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On Wednesday, Jefferies analyst Edison Lee downgraded Kingdee International Software (ETR:SOWGn) Group Co. (268:HK) (OTC: KGDEF) from "Buy" to "Hold," adjusting the price target to HK$16.04 from the previous HK$17.32. The revision reflects concerns over the company’s performance in the second half of 2024, specifically citing issues with Galaxy/SME revenue and the delayed signing of SaaS contracts.
Despite the downgrade, Lee acknowledged several positive indicators for Kingdee International. The company’s subscription compound half-over-half and year-over-year growth of 15% and 29% respectively were seen as favorable signs. Management’s guidance for 2025 includes double-digit revenue growth, improved gross margins, positive profits, a slight reduction in headcount, and operating cash flow exceeding Rmb1 billion.
The Cloud Computing (CC) segment, known as LE, was highlighted for its robust 30% annual recurring revenue growth and an impressive 108% net dollar retention rate. Lee suggested that the strong performance in the cloud sector could help the company reduce its losses more rapidly.
Despite these positive aspects, Lee expressed caution due to Kingdee International’s high valuation. This was a key factor in the decision to downgrade the stock to a "Hold" rating. The revised price target of HK$16.04 represents a conservative estimate based on the current financial outlook and market conditions.
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