB4.2bn, +19% y-o-yManagement guided full-year ARR year-over-year growth of 18%-19%.
• 1Q26 revenue growth13%+ y-o-yHigher than 2025's 12%, driven mainly by large enterprises and localization demand.
• Constellation net retention rate103% in 1Q26Below the full-year target of above 110%, partly because customers delayed additional purchases while waiting for AI products to be launched.
• AI Suite annual revenue targetRMB1bnTarget remains unchanged, and management said execution is currently ahead of plan.
• AI contract delivery cycle1-2 months to up to 6 monthsSimple deployments take around 1-2 months, while complex scenarios can take up to about 6 months.
• AI contract sizeseveral hundred thousand RMB to RMB30-50mPricing is based on subscription and usage models, and may evolve toward outcome-based pricing in the future.
• 2026e revenue assumptionRMB7.8bnUsed for target price calculation.
• Target PS7x 2026e PSTarget price remains unchanged at HKD17.70.
• Current forward PS3.3x one-year forward PSBelow Kingdee's historical average minus one standard deviation, equivalent to 4.2x, and below Yonyou's 3.9x.

Impact & implications

If AI product launches and order conversion continue to progress, Kingdee has room for recovery in revenue growth, gross margin, and market valuation. The report believes that worries about AI replacing traditional software have led to H-share tech sector selling pressure and depressed Kingdee's valuation, but as cloud migration, revenue acceleration, and net margin improvement continue, valuation is expected to be re-rated and converge with Yonyou.

Risks

• If macroeconomic data are weaker than expected, downstream users, especially SMEs, may see weakening demand.
• If ERP startups or ICT giants such as Huawei enter during the AI era and start a price war, Kingdee's margins could come under pressure.
• AI ERP integration is complex, and enterprise-grade model capability for long and complex tasks still needs improvement, which may delay AI revenue conversion.

What to watch

• Orders and customer feedback after additional AI product launches in May.
• Whether AI Suite demand accelerates from 2Q26 as management expects.
• Progress in achieving the full-year ARR year-over-year growth target of 18%-19%.
• Whether Constellation net retention can recover to the full-year target of above 110%.
• The extent of operating loss and net margin improvement after cost control.
• Whether the PS valuation gap between Kingdee and Yonyou is narrowing.