Kingdee plots cloud-based future after delivering 38.5pc profit rise

Hong Kong-listed business software specialist has signed recent cloud-computing deals with Tencent, Coca Cola and Vanke

PUBLISHED : Thursday, 18 August, 2016, 7:28pm
UPDATED : Friday, 19 August, 2016, 9:44am

Kingdee International Software Group, the Hong King-listed business software specialist, has predicted cloud services will be delivering 40-50 per cent of its total revenue within three years, as the slowing Chinese economy pushes more firms towards better management tools.

Robert Xu Shaochun, the chairman and chief executive at Kingdee, said at a press conference on Thursday that cloud services accounted for 20 per cent of the company’s revenue in the first half of this year, and would remain strong in the second half.

Xu pointed out that there is huge potential growth in the market for many more cloud solution providers in the Chinese mainland.

“Competition can actually mean companies working together to make the market larger,” he said, after delivering a strong set of interim figures which showed Kingdee enjoyed a 38.5 per cent year on year rise in net profit to 125.2 million yuan for the period ending June, on the back of a 20.5 per cent jump in revenue to 913 million yuan.

The Shenzhen-based company’s cloud services business revenue, however, soared ahead 138.3 per cent.

The results sparked a 10.29 per cent jump in its share price on Thursday.

“We believe that we can continue to have good and healthy growth,” Xu said.

Software industry analysts have warned of huge potential competition in the mobile office cloud market from new entrants, particularly those backed by corporate heavyweights, such as Alibaba Group’s Ding Ding and Tencent Holdings' WeWork, which have larger promotional budgets. New York-listed Alibaba owns the South China Morning Post.

In its filing to the Hong Kong stock exchange on Wednesday, Kingdee said the increasing number of Chinese companies focusing on the government’s “Internet Plus” strategy – which is designed to integrate mobile Internet, big data and cloud computing for manufacturing – had driven demand.

Kingdee said it had signed contracts with Tencent, Coca Cola and property giant China Vanke for its cloud enterprise resource planning software during the first half.

Nomura analysts are now predicting Kingdee will have to increase its operating expenses, which rose 32 per cent in the first six months of this year to 622 million yuan, to remain competitive, flagging that as a “major negative” in their latest research note on the company.

They said the firm has already seen a 37 per cent year-on-year growth in research and development expenses.

Lin Bo, Kingdee’s chief financial officer, conceded that he expected research and development costs to increase as the group develops its cloud business, without providing an estimate.

At the end of July, Kingdee said it would sell stakes in three loss-making internet businesses to its chairman and senior management. The company sold 85 per cent of its shareholding in CloudHub, a social enterprise network, and its full stake in Kuadi 100 and Shanghai Kingdee Medical, for 107.4 million yuan.

Lin said the sales were designed to allow it to focus on its enterprise resource planning solution, and its cloud services, but that no further disposals are planned.

The company is also developing its big data business, where it sees strong potential, he added.

That business segment currently has more than 20 financial institution partners and 50,000 customers.