J.正式版. 摩根-中國電信與媒體行業(yè)-中國SaaS：中國數(shù)字化轉(zhuǎn)型和軟件本地化的最佳劇本-2021.5.31-84正式版

AsiaPacificEquityResearch31May2021ThismaterialisneitherintendedtobedistributedtoMainlandChinainvestorsnortoprovidesecuritiesinvestmentconsultancyserviceswithintheterritoryofMainlandChina.Thismaterialoranyportionhereofmaynotbereprinted,soldorredistributedwithoutthewrittenconsentofJ.P.Morgan.ChinaSaaSBestplayonChina’sdigitaltransformationandsoftwarelocalization;WeimobandMingYuanCloudtoppicksWeinitiateonsixsoftwarestocksthatadoptSaaSstrategies,withOWratingsonWeimob(2013HK),MingYuanCloud(909HK),BeijingKingsoftOfficeSoftware(KOS,688111CH),Glodon(002410CH),andNratingsonYonyou(600588CH)andKingdee(268HK).WebelievethesecompaniesarethebestplaysonChina’sdigitaltransformation,softwarelocalizationandSaaSprosperitythemes,andbenefitfromafavorableregulatoryenvironment.Thesoftwareindustry,especiallySaaS,providesinvestorswithgoodexposuretotheseculardigitaltransformationtrendinChina,wheresoftwarespendingcouldpotentiallyincreaseby11xifChina’sspendingasapercentageofGDPcatchesuptoU.S.levels.WethinkChina’sSaaSmarketisalong-termstructuralgrowthopportunity,andestimatesectorrevenuewillgrow7xbetween2019and2025E.AUS$1trillionmarketinthemaking,wheremany‘multi-bagger’investmentopportunitiesarelikelytounfold:ApplyingaP/Smultipleof15x-25x(U.S.SaaSuniverse’saverageEV/S=16x),weestimateChina’senterpriseSaaSmarketcouldbepotentiallyvaluedatUS$0.6-1tnin2025.WeexpecttheSaaSmarkettopresentalargenumberofinvestmentopportunitiesthatcouldbe‘multi-baggers’overthenextfiveyears.Withinourcoverage,Glodon,YonyouandKingdee’ssharepriceshaveincreasedby3x-9xsince2017,andWeimobandKOShaverallied5x-7xsincetheirIPOsin2019.Weattributethesharepriceoutperformancetogoodexecutionofcloudtransformationstrategies,strongrevenueandearningsgrowth,andfundflowtoneweconomystockslastyear.WeexpectfastSaaSbusinessgrowthtoremainakeycatalystinthefuture,drivenbygrowingdemandofChinesecorporatesfordigitaltransformation,risinginclinationtousedomesticsoftwareproductsandincreasingacceptanceofcloud-basedservice.2021mightbeachallengingyearforgrowthstocks;beselective:Althoughwebelievefundamentalsofthesixsoftwarestocksremainsolid,macro-drivenstylerotationwilllikelycontinuetobeanoverhangforthespaceinthenearfuture.Werecommendfourstocks,inthepeckingorderofWeimob(agoodplayonfast-growingdecentralizedcommerce,movingup-marketstrategy,relativelyattractivevaluations)>MingYuanCloud(establishedrelationshipswithpremiercustomers,synergiesbetweenSaaSandlegacybusiness)>KOS(keybeneficiaryfromsoftwarelocalization)>Glodon(marketdominance,newbusinesspotentialnotpricedin).WesuggestinvestorsstayNeutralonKingdeeandYonyougiventhechallengestheymightfacewithpromotingtheSaaSservicetolargeenterprisesandpotentiallydeterioratingprofitability.Valuationframeworkandrisks:WeadoptSOTPasourmainvaluationmethodologygiventhedifferentrevenuegrowthandmarginprofilesofthesecompanies’SaaSandlegacybusinesses.WevaluetheSaaSoperationonarangeof16x-32xP/S,andnon-SaaSon10x-45xP/E.Keyrisksincludepotentiallyintensifyingcompetition,largeenterprises’reluctancetoadoptcloudservice(ariskforYonyouandKingdeeinparticular),highchurnsofsmall-sizedenterprises(Weimob),andprofitabilitypressureresultingfromnewbusinessdevelopment(Weimob,YonyouandKingdee).

CompanyRatingPT(LC)UpsideTypeReportWeimobOW22.028%VerticalLinkMingYuanOW50.025%VerticalLinkCloudKingsoftOfficeOW460.023%HorizontalLinkGlodonOW89.020%VerticalLinkYonyouN41.013%HorizontalLinkKingdeeN31.05%HorizontalLinkSource:BloombergFinanceL.P.andJ.P.Morgan.Pricedatcloseof28May2021.Seepage80foranalystcertificationandimportantdisclosures,includingnon-USanalystdisclosures.J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.InvestorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentMichelleWei,CFA2800-8562michelle.z.wei@

AsiaPacificEquityResearch31May2021TableofContentsSummaryofChinasoftwarecoverage 3Executivesummary 4ChinaSaaS:AUS$1trillionmarketvalueinthemaking 4Stockviewsandvaluations 6Risks 11Valuationcomptables 11Sub-marketdiscussions 15HorizontalSaaSvsVerticalSaaS 15RealEstate 17EnterpriseResourcePlanning(ERP) 24Construction 30DecentralizedCommerce 36OfficeSoftware 41PromisingSaaSadoptioninChina 45SizingChina’sSaaSmarket 45EnterpriseSaaSmarkettoreachRmb260bnin2025E 45Adiverseandfragmentedmarket 46Driver1:Publicclouddeploymentgainingincreasingacceptance 47Driver2:Robustcloudandinternetinfrastructureasasolidfoundation 48Driver3:SignificantpotentialinSMEs,whicharewellsuitedforSaaS 49Driver4:COVID-19boostscloud-basedserviceadoption 50ChallengestoSaaSadoptioninChina 50InternetgiantsbuildingSaaSecosystems 51U.S.casestudy–SuccessfulSaaStransitionrewardsfinancialsandshareprices 56Asnapshotofprivatecompanies 59China’ssoftwareindustrypresentsgreatpotential 66Chinahasbeenunder-digitalized 66Stronggovernmentsupportfordigitaltransformation 68Risingdemandforsoftwareservicesamidrapidlyrisinglaborcosts 71Softwarelocalizationbenefitsdomesticplayers 71Appendix:ChinavstheU.S 75Appendix:BasicsofSaaS 77On-demandSaaSmodelvstraditionalon-premisesoftwaremodel 77SaaSvsIaaS/PaaS 78ProsandconsofSaaS:Customerpointofview 79ProsandconsofSaaS:Vendorpointofview 792MichelleWei,CFAAsiaPacificEquityResearch(852)2800-856231May2021michelle.z.wei@SummaryofChinasoftwarecoverageTable1:SummaryofcompanybackgroundandstockviewsCompanyWeimobMingYuanCloudBeijingKingsoftOfficeGlodonYonyouNetworkKingdeeIntel'SoftwareSoftwareTechnologyStockcode2013HK909HK688111CH002410CH600588CH268HKMarketcap(US$bn)5.09.927.213.818.613.2Dailyliquidity(US$mn)109.235.686.576.695.459.5StockratingOWOWOWOWNNPricetarget(Jun-22,LC)22.050.0460.089.041.031.0UpsidetoPT28%25%23%20%13%5%32x2022EP/S90%/10%probabilityforbase21x2022EP/S(construction25x2022EP/S(SaaS28x2022EP/S(SaaS16x2022EP/S(subscriptioncasescenario(Rmb5bnNPrevenue),10x2022EP/S(non-revenue),15x2022EP/S(non-Targetvaluationmultiplesservice)&20x2022EP/E(SaaSrevenue)&and45x2025PE)/blueskycostrevenue)&SaaScloudrevenue)&SaaScloudrevenue)&25x2022EP/E12x2022EP/S(construction(advertising)scenario(Rmb15bnNPand10x2022EP/E(non-cloud10x2022EP/E(non-cloud(ERPearnings)managementrevenue)30x2025PE)earnings)earnings)Horizontalorvertical?VerticalVerticalHorizontalVerticalHorizontalHorizontalIndustryDecentralizedRealestateOfficesoftwareConstructionERPERPcommerceUS$11bn(incl.U$$4bnforTAM(2025E)US$6bnpropertydeveloper-focusedUS$3bnUS$5bnforBIMUS$11bnUS$11bnsolutions)CurrentmarketshareLow-teens~20%(forpropertydeveloper-~20%~70%(constructioncostfocusedsolutions)software)CRM/Procurement/Constructioncost&KeyproductsWeiMall,SmartRetail,SmartConstruction/WPSOfficeconstructionmanagementCateringAssetMgmtSaaSproductssoftwareandon-premiseERPproductsMaincompetitorsYouzanSAP,Kingdee,Yonyou,MicrosoftAutodesk,TsinghuaSware,GlodonLubanGlobalpeersShopifyAutodesk,Salesforce,SAPMicrosoftAutodeskandOracleTotalrevenueCAGR34%37%46%21%(2020-2023E)SaaSrevenueCAGR63%53%49%37%(2020-2023E)SaaSrevenueas%oftotal47%/53%/57%60%/66%/71%49%/50%/52%53%/57%/58%(2021E/2022E/2023E)EarningsCAGR92%40%43%57%(2020-2023E)ContinuedsmoothcloudStrongmomentumofSaaSStrongsubscriptionrevenuetransformation,furtherStrongmomentumofrevenuegrowthandimprovingconstructioncostrevenuegrowthandacceleratedCatalystssubscriptionbusinessandeconomics,decentgrowthofgrowthtobedrivenbypiracygrowthofsoftwarelicensingprogressinpenetratinglarger-ERPbusinessdrivenbyconversionandARPUbusinessthankstosizedclientsregionalmarketpenetrationincrease,greatpotentialinlocalizationinitiativeandhigherARPUBIM-basedconstructionprojectmanagementAdversedevelopmentofrealSlower-than-expectedSlower-than-expectedSlower-than-expectedadoptionofBIMbyRisksestateindustry,tighteningconstructionindustry,marginprogressinpenetratingmid-to-progressinsoftwareregulationonfacialpressurefromnewbusinesslargesizedclientslocalizationrecognitiontechnologydevelopment,anti-monopolyconcern

~30%Low-teensYonBIP&NCCloud(cloudCloudCosmic(cloudERPproductforlargeenterprise)ERPproductsforlargeCloudGalaxy(medium-sizedenterprise),enterprise),YonSuite&U8Cloud(forCloudStellar&JingdouCloudmedium-sizedenterprise)(SME)Kingdee,Inspur,Yonyou,Inspur,SAP,OracleSAP,OracleSAPandSAPandOracleOracle27%24%96%50%10%/14%/20%37%/45%/52%-1%Turnprofitablein2023EAcceleratingcloudContinuedstrongmomentumtransformationandveryfastofcloudtransformationandSaaSrevenuegrowthfromaSaaSrevenuegrowth,risinglowbase,risinginclinationforinclinationforChineseChineseenterprisestouseenterprisestousedomesticdomesticsoftwareproductssoftwareproductsProfitabilitypressureduetoProfitabilitypressureduetoincreasingR&DandS&MforincreasingR&DandS&Mforcloudservice,competition,cloudservice,competition,andchallengewithmigratingandchallengewithmigratinglargecustomerstocloudlargecustomerstocloudSource:BloombergFinanceL.P.,companydataandJ.P.Morganestimates.Pricedatcloseof28May2021.3MichelleWei,CFAAsiaPacificEquityResearch(852)2800-856231May2021michelle.z.wei@ExecutivesummaryChinaSaaS:AUS$1trillionmarketvalueinthemakingWeseegreatpotentialinthismarketEnterpriseSaaS(softwareasaservice)takesthelion’sshareofChina’sSaaSmarket.WeestimaterevenuesizeofthemarketreachedRmb36bnin2019,andwillcontinuetogrowatafastpace(CAGRof39%over2019-2025E)andhitapproximatelyRmb260bn(US$40bn)in2025E.ApplyingaP/Smultipleof15x-25x(U.S.SaaSuniverse’saverageEV/S=16.5x),weestimatethatChina’senterpriseSaaSmarketcouldbepotentiallyvaluedatUS$0.6-1trillionin2025E.WithinChina'sSaaSspace,weprojectpublicclouddeploymenttogrowataCAGRof43%,slightlyfasterthanpubliccloudIaaSandprivatecloudSaaS.WebelieveChina’spubliccloudSaaSmarketsizewilllikelyrisefromUS$3bnin2019(1/20ofU.S.)toUS$25bnin2025E(1/5ofthelatter),representingapproximately60%(vs50%in2019)oftheentireSaaSmarketinthecountryinfiveyears.Figure1:ChinaenterpriseSaaSmarketsize Figure2:ChinavsU.S.:PubliccloudSaaSmarketsizeSource:J.P.Morganestimates. Source:GartnerandJ.P.Morganestimates.SaaSisakeybeneficiaryoftheseculardigitaltransformationtrendinChinaIT/softwarespendonlyaccountedfor2.8%/0.1%ofChina’sGDPin2020,wellbelowtheU.S.levelat5.8%/1.1%,respectively.WeexpectthegrowthrateofsoftwareandSaaSspendinginChinatobemid-teensandapproximately40%,respectively,inthecomingyears,muchfasterthanthe12%and16%intheU.S.(asperGartnerforecasts).SoftwarespendinginChinacouldpotentiallyincreaseby11xifChina’ssoftwarespendasapercentageofGDPcatchesupwiththeU.S.4MichelleWei,CFAAsiaPacificEquityResearch(852)2800-856231May2021michelle.z.wei@Figure3:Softwarespendingas%ofGDP Figure4:SoftwarespendingCAGR(2020-2024E)Source:Gartner,WorldBankandJ.P.Morgan.Note:2020data. Source:GartnerandJ.P.Morgan.Supply-sidedriversinclude:1)Thegovernment’sstrongpolicysupportfordigitaltransformationandcloudadoption;2)Chinamakinggreateffortstopromotedomesticsubstitutes,especiallyinchipsetandsoftwareindustries;3)RobustIaaS,IDCandtelecomnetworkinfrastructure.Onthedemandside,ahugepopulationofSMEsinChina(32mn,>60%ofGDPin2017)areunder-digitalizedandwell-suitedforSaaS,andfast-risinglaborcostsandpotentiallyslowereconomicgrowthinthecountrycallforimprovingoperationalefficiency.TheCovid-19-drivenfastrisingremoteworkingdemandalsopresentsgreatupsidefortheSaaSindustry.Figure5:NumberofSMEsinChina Figure6:Chinavs.U.S.:Per-capitaincometrendsSource:MIITandJ.P.Morgan. Source:CEICandJ.P.Morgan.5MichelleWei,CFA2800-8562michelle.z.wei@

AsiaPacificEquityResearch31May2021SoftwareindustryisinasweetspotintermsofregulationsUnlikemanyindustriesthatfaceunfavorableregulationsthatmaydampenthegrowthprospectofmarketleadersorthemarketasawhole(e.g.anti-monopolyinvestigationsinconsumerinternet,pricecutrequirementfortelecomoperatorsandpoliciesthattrytopreventpropertymarketfromoverheating),thesoftwareindustryhasbeenandwilllikelycontinuetostayinasweetspotintermsofregulatorysupport.TheChinesegovernmenthasrolledoutaseriesofpoliciestosupportdigitaltransformationandcloudadoptionacrossindustrieswhichhelpdrivethedemandforSaaS/softwareservice.Inaddition,Chinaisdoublingdownonitseffortstoboostdomesticsoftwareindustriesandencouragesoftwarelocalization,amidintensifiedtechnologyconfrontationswiththeU.S.Measuresbeingtakenincludeawiderangeoffavorablepoliciessuchastaxincentives,streamlineddomesticlistingprocedure,financialsupportfromgovernment-investedfunds,improvedIPprotection,andencouragingcompanies,especiallygovernment-relatedones,tosubstituteforeignproductswithdomesticones.Overall,wethinkthattheriskofanti-monopolyinvestigationforthissectorisverylow,inlightoftherelativelylowmarketconcentrationlevelsinmostsub-marketsandthegovernment'sagendaofgrowingthedomesticplayers.StockviewsandvaluationsAdiversemarketwheremany‘multi-bagger’investmentopportunitiescouldunfoldWeexpectthesectortopresentalargenumberofinvestmentopportunitiesthatcouldbe‘multi-baggers’overthenextfiveyears.WhilewehaveincludedalonglistofprivateSaaScompaniesinarichvarietyofsub-sectorsinthereport,wemainlyfocusonthediscussionoffivemarketsthatarerelatedtoourcoveragestocks,namelyrealestate,construction,de-centralizedcommerce,ERPandofficesoftware.Allofthestockswithinourcoverage,exceptMingYuanCloudwhichhasaveryshorthistoryofpublictrading,haveprovedtobemulti-baggers.Yonyou,GlodonandKingdee'ssharepriceshaveincreasedby3x,4xand9xsince2017,whileKOSandWeimobhaveralliedby7xand5xsincetheirIPOsin2019.ItisworthnotingthatasubstantialpartofthesharepricegainsforYonyou,Glodon,KingdeeandKOSwerebetween2017and2019,andwerebeforetheCovid-19-drivenrotationtohighgrowthstocksin2020.6MichelleWei,CFA2800-8562michelle.z.wei@

AsiaPacificEquityResearch31May2021Figure7:SharepricesofJPMsoftwarecoveragestocksSource:BloombergFinanceL.P.WeinitiateonsixmarketleaderswithaSaaSstrategyIncontrasttoalargenumberofprivateSaaScompaniesinChina,choicesoflistedSaaScompaniesislimitedatthemoment.Inthisreport,wefocusonsixstocksthatareleadersintheirrespectivemarkets,haverelativelylargemarketcapsandmeaningfulSaaSexposure.Thestocksweinitiateonincludethreehorizontalplayersthatservecustomersacrossvariousindustries,namely1)KOSthatprovidesofficesoftware,and2)YonyouandKingdeebothofwhichofferenterpriseresourceplanning(ERP)systems.Wealsoinitiateonthreeverticalplayersthatservespecificindustries,including4)MingYuanCloudinrealestate,5)Glodoninconstruction,and6)Weimobindecentralizedcommerce.ThesecompanieshavetakendifferentpathstowardsSaaSandareatvaryingstagesoftheirSaaSdevelopments.WeimobstartedwithaSaaSfocus.Glodon,YonyouandKingdeearetransformingtheirexistingon-premisesoftwarebusinesstoaSaaSmodel,whileKOSandMingYuanCloud’sSaaSserviceisstandaloneandcomplementarytotheirexistingoperations.SaaScontributiontototalrevenueofthesesixcompaniesvariedsignificantlyfromsingle-digittoover50%in2020,andgrowthratesareexpectedtorangebetween37%and96%during2020-2023E.Peckingorder:Weimob>MingYuanCloud>KOS>Glodon>YonyouandKingdeeAlthoughwebelievefundamentalsofthesixsoftwarestocksremainsolid,macro-drivenstylerotationwilllikelycontinuetobeanoverhangforthespaceinthenearfuture.WewouldbeselectivewithstockpickinggiventhemacrouncertaintiesandpreferstockswithhighvisibilityofsuccessfullyexecutingtheirSaaSstrategiesinthenearfuture.WerecommendfourstocksinthepeckingorderofWeimob(agoodplayonfast-growingdecentralizedcommerce,movingup-marketstrategy,relativelyattractivevaluations)>MingYuanCloud(establishedrelationshipwithpremiercustomers,synergiesbetweenSaaSandlegacybusiness)>KOS(keybeneficiary7MichelleWei,CFA2800-8562michelle.z.wei@

AsiaPacificEquityResearch31May2021fromsoftwarelocalization)>Glodon(marketdominance,newbusinesspotentialnotpricedin).WesuggestinvestorsstayNeutralonKingdeeandYonyougiventhechallengestheymightfacewithpromotingtheSaaSserviceinthelargeenterprisesegmentandpotentiallydeterioratingprofitabilityduetobusinesscannibalizationandaggressiveinvestment.Weimob(OW,PTofHK$22)ItisoneoftheleadingSaaSandmarketingserviceprovidersinthespaceofsocialnetworkingplatform-baseddecentralizedcommerce.Drivenbyindustrytailwindandthecompany’ssolidprogressinpenetratinglarger-sizedpremiumclients(vs.historicallyfocusingonSMB),weexpectthecompanytodeliverasolid30%revenueCAGR(withinwhichSaaSrevenueistogrowatafaster49%CAGR)during2020-25E.OurPTofHK$22isbasedonSOTPvaluationincluding1)HK$15/shrforsubscriptionserviceon16x2022EP/S(atparwithChina'ssoftwareverticalleaders’comp),and2)HK$7foradvertisingbusinesson20x2022EP/E(33%premiumcomparedwithdomesticadagentpeerduetofastergrowth).MingYuanCloud(OW,PTofHK$50)ItisthelargestsoftwareserviceproviderinChina’spropertymarket,with17%/23%marketshareinERPsolutions/SaaSproductsforpropertydevelopersin2019.WeprojectthattherealestatesoftwaresolutionmarketwillmorethantripleandreachRmb71bnin2025E,includingRmb27.5bnforproductstargetingpropertydevelopers.Weseethiscompany,beingindustry-specificinsteadofgeneric,bestpositionedtobenefitfrompropertyindustry’sdigitaltransformation,andexpectittodeliver37%revenueand40%earningsCAGRduring2020-2023E.WebelieveMingYuan’sdeepdomainknowledgeandlong-termrelationshipwithleadingpropertydeveloperscreateahighentrybarrierandpositionitwelltobealong-termwinnerinthemarket.OurJun-22pricetargetofHK$50isbasedonaSOTPmethodology,giventhedifferentrevenuegrowthandmarginprofilesbetweenon-premiseERPandSaaSbusinesses.OurPTcomprises1)HK$44/shareforitsSaaSbusiness,adoptinga32xtargetP/Sonsegment2022ESaaSrevenue.OurP/Smultiplepremiumreflectsthecompany'srelativelyfastSaaSrevenuegrowth(>50%),highcustomerretentionrate(~90%),premiercustomerbase(nearlyalloftop100propertydevelopers),andmarketleadership(>20%marketshare);and2)HK$6/shareforitson-premiseERPbusiness,basedona25xtargetP/Eon2022EERPearningsandassumptionofearningsCAGRof16%between2020and2022E.KOS(OW,PTofRmb460)ItisthelargestdomesticofficesoftwarecompanyinChina,anddeliveredaremarkable43%/61%revenue/profitCAGRduring2016-20.Webelievethevaluationpremiumpricesin1)KOS’sscarcityvalueasthelargestbeneficiaryofsoftwarelocalizationwithoutmajordomesticcompetitors,2)itssolidprogressinrampingupconsumer-orientedsubscriptionbusiness,and3)theoptionvalueoffulllocalizationinextremecase.Wearepositiveonitslong-termgrowthoutlookandforecastarobust41%earningsCAGRduring2020-25E.Weseepotentialupsidetolicensingrevenuegrowththisyear,whichwillserveasakeycatalysttothestock.WederiveourPTonaprobability-weighedapproach,assuming90%/10%probabilityforthebasecasescenario(Rmb5bnNPand45x2025EP/E)/blueskyscenario(Rmb15bnNPand30x2025EP/E).Theblueskyscenarioassumesfullsoftwarelocalizationand90%marketsharetakenbyKOS.8MichelleWei,CFA2800-8562michelle.z.wei@

AsiaPacificEquityResearch31May2021Glodon(OW,PTofRmb89)ItthelargestconstructioncostsoftwareproviderinChina,withover70%marketshare.IthasexecutedasmoothtransformationtowardsaSaaSmodelinrecentyears,withSaaSrevenueexpectedtoaccountforover80%ofitsconstructioncostrevenuein2022E,whilemarginhasheldupwell.GlodonismakinggreateffortstodriverevenuegrowthinChina’sfastexpandingBIM-basedconstructionprojectmanagementmarket.Althoughweexpectthisbusinesstoremainrelativelysmallcomparedtoitsconstructioncostbusiness,wethinkthegrowthpotentialissignificantinthelongtermandcurrentlynotintheprice.OurJun-22pricetargetofRmb89isbasedonaSOTPmethodology,comprisingof1)Rmb71/shareforitssubscription-basedconstructioncostsoftwarebusiness,adoptinga25x2022EP/Swhichreflectsits37%revenueCAGRover2020-2023Eanditsmarketdominance;Rmb0.8/shareforitslegacyconstructioncostsoftwarebusinesswhichisfastshrinking,usinga10xP/Emultiple;and3)Rmb17/sharefortheconstructionmanagementbusiness,basedona12x2022EP/Sandassumptionof33%revenueCAGRover2020-2023E.Yonyou(Neutral,PTofRmb41)ItisthelargestERPsoftwareproviderinChina,withnearly30%marketshare.WeprojectChina’sERPmarketwillmorethandoubleandreachRmb73bnin2025E.Weseethecompanywell-positionedtobenefitfromChineseenterprises’digitaltransformationandsoftwarelocalizationtrend.Ithasbeenalaggardincloudtransformation,comparedtoitsmaincompetitorKingdee.Withgreatereffortsbeingmadenow,weexpectitsSaaSrevenuetodeliverfastgrowth(96%CAGRduring2020-2023E),thoughSaaScontributionwilllikelyremainlowgivenitshighexposuretolargecustomers.Itsearningswilllikelyfacerisingpressure,asaresultofsignificantlyincreasedspendinginS&MandR&D,andcannibalizationeffectonitslegacysoftwarebusiness.OurJun-22pricetargetofRmb41isbasedonaSOTPmethodology,comprisingof1)Rmb15/shareforitsSaaSbusinessusinga25x2022EP/S.Weprojectsubscriptionrevenuetoreach19%ofcloudrevenuein2022E,aftergrowingataCAGRof107%over2020-2022E;2)Rmb25/sharefornon-subscriptioncloudbusiness,basedona10xP/S;and3)Rmb1/sharefornon-cloudsoftwarebusiness,assuminga10xP/Efor2022Esegmentearnings.Kingdee(Neutral,PTofHK$31)ItisthesecondlargestChineseERPsoftwareproviderwithover10%marketshare.WeprojectChina’sERPmarketwillmorethandoubleandreachRmb73bnin2025E,alongsideafastrevenuemixshifttowardscloudERP.Weseethecompany,asaleadingERPsolutionsprovider,well-positionedtobenefitfromChineseenterprises’digitaltransformation.Thesoftwarelocalizationtrendanditsaggressivepushforcloudtransformationshouldfacilitateittoexpandcustomerbaseandgainwalletshare.However,wethinkthatthecurrentsharepricehasalreadyreflectedthestrongmomentumofitsSaaSbusiness,andvisibilityofitsearningsturnaroundtrajectoryisrelativelylow.OurJun-22pricetargetofHK$31isbasedonaSOTPmethodology,comprising1)HK$22/shareforitsSaaSbusinessusinga28x2022EP/S.Weprojectsubscriptionrevenuetoreach59%ofcloudrevenuein2022EandgrowataCAGRof52%over2020-2022E;2)HK$8/sharefornon-subscriptioncloudbusiness,basedon15xP/S;and3)HK$0.5/sharefornon-cloudsoftwarebusiness,assuming10xP/Efor2022Esegmentearnings.ValuationmethodologyWeuseSOTPvaluationformoststocks,giventheverydifferentrevenuegrowthandmarginprofilesoftheirSaaSbusinessvsnon-SaaSbusiness.WeapplyaP/Sratio,9MichelleWei,CFA2800-8562michelle.z.wei@

AsiaPacificEquityResearch31May2021whichisacommonvaluationmetricusedtovaluetheSaaSbusiness,of16x-32xtothesecompanies’SaaSrevenue.Ourassumptionsdonotseemtobeparticularlyaggressive,consideringthatthelargest20SaaScompanieswithinourU.S.softwareteam'scoveragearetradingatanaverage2021EP/Smultipleof25xbasedontotalrevenue(onapureSaaSrevenuebasis,P/Sshouldbeevenhigher).FordeterminingthetargetP/Sratios,wetakeintoconsiderationvariousf