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On Wednesday, Morgan Stanley (NYSE:MS) adjusted their stance on Kingdee International Software (ETR:SOWGn) Group Co. (268:HK) (OTC: KGDEF), shifting the stock rating from Overweight to Equal-weight while raising the price target to HK$13.50 from the previous HK$10.00. The revision reflects concerns about the company’s key customer base, which consists predominantly of medium-sized enterprises that are highly sensitive to shifts in the macroeconomic environment and technology cycles, including cloud services.
The firm’s analysts pointed out that Kingdee’s stock is trading at multiples that are less appealing when compared to its global counterparts such as Salesforce.com (NYSE:CRM), Workday (NASDAQ:WDAY), and SAP. Specifically, Kingdee’s stock is valued at 7 times its estimated 2025 enterprise value to sales (EV/S) and 42 times its estimated 2026 enterprise value to free cash flow (EV/FCF).
Furthermore, Morgan Stanley highlighted that Kingdee’s growth prospects appear to be somewhat weaker than those of its global peers. Additionally, the profitability of Kingdee is significantly lower, which contributes to the less favorable valuation metrics. The analysts suggest that potential investors may want to wait for a more opportune moment to invest, as the current entry point does not offer an attractive investment proposition.
The recommendation to move to an Equal-weight rating indicates that Morgan Stanley believes Kingdee’s stock should perform in line with the average returns of the stocks the firm covers, as opposed to the previous Overweight rating which suggested that the stock would outperform.
Investors and market watchers will likely monitor Kingdee’s performance closely in the coming months, especially in relation to the macroeconomic factors and technological shifts that have been identified as key influences on the company’s customer base and overall market positioning.
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