China Management Software - Credit Suisse
Transcript of China Management Software - Credit Suisse
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CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
10 January 2013
Asia Pacific/China
Equity Research
Software & Services / Technology
China Management Software SECTOR FORECAST
Watch the economy; welcome SaaS and
socialisation
Figure 1: Software sector operating growth correlated with GDP
Source: Wind, CEIC, Credit Suisse research
■ It is all about the economy. The China management software industry has
been suffering from an economic downturn since late 2011. IT spending of
enterprises, especially SMEs and manufacturers, has slowed significantly.
However, we believe management software is crucial for China’s economic
restructuring, and expect another phase of rapid growth for the sector. As
market concentration increases, leading software vendors should benefit.
■ New themes: SaaS and socialisation. We believe SaaS (software as a
service) and socialisation will be the keywords of management software for
the next five years. In an age of cloud computing and mobile Internet, it is a
matter of time before software vendors integrate with Internet service
vendors. Salesforce.com set a good example for the Chinese to follow.
■ We prefer Yonyou and Aisino. Yonyou Software’s 3Q12 results were hit by
an adverse macroeconomic environment. We believe the fall in its stock
price is overdone, and the current level is a good entry point for long-term
investors. Also, we believe that Aisino will not only benefit from a tax policy
reform, but also increase its presence in the low-end management software
sector. We maintain our OUTPERFORM rating on both Yonyou and Aisino,
and stay NEUTRAL on YGSoft.
Research Analysts
Vincent Chan
852 2101 6568
Significant contributor
Archibald Pei
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Focus charts Figure 2: China management software market trend Figure 3: Management software market share, 2011
Source: CCID Source: CCID
Figure 4: Four kinds of management software vendors Figure 5: SME management software penetration, 2011
Source: Credit Suisse research Source: CCID
Figure 6: China businesses welcome cloud computing Figure 7: Social media is important for management
Source: Accenture Source: IDC
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Watch the economy; welcome SaaS and socialisation The key factor is the economy
In 2012, most management software companies in China suffered from slower growth,
lower profitability and even operating losses. The main reason, in our view, is the
economic downturn. Small and mid-sized enterprises were badly hit, and their IT budgets
were cut. Although our economists believe the economy has bottomed, a strong recovery
is unlikely in the near term. Management software companies must continue to control
cost and preserve cash in such a macroeconomic environment.
Industry landscape: Four types of players
There are four types of players in China’s rapidly growing management software market:
(1) the general ERP (enterprise resource planning) vendors that sell complete suites of
management solutions; (2) the industry solution vendors that compete in only one or a few
specific sectors; (3) the consulting and implementation firms that provide management
software-related services; and (4) the SaaS operators that run online cloud computing
applications for small businesses. We believe services will play a more important role in
the future, as the market matures.
Cloud computing and socialisation are key trends
There are two important trends for management software all over the world—cloud
computing that integrates software with Internet, and socialisation that combines social
media with management systems. Salesforce and Yammer have already set successful
examples in the US, and Yonyou and Kingdee are trying to reproduce the success in
China. We believe cloud computing-based management software will become a multi-
billion RMB market within the next five years.
Market concentration should continue to increase
Management software market concentration is still low in China. Hundreds of small players
have their own sectors, regions or channels to play in. Nonetheless, we expect the market
share of top management software vendors to increase consistently from now on; high-
end clients and cloud computing platforms will make the difference. After this economic
downturn, we will likely see much fewer vendors for management software. Meanwhile,
the profitability of leading vendors will improve significantly, in our view.
Yonyou and Aisino have strong prospects
We cover three China management software vendors: Yonyou, the largest Chinese ERP
vendor with strong presence in several industries; Aisino, an IT giant that makes
proprietary low-end ERP; and YGSoft, a leading electricity industry management solutions
vendor in China. We believe Yonyou—although severely affected by the economic
downturn in 2012—has an impressive strategy for the long term, while Aisino will increase
its presence among small business clients. We maintain our OUTPERFORM rating on
both the stocks. We maintain our NEUTRAL rating on YGSoft.
2012 was a bad year for
management software
vendors because of the
economic downturn.
Uncertainty is still there in
2013
Management software
players include ERP
vendors, industry solution
vendors, consulting firms
and SaaS operators
Cloud computing integrates
software with Internet, while
socialisation combines
social media with
management systems
We expect the market
penetration of management
software in China to rise.
The profitability of top
vendors should also
improve
We maintain our
OUTPERFORM rating on
Yonyou and Aisino for their
long-term strategy and
competitiveness, and stay
NEUTRAL on YGSoft
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Key management software industry players Figure 8: Major management software vendors and services providers in China
Type Company Home country Business description
ERP software
SAP Germany Focused on high-end large-scale ERP projects. In recent years, it has expanded into mid-market
Oracle United States Focused on high-end large-scale ERP projects. It provides hardware and software solutions for most enterprises
Yonyou (Ufida) China Largest Chinese financial management software and low-to-mid-end ERP vendor
Kingdee China Second largest Chinese financial management software and low-to-mid-end ERP vendor
Digiwin China A joint venture of Digital China. Focused on ERP and special solutions for the manufacturing industry
Inspur China Has strong presence in SOEs and conglomerates. However, its market influence has faded in recent years
Industry solution
YGSoft China Largest management software vendor for the electricity industry (power plants and grids) in China
Aisino China Comprehensive IT vendor with financial software, low-end ERP and industry solution offerings
Baosight China Largest management software vendor for steel and non-ferrous metal industry in China
Mesnac China Largest equipment and software vendor for tire, rubber and related chemical industries in China
Mysoft China Focused on management software for property sector
Consulting and implementation
IBM United States Leading consulting and implementation firm for both SAP and Oracle. Strategic partner with Kingdee
Deloitte Switzerland Leading consulting and implementation firm for both SAP and Oracle
Accenture United States Leading consulting and implementation firm for both SAP and Oracle
Capgemini United States Leading consulting and implementation firm for both SAP and Oracle
Digital China China Consulting and implementation firm for Digiwin
Hand China Largest Chinese ERP consulting and implementation firm; cooperates with both SAP and Oracle
SaaS
800App China Largest online CRM vendor in China
XTools China Second largest online CRM vendor in China
Salesforce United States Largest online CRM vendor in the world
Source: Company report, Credit Suisse research
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The key factor is the economy Revenue growth of China’s software industry slowed substantially in 4Q11. Growth
bottomed in 2Q12 and rebounded slightly afterwards. In the first ten months of 2012, the
year-on-year software revenue growth was 25.8% compared with 32.9% in the same
period the previous year. It is obvious that the whole industry was badly hit by the
economic downturn, and management software was not immune.
Figure 9: Software industry revenue growth in China, YoY
Source: Ministry of Industry and Information Technology
The software industry is positively correlated with GDP
Although usually considered “non-cyclical”, the software industry in China is highly
correlated with the macroeconomy. In the past economic cycle, software revenue growth
started to slow in 4Q08 and bottomed out in 3Q09; the industry then maintained its
momentum into 2010. We believe management software is even more closely related to
the economy since it is largely a discretionary software product.
We have conducted a quantitative analysis to discover the relationship between the
macroeconomy and the software sector. To our surprise, from 1Q 2003 to 3Q 2012, the
correlation between GDP growth and A-share listed software sector’s operating profit
growth (quarterly, year-on-year for both) was a positive 0.40 while the statistical
confidence was very high—there is 95% probability that the correlation truly exists.
Moreover, if we limit the data set to “recession periods”, i.e., when real GDP growth was
lower than 9.5%, the correlation was even higher, at 0.59; the statistic confidence was
97%. This result indicates that during recession periods, the relationship between the
macroeconomy and the software sector will be even higher. According to our analysis, the
software industry is by no means a “non-cyclical” or “counter-cyclical” sector; in terms of
profitability, it is a cyclical sector.
The fate of the software
industry, like that of any
other industry in China, is
determined by the
macroeconomy
Our analysis shows that the
software sector’s operating
profit growth is positively
correlated with GDP growth
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Figure 10: Statistic regression—real GDP growth vs software sector’s operating profit growth
Source: Wind, CEIC, Credit Suisse research
In the past economic downturn (2008-09), A-share listed software companies suffered,
with their operating profit dropping for four consecutive quarters (1Q08 to 4Q08). However,
the sector strongly recovered in late 2009 when the economy accelerated; from 4Q09 to
3Q10, the software sector’s operating profit growth exceeded 100% for four consecutive
quarters.
Although history does not necessarily repeat itself, it is an example that when the
economy recovers from a bottom, software sector profitability may recover much more
strongly. The reason, in our view, is that a majority of the software companies’ cost and
expenses are employee compensations which are mostly fixed. As a result, the volatility of
the software sector’s profit is generally higher than economic growth. This theory has been
supported in the previous economic cycle, and we believe it is true for now too.
Figure 11: Software sector’s operating profit growth correlated with real GDP
Source: Wind, CEIC, Credit Suisse research
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SMEs’ IT spending has become rather weak
Since the beginning of 2012, we have conducted a number of channel checks with ERP
vendors, industry solutions providers and implementers. We conclude that despite such an
economic downturn, management software demand from high-end enterprises and
government clients is still strong (although payment collections may have slowed);
however, demand from SMEs has decreased significantly.
Indeed, SMEs have many options for management software. Instead of an ERP package
that costs Rmb200,000, they can choose entry-level products for only Rmb5,000 or
Rmb10,000. They may also delay the upgrading process and stop paying after-sales-
service fees. Meanwhile, large-scale enterprises are inflexible—once their ERP system is
established, regular expansion and day-to-day maintenance are inevitable.
It seems that SMEs had already planned on slowing their IT spending early in the year. In
a survey conducted by the consulting firm CCID in 4Q11, 42% of SMEs in China had
indicated that they would either cut or maintain the same level of IT spend in 2012; 35%
had said that they would increase spending by less than 20% year-on-year; and only 23%
had planned to increase their IT spend by more than 20%.
Figure 12: In 4Q11, only 23% of SMEs in China had said they would raise their IT spend
by more than 20% YoY; 42% said they would either cut or maintain at the same level
Source: CCID
We do not expect SME IT spending to rebound meaningfully before the economy bottoms.
Our macro economists are expecting a stabilisation rather than a strong recovery for the
Chinese economy in early 2013. The SMEs know it is a crucial time for their business
existence, and will not risk investing heavily on management software now.
However, in the long run, the SME management software market still has significant
potential. As of 2011, the most widely used management software by SMEs is financial
management, followed by office automation (OA). The market penetrations of CRM (client
relationship management), BPM (business process management) and overall ERP were
around 30%. Management software performance was also lacklustre—56% SMEs were
satisfied with the performance of their financial management system, while only around
20% were satisified with the performance of PLM (product lifecycle management), CRM
and manufacturing systems.
Yonyou and Kingdee have been leading the SME market for almost a decade. Aisino is
the only major software company that has entered the low-end management software
market during this period. We believe Aisino will soon become another market leader due
to its distribution channel and brand recognition.
Weakness of SME IT
spending partially explains
why management software
vendors suffer
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Figure 13: Management software penetration in SMEs Figure 14: Management software performance in SMEs
Source: CCID Source: CCID
Manufacturing no longer an engine of management
software spending growth
Historically, the manufacturing industry has provided the biggest push for growth of
management software all over the world. The definition of “ERP” emerged from the
practice of manufacturing enterprises first. In China, most of the early-stage ERP projects
were conducted for manufacturing enterprises.
However, after years of rapid growth, demand for management software in the
manufacturing industry has decelerated, partially because market penetration there is
high. The unfavourable economic environment has also limited manufacturing enterprises’
IT budgets. From 2006 to 2008, manufacturing IT spending growth dropped from 20% to
11%; and from 2010 to 2012, it dropped again from 21% to 15%. It is obvious, in our view,
that manufacturing IT spending is elastic to the economy.
Figure 15: Manufacturing industry IT spending slowed in 2011 and 2012
Source: CCW Research
Growth engine of
management software shifts
from manufacturing to
service industries
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Figure 16: IT spending CAGR by industry, 2012E-16E
Source: IDC estimates
Meanwhile, service industries such as banking, insurance and healthcare have become
new growth engines for the management software industry. According to IDC estimates,
the banking industry will see the most rapid IT spending growth in the next five years,
followed by healthcare, electricity, insurance and government sectors. In developed
countries, service industries have already replaced manufacturing as the centre of
management software spending. We expect a similar process will happen in China, as the
country is shifting its economic focus to service and consumption.
Service industries used to be considered “non-traditional” by mainstream management
software vendors. There were hundreds of “industry-tailored” solutions vendors, most of
whom generally covered only one specific sector. But in recent years, mainstream vendors
(the “big four”, i.e., SAP, Oracle, Yonyou and Kingdee) have been campaigning heavily in
major service industries. For example, Yonyou and Kingdee have invested heavily in
healthcare, logistic and automobile dealing industries; Yonyou has also entered finance
and government sectors.
We believe in the next five years, most competition in the China management software
market will happen in finance, healthcare, logistic, retail and government sectors. In order
to find the winners, investors should focus on the companies’ ability to build and enhance
their presence in such sectors.
What if an economic recovery takes place?
We all hope for an economic recovery which will benefit the whole industry. However, if an
economic recovery really does come, which management software company will benefit
the most? How do we tell the winners from the losers in different economic environments?
We will analyse it case by case.
Yonyou: The company did not terminate many employees in 2012, and kept investing
heavily on R&D and marketing. Although it has tightened expense control since 3Q12, the
company is still more aggressive in business expansion than most domestic peers. A
strong, early recovery will benefit Yonyou, but a sluggish recovery will hurt it further.
Kingdee: The company started contraction in 2H11 and has cut 30% of headcount since
then. It has also decreased marketing activities in the high-end segment. This is the best
strategy for a long winter, but if the economy rebounds sharply, arch-rival Yonyou should
gain market share.
If the economy recovers,
Yonyou will likely benefit the
most
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Aisino: The company’s management software mainly covers SMEs. If an economic
recovery benefits SMEs, it will benefit the company and vice-versa. However, since most
of the company’s profit comes from tax control system business, it is the tax reform rather
than the macro economy that will determine its fate.
YGSoft: The company depends solely on the electricity industry, a highly concentrated
and tightly regulated one. Its financial performance depends on electricity IT spending,
which depends on the State Council’s industry policy. The macroeconomy plays only a
small role in the company’s business.
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Industry landscape: Four types of players Management software has become a multi-billion RMB market in China. Although revenue
growth has decreased from 25% to 17% in recent years, the market is still in a developing
stage. After two decades of competition, the industry has almost stabilised, and there are
only a handful of big vendors now.
Figure 17: China’s management software market, 2005-2011
Source: CCID
Four types: ERP software, industry solutions
providers, SaaS providers, and implementation firms
Management software (pan-ERP, BI, OA, etc.) is a complex sector that includes various
products, clients and business models. In our view, there are four types of players in
China’s management software industry, each of which are indispensable for enterprise
clients in the current environment.
ERP software vendors: These firms provide standardised, mature pan-ERP software
products. Their business model is to develop software modules, sell licenses to enterprise
customers and charge annual maintenance fees.
This category can be divided into two—international ERP vendors, e.g., SAP and Oracle;
and local ERP vendors, e.g., Yonyou and Kingdee. International brands usually attract
high-end customers and enjoy higher profitability compared with their local peers.
Industry solution vendors: Many non-manufacturing industries, e.g., banking, electricity,
construction and retail, require tailored management solutions which are beyond the
common definition of “ERP”. Industry-tailored solutions are especially important for large
SOEs, which generally operate across a wide range of industries.
Most industry solution vendors focus on one industry, e.g., YGSoft on electricity and
Mysoft on property. In recent years, traditional ERP vendors have been expanding into this
field. For example, both Yonyou and Kingdee have developed management solutions for
banking, retail and healthcare industries.
SaaS providers: SaaS (software as a service) provides software functions through
Internet and cloud computing. Salesforce.com has been successfully providing CRM in the
Once a chaotic market, the
management software
industry in China has almost
stabilised
There are four types of
management software
vendors in China.
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form of SaaS for a decade in the United States. The SaaS business model is a mixture of
software and Internet.
In China, standalone management SaaS providers include 800App and Xtools.
Implementation firms: Management software, especially for the high-end segment, need
a lot of consulting and implementation services. In fact, ERP implementation is an
important business for management consulting firms.
International ERP vendors always leave the implementation business to their partners,
e.g., Accenture, IBM and Hand. However, local ERP vendors usually complete the
consulting and implementation services by themselves. Lack of brand recognition and low
level of standardisation have prevented local vendors from building stable partnerships
with third party implementation firms.
Figure 18: Types of management software vendors in China (excl. implementation firms)
Source: Credit Suisse research
The “big four”: SAP, Oracle, Yonyou and Kingdee
The China management software industry used to be a diverse and disordered market.
After two decades of development, the market landscape has now become much simple.
There are only four major competitors in China—SAP, Oracle, Yonyou and Kingdee.
These “big four” not only have broad geographic channels in China, but also cover almost
every important sector. Other companies, e.g., Microsoft, Infor and Inspur, may compete
with the big four to some degree, but we see almost no opportunity that they become as
important as the “big four” in this industry.
Historically, SAP and Oracle only targeted high-end and ultra high-end clients, e.g., large
SOEs and multi-national corporations, and Yonyou and Kingdee focused on the low-to-
mid-end market. However, in the past five years, the two domestic firms have been
expanding aggressively into the high-end while the two international giants have entered
the mid-market. As of now, Yonyou and Kingdee have complete product lines from high-
end to low-end, while SAP and Oracle have product offerings in the high-end and mid-
markets.
According to a recent survey published by ZDNet, customer evaluations for SAP, Oracle
and Yonyou are at similar levels, while that of Kingdee significantly lags. SAP and Oracle
have advantages on technology, solutions quality and brand name; Yonyou and Kingdee
lead on total cost. Oracle’s service was considered the best, followed by Yonyou, SAP and
SAP, Oracle, Yonyou and
Kingdee are the strongest
management software
vendors in China
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Kingdee. Such survey results make good sense—large-scale or high-end customers care
more about technology, solutions quality and brand name, so SAP and Oracle dominate;
SMEs or low-end customers care mainly about total cost, so Yonyou and Kingdee are
dominant. Also, Yonyou is considered slightly “higher end” than Kingdee by customers.
Figure 19: Customer evaluation for SAP Figure 20: Customer evaluation for Oracle
Source: ZDNet Source: ZDNet
Figure 21: Customer evaluation for Yonyou Figure 22: Customer evaluation for Kingdee
Source: ZDNet Source: ZDNet
The future: The independence of implementation
A major difference between international ERP vendors and their Chinese peers is that the
former outsource most implementation businesses to consulting firms while the latter keep
these businesses in-house. ERP implementation is a knowledge-intensive service which is
generally not as scalable and profitable as software development.
SAP and Oracle have developed complete ecosystems with third-party partners all over
the world, including China. They have strong brand names, standardised products and
experienced partners. Yonyou and Kingdee, on the other hand, have none of the
aforementioned. That is why they have to complete most implementation businesses
through proprietary teams, leading to higher costs and lower efficiency.
As of 3Q12, 43% of Yonyou’s employees worked for the function of “service and support”,
e.g., implementation and after-sales service. The company believed that the disappointing
3Q12 result was partially due to the cost and expense related to the implementation
In the long run, ERP
implementation should
become an independent
business
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business. When Kingdee expanded its implementation business in 2011, its headcount
expanded dramatically and its profitability dropped.
From FY09 to FY11, the average operating margin of SAP was 28% while that of Yonyou
and Kingdee were 15% and 10%, respectively. We believe most of the difference comes
from business composition—Yonyou and Kingdee performed too much low-profitability
implementation services.
Figure 23: Yonyou’s headcount allocation (3Q12) Figure 24: Three-year average operating margin comparison
Source: Company data Source: ZDNet
Fortunately, both Yonyou and Kingdee have realised the problem. Kingdee has started
contracting the implementation business from 3Q11 while Yonyou announced a similar
proposal in 3Q12. The two companies may consider splitting their implementation teams
as third-party partners, in our view. We believe this strategy, if carried out, will have a
negative effect on revenue growth but will significantly improve profitability in the long run.
At least, it is a proven business model in the developed world.
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Cloud computing and socialisation are key trends The software industry will probably merge with Internet within this decade, thanks to cloud
computing. Cloud computing refers to delivering IT capacity (storage, computing and
application) in the form of services. Traditionally, most IT capacities were deployed on
local devices. However, as cloud computing emerged, users easily access IT capacities
from any server, located anywhere in the world, and order them to fulfil their needs.
There are two major types of cloud computing based on the nature of the provider—
private cloud, provided by an institution to its own insiders; and public cloud, provided by a
third-party to its clients. Both private cloud and public cloud are based on similar
technology, but the nature of business is totally different. Generally speaking, individuals
and SMEs are more likely to accept public cloud, while large enterprise and organisations
are more likely to build private cloud.
Figure 25: Comparison between private cloud and public cloud
Private cloud Public cloud
Business nature Internal service External service
Storage In-house data centre Large-scale public data centre
Technology Virtualisation, broadband, distributed file system, etc.
Transmission Local area network Internet
Product structure Relatively simple Can be quite diversified
User Employees of the institution Clients from everywhere
Significance Improvement of internal IT efficiency Material change of IT industry as a whole
Source: Credit Suisse research
SaaS: The ultimate solution for SMEs
Cloud computing, or more specifically, SaaS (software as a service), is most likely to
become the preferred management software solution for SMEs in China. By delivering
software in the form of Internet service, we can reasonably expect the following effects:
Lower total deployment cost: Under the SaaS model, corporate clients no longer need
to build complex IT infrastructure and buy servers. They only need to rent applications on
a monthly or annual basis. As a result, their total deployment cost is greatly lowered.
More flexibility: Unlike traditional software, SaaS can update every day or every hour, so
it is able to better serve the clients’ latest needs. Moreover, users can easily operate the
SaaS applications, no matter where they are, as long as they have Internet access.
Better sales coverage: SaaS applications are bought and sold in an “App Store”
environment—imagine how one buys applications from the Apple App Store or the Google
Android market. It is easier to get sales coverage and after-sales services in such an
environment. Of course, one must have a strong platform first.
Two best examples of SaaS have been set in the US and Europe—Salesforce.com that
provides CRM and other management functions, and Google Apps that includes a wide
range of enterprise applications. Salesforce.com became famous for its “rent-on-monthly-
basis” business model. Its flagship CRM solution can be rented for US$5 to US$250 per
month. Corporate clients can not only get the company’s proprietary applications but also
third-party applications through Force.com, a subsidiary of Salesforce.
Although SaaS involves many potential problems such as data security, more and more
SMEs have been considering accept it as a solution. According to a CCID survey in 2011,
18% of SMEs in China said they would prefer spending their IT budget on SaaS. A 51CTO
survey in the same year showed that 36% of SMEs in China were using or have tried
using SaaS, while 46% had plans to use it.
Cloud computing will
integrate software with
Internet, while socialisation
is to combine social media
with management system
With low cost and high
flexibility, SaaS will be the
best solution for Chinese
SMEs.
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We believe that the current economic environment will accelerate the process of SMEs
accepting SaaS. They may still be concerned about data security and service consistency,
but in an economic downturn, overall costs have become the most important issue. It is a
matter of time before SaaS becomes a major software sub-sector in China; it probably will
take less than five years, in our view.
Figure 26: According to a 2011 survey, 18% of SMEs said
that they will use SaaS in IT spending …
Figure 27: … 82% of SMEs tried or planned to try SaaS
Source: CCID Source: 51CTO
“Social enterprise” built on social networks
In 2011, Salesforce.com launched a grand campaign on “Social enterprise”. The company
quoted in its presentation—“Either company gets social or it gets left behind.” And it made
detailed guidelines on how enterprises benefit from the social media and networks.
Major Chinese management software vendors quickly followed that concept—Kingdee
launched its own SNS (social networking services), Kingdee Weibo, in 2011; Yonyou
launched a similar SNS in 2012; and both firms are trying to connect social networks with
their ERP, OA and BI softwares. In brief, a “social enterprise” should be built on SNS,
instant messaging as well as location-based services (LBS).
Figure 28: Social enterprise to become mainstream Figure 29: Social enterprise may have higher efficiency
Source: IDC estimates Source: Altimeter Group, Forrester
Social networks have
become an enterprise
management tool
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Social media has been proven to be quite useful in sales and marketing. According to a
Clickfox survey, 97% of customers were “somewhat influenced” or “very influenced” by
other customers’ comments on social media. Moreover, the increasing use of LBS in
social media enables salespeople to learn and find local sales opportunities.
Social networking can increase enterprises’ internal management efficiency. Traditionally,
an enterprise’s internal communication is done through face-to-face interactions, phone
calls, e-mails, calendar and workflow softwares. It is widely argued that the communication
efficiency can be improved by internal SNS or IM. For example, Salesforce.com Chatter
can be used not only for serving clients, but also communicating with workmates. Many
large-scale enterprises have launched their own internal SNS.
As China’s leading management software vendors, both Yonyou and Kingdee noticed the
significance of social media. Yonyou’s cloud computing strategy stated that “SNS for
business coordination” is an important layer between the ERP system and clients.
Kingdee’s management also admitted that social media will change the management
software sector. The integration of management software and social networks has just
begun in China, and everyone is looking for a sustainable way.
A revolution of business model
Cloud computing should cause a revolution in the business model of the China
management software industry, especially in the low-end. Until now, most management
software vendors use multiple layers of distribution channels to reach their SME clients,
which weaken client loyalty and bring problems relating to client service.
Cloud computing will change the face of the SME software market, in our view. First, the
SaaS model will enable software vendors to directly access SME clients and rely less on
channels. Second, software vendors will be able to conduct most of the client service
activities online, so as to enhance customer experience and brand loyalty. In such a
process, software vendors will save substantial amount of selling and marketing expenses,
which usually account for 20–30% of the Chinese software companies’ revenue.
Figure 30: The effect of cloud computing on the SME software market
Source: Credit Suisse research
Cloud computing will help
the China management
software industry scale up
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China Management Software 18
If the SaaS business model develops well, management software companies’ growth
trends will become much more stable and sustainable, and profitability will likely increase.
In the long run, the software industry will gradually merge with the Internet industry to form
a “cloud computing industry”, in our view.
As of 2012, major Chinese SaaS providers include Aliyun, Sina, Yonyou, Kingdee, 800App,
Xtools and Cnsaas. We believe Sina will focus on the individual market, while Aliyun will
focus on entry-level enterprises (e.g., Taobao shops). The management SaaS market will
likely be divided between established management software vendors, e.g., Yonyou and
Kingdee, and standalone SaaS websites, e.g., 800App and Xtools. In the long term, large
Internet companies, e.g., Tencent and Baidu, may possibly join the market, but we do not
expect it to happen within the next three years.
Figure 31: Major Chinese SaaS providers, as of 2012
Company Target client Strategy
Aliyun Individual and enterprise Aliyun had run a proprietary enterprise SaaS website, AliSoft; it was reorganised in 2010 into Aliyun,
focused on IaaS and PaaS instead
Sina Individual Sina opened its PaaS, Sina App Engine (SAE) in 2009, and built an App Store, focused on individual
clients rather than enterprises
Kingdee Enterprise Kingdee opened its management SaaS, Youshang.com, in 2007. Since 2011, the company has been
planning to provide PaaS to third-party developers
Yonyou Enterprise Yonyou opened its management SaaS, K.cn, in 2008. In 2012, the company reorganised its public
cloud business, setting up a PaaS + SaaS model
800App Enterprise 800App is the largest online CRM vendor in China which follows the model of Salesforce.com
XTools Enterprise XTools provides online CRM, with similar business model with Salesforce.com and 800App
Cnsaas.com Enterprise Cnsaas is a strategic partner of Tencent in SaaS, and provides mainly CRM and other ERP functions
Source: Credit Suisse research
10 January 2013
China Management Software 19
Market concentration should continue to increase Management software market concentration is still low in China. Hundreds of small players
have their own sectors, regions or channels to play in. However, we expect market share
of the top management software vendors to increase consistently from now; high-end
clients and cloud computing platforms will make the difference. After this economic
downturn, we will likely see fewer management software vendors. Meanwhile, the
profitability of market leaders will improve significantly, in our view.
Large software vendors to become larger
As of 2011, the four largest management software vendors accounted for 50% of
management software market revenue in China; however, the same four vendors
occupied 68% of ERP market revenue. These numbers, in our view, reflect the fact that
there are hundreds of small vendors in the low-end management software market. Since
ERP system is the most developed and complex management software, only big vendors
can survive for long. However, small vendors can still make a living on financial
management, OA and CRM.
Figure 32: China management software marketshare, 2011 Figure 33: China ERP software marketshare, 2011
Source: CCID Source: CCID
We believe the good old days for small management software vendors are coming to an
end. As the complexity of management software increases, more and more enterprises
are adopting comprehensive ERP systems rather than discrete software products. For
example, five years ago, a mid-sized enterprise could use Yonyou’s financial software,
Kingdee’s CRM and DMCC’s manufacturing system; nowadays, it will more likely use a
whole solution from one vendor.
Such a “Matthew effect” is happening even in the low-end market. Aisino developed its
own financial management software in 2008, and decided to expand it into an ERP
package in 2010. We believe in the next five years, most small management software
vendors will either be acquired by their larger peers or be replaced by SaaS.
Management software
market concentration is still
too low in China
We believe large
management software
companies will become
even large
10 January 2013
China Management Software 20
ERP market concentration is still low
In China, ERP market concentration is substantially higher than management software
market concentration, but is still low compared with that in other major countries. As of
2011, the CR4 ratios (sum of marketshares of the top four vendors) in India, United Sates,
Germany and Japan were 10-20% higher than that in China.
Instead of the “big four” vendors today, there used to be “big six” vendors in the China
management software market—the other two were Inspur and DMCC. The two companies
still play important roles in the industry, but their market shares decrease consistently for
the following reasons:
(1) The ERP product of either company covers very limited enterprise clients. Inspur’s
ERP is widely used in large SOEs, while DMCC’s ERP is well recognised in the
manufacturing industry. Neither of them have a complete product line that covers
different industries and client categories as the “big four” have.
(2) Both Inspur and DMCC lack clear and firm strategies on management software. ERP
products plays a small role and receive limited resources in Inspur Group while DMCC
is a joint venture between a Chinese and a Taiwanese company that has its own
internal management problems.
(3) It is too late to catch up. In the past five years, the “big four” have expanded their
teams, invested in R&D, built distribution channels and entered new industries—all at
tremendous speed. It has become much more difficult for Inspur or DMCC, or any
other competitor, to catch up with them now.
Figure 34: ERP market CR4 ratio of major countries, 2011
Source: Gartner
Although it is difficult to challenge market leadership, there are still opportunities for
newcomers. SaaS providers, e.g., 800App and Xtools, have already attracted hundreds of
SME clients with their new business models. Aisino, on the other hand, built its presence
in the low-end market with its distribution channels. They may hardly replace any of the
“big four”, but will probably become Tier 2 leaders of the market.
It is difficult for newcomers
to challenge the ERP
market leadership
10 January 2013
China Management Software 21
The competition of ecosystems
The competition in the management software market has become a competition of
ecosystems rather than of individual companies. Software vendors need to cooperate with
consulting firms in the high-end and mid-markets, and with distribution channels in the low-
end market. A company with good products may still fail without strong and loyal partners.
The success of SAP in China is also the success of its partners. IBM, Accenture and other
top consulting firms not only promoted the SAP brand to enterprise clients, but also
provided comprehensive consulting, implementation and after-sales services. Therefore,
SAP itself is able to focus on software development.
Yonyou and Kingdee, on the other hand, have shown their hesitation to the ecosystem
strategy. Both of them tried to increase direct sales and in-house implementation in 2010-
11, which turned out to be unsuccessful. After all, consulting and implementation are
totally different from software development, and it is a proved practice to separate the two.
There are two ways to build ecosystems—attracting outside companies to join the system,
or splitting internal staff to form independent firms. We believe Yonyou and Kingdee are
trying both methods, and the second method will likely prevail, in our view. Some teams or
even subsidiaries of the two firms may become third-party consulting firms. This process
will have a negative effect on revenue, but will help improve profitability in the long run.
Figure 35: SAP’s ONE ecosystem and channels
Source: SAP
As the market matures, ERP implementation is becoming an emerging business in China.
Hand Solutions is the first ERP consulting firm to complete its IPO in the A-share market.
The company currently implements mainly SAP and Oracle projects, but it may conduct
Yonyou or Kingdee implementation in the future. It is quite possible that more types of
companies in the management software ecosystem such as consulting firms, BPO
(business process outsourcing) firms and even distribution channels, will complete their
IPOs in the long run.
Management software
vendors depend heavily on
consulting firms, partners
and channels
10 January 2013
China Management Software 22
Asia Pacific / China
Software
Yonyou Software
(600588.SS / 600588 CH)
Beneficiary of an economic recovery
■ Potential beneficiary of an economic recovery. Unlike most competitors,
Yonyou did not cut employees or subsidiaries aggressively through 2012.
The company’s profitability dropped sharply in 3Q12 due to rising cost and
lacklustre revenue growth. However, the company increased its presence in
the high-end market and invested heavily on R&D. If an economic recovery
comes, it should be the biggest beneficiary.
■ Good long-term position and strategy. In the past three years, Yonyou has
developed specialised solutions for finance, healthcare and automobile
industries. The company has started an ambitious cloud computing plan which
may lead to a new revenue stream in next five years. Execution ability is also
improving under new management which went on board in 2H12. Despite
short-term hiccups, we believe it is still in good shape for the long run.
■ 4Q12 channel checks show positive signs. We conducted channel
checks on the management software market in 4Q12. It seems that payment
collections have become smoother, while large enterprises are still signing
new projects. SME IT demand is yet to recover. In conclusion, the overall
4Q12 result should be better than expected, in our view.
■ Valuation at historical low. After the disappointing 3Q12 results, Yonyou
Software stock fell around 40% within four weeks and has only modestly
recovered since then. The stock is trading at 19x FY12E P/E or 12x FY13E
P/E—its historical trough. The controlling shareholders have been adding
stake, while the company conducted its first share buyback on 31 December
2012. We maintain our OUTPERFORM rating, and target price of Rmb12.00,
based on 15x FY13E P/E or 0.5x FY14-15E P/E/G.
Share price performance
40
90
140
0
10
20
30
40
Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12
Price (LHS) Rebased Rel (RHS)
The price relative chart measures performance against the
MSCI CHINA F IDX which closed at 6549.7 on 08-01-13
On 08-01-13 the spot exchange rate was Rmb6.23/US$1
Performance over 1M 3M 12M Absolute (%) 14.2 -29.9 -25.4 Relative (%) 8.5 -44.5 -44.0
Financial and valuation metrics
Year 12/11A 12/12E 12/13E 12/14E Revenue (Rmb mn) 4,122.2 4,607.7 5,978.1 7,554.5 EBITDA (Rmb mn) 441.3 334.2 655.4 911.4 EBIT (Rmb mn) 372.2 264.6 566.6 804.0 Net profit (Rmb mn) 536.8 485.2 791.0 1,074.1 EPS (CS adj.) (Rmb) 0.66 0.50 0.81 1.10 Change from previous EPS (%) n.a. 0 0 0 Consensus EPS (Rmb) n.a. 0.62 0.83 1.04 EPS growth (%) 61.7 -24.7 63.0 35.8 P/E (x) 15.7 20.8 12.8 9.4 Dividend yield (%) 3.9 1.7 2.8 3.9 EV/EBITDA (x) 21.2 27.5 13.3 8.9 P/B (x) 2.8 3.2 2.7 2.2 ROE (%) 19.6 16.0 23.1 26.0 Net debt/equity (%) net cash net cash net cash net cash
Source: Company data, Thomson Reuters, Credit Suisse estimates
Rating OUTPERFORM* Price (08 Jan 13, Rmb) 10.31 Target price (Rmb) 12.00¹ Upside/downside (%) 16.4 Mkt cap (Rmb mn) 10,094 (US$ 1,621) Enterprise value (Rmb mn) 9,195 Number of shares (mn) 979.08 Free float (%) 98.7 52-week price range 17.42 - 8.04 ADTO - 6M (US$ mn) 21.3
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
Research Analysts
Vincent Chan
852 2101 6568
Significant contributor
Archibald Pei
10 January 2013
China Management Software 23
Figure 36: Income statement
(Rmb mn) 2009A 2010A 2011A 2012E 2013E 2014E
Revenue 2347.01 2978.83 4122.16 4607.65 5978.13 7554.50
COGS 391.17 517.22 623.62 790.57 981.76 1205.47
Gross Profit 1955.84 2461.61 3498.55 3817.09 4996.37 6349.03
Business Tax and surcharge 63.25 80.91 139.18 152.05 191.30 241.74
S&M Expense 1049.72 1359.25 1815.63 2050.40 2552.66 3188.00
G&A Expense 658.38 897.18 1171.55 1350.04 1685.83 2115.26
Financial Expense -10.87 -1.49 31.83 36.92 58.21 67.73
Loss from Asset Write-down 9.23 21.58 37.99 27.00 30.00 27.00
Gain from Fair-value change 49.13 0.00 0.00 0.00 0.00 0.00
Net Investment Gain 243.98 8.97 7.68 8.00 10.00 12.00
Operating Income 479.23 113.14 310.06 208.67 488.37 721.29
Non-operating Revenue 201.79 236.13 297.07 347.28 422.59 516.61
Non-operating Expense 6.78 1.58 1.22 1.00 6.00 8.00
Income before Taxes 674.24 347.68 605.91 554.94 904.96 1229.90
Corporate Income Tax 60.26 1.65 55.06 52.72 85.97 116.84
Income after Taxes 613.98 346.03 550.85 502.22 818.99 1113.06
Minority Interest 20.28 14.00 14.06 17.00 28.00 39.00
Net Income for Shareholders 593.70 332.03 536.78 485.22 790.99 1074.06
Source: Company data, Credit Suisse estimates
Figure 37: Balance sheet
(Rmb mn) 2009A 2010A 2011A 2012E 2013E 2014E
Current Assets 2,215.16 2,386.85 2,790.66 3,747.58 4,858.63 6,136.77
Non-current Assets 1,604.35 2,379.07 2,671.01 2,787.04 2,950.51 3,099.55
Total Assets 3,819.51 4,765.92 5,461.68 6,534.62 7,809.14 9,236.31
Current Liabilities 1,192.17 2,034.97 2,238.54 3,141.13 3,772.44 4,373.20
Non-current Liabilities 13.86 165.15 196.01 190.50 190.50 190.50
Total Liabilities 1,206.04 2,200.12 2,434.56 3,331.63 3,962.94 4,563.70
Shareholders’ Equity 2,613.48 2,565.81 3,027.12 3,202.99 3,846.20 4,672.61
Minority Interests 32.90 39.81 71.56 88.56 116.56 155.56
Shareholders’ Equity excl. Minority Interests 2,580.58 2,525.99 2,955.56 3,114.42 3,729.64 4,517.05
Source: Company data, Credit Suisse estimates
Figure 38: Cash flow statement
(Rmb mn) 2009A 2010A 2011A 2012E 2013E 2014E
Cash Flow from Operations 399.96 489.38 471.62 842.29 1,003.69 1,261.38
Cash Flow from Investing 8.34 -676.95 -628.70 -292.80 -291.00 -289.20
Cash Flow from Financing 130.34 -34.24 155.62 126.83 -95.98 -262.82
Net Change in Cash 539.17 -223.72 -1.62 676.32 616.72 709.37
Source: Company data, Credit Suisse estimat
10 January 2013
China Management Software 24
Asia Pacific / China
IT Hardware
Aisino Co., Ltd
(600271.SS / 600271 CH)
A play on tax reform and an emerging software
giant
■ A play on tax reform. Aisino is the sole government-chartered provider of
value-added tax (VAT) control systems in China. VAT is by far the most
important government revenue source in China. The ongoing tax reform will
combine business tax with VAT in the next few years. Ten provinces or
municipalities, including Shanghai, Beijing and Guangdong, have carried out
the reform recently. We expect the company to generate around 2 mn new
VAT clients, in contrast with the total existing VAT clients of 3 mn.
■ An emerging management software giant. During the past three years,
Aisino’s share of revenue from software and system integration has
increased from 16% to 23%. We believe this will rise to 30% by 2015. With
its government background, abundant experience and expanding
management software offerings, Aisino should become one of China’s most
competitive IT solutions giants. We believe the company will continue
expanding its presence in government, military and large SOE clients.
■ 2013 could be a big year for Aisino. As of the end of 2012, both the
Ministry of Finance and the State Administration of Taxation declared that
tax reform should be accelerated in 2013 and is important for economic
restructuring. We believe 2013 will be a big year for Aisino, since its tax
system and software businesses will both see strong growth.
■ Maintain OUTPERFORM and target price of Rmb22.00. Aisino’s business
model is especially attractive in an economic downturn, when investors seek
visibility and stability. The stock trades at 8.1x FY12E P/E, or 6.6x FY13E
P/E—its historical trough levels. We estimate an FY13-14 earnings CAGR of
27% and maintain our OUTPERFORM rating. Our new target price of
Rmb22.00 is based on 15x FY13E P/E or 0.75x P/E/G.
Share price performance
0
50
100
150
200
0
10
20
30
40
Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12
Price (LHS) Rebased Rel (RHS)
The price relative chart measures performance against the
MSCI CHINA F IDX which closed at 6549.7 on 08-01-13
On 08-01-13 the spot exchange rate was Rmb6.23/US$1
Performance over 1M 3M 12M Absolute (%) 14.6 -6.8 -20.6 Relative (%) 9.0 -21.4 -39.3
Financial and valuation metrics
Year 12/11A 12/12E 12/13E 12/14E Revenue (Rmb mn) 11,539.8 13,574.5 16,162.7 18,889.8 EBITDA (Rmb mn) 1,477.3 1,437.7 1,896.6 2,346.0 EBIT (Rmb mn) 1,383.5 1,386.7 1,842.4 2,288.5 Net profit (Rmb mn) 987.1 1,028.5 1,354.4 1,678.3 EPS (CS adj.) (Rmb) 1.07 1.11 1.47 1.82 Change from previous EPS (%) n.a. 0 0 0 Consensus EPS (Rmb) n.a. 1.17 1.35 1.62 EPS growth (%) 8.7 4.2 31.7 23.9 P/E (x) 13.8 13.2 10.0 8.1 Dividend yield (%) 2.9 3.0 3.9 4.8 EV/EBITDA (x) 9.1 9.1 6.7 5.1 P/B (x) 2.8 2.5 2.1 1.8 ROE (%) 22.0 20.1 22.9 24.1 Net debt/equity (%) net cash net cash net cash net cash
Source: Company data, Thomson Reuters, Credit Suisse estimates
Rating OUTPERFORM Price (08 Jan 13, Rmb) 14.73 Target price (Rmb) 22.00¹ Upside/downside (%) 49.4 Mkt cap (Rmb mn) 13,602 (US$ 2,185) Enterprise value (Rmb mn) 13,048 Number of shares (mn) 923.40 Free float (%) 100.0 52-week price range 23.2 - 11.7 ADTO - 6M (US$ mn) 17.5
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
Research Analysts
Vincent Chan
852 2101 6568
Significant contributor
Archibald Pei
10 January 2013
China Management Software 25
Figure 39: Income statement
(Rmb mn) 2009A 2010A 2011A 2012E 2013E 2014E
Revenue 7,491.31 9,451.45 11,539.78 13,574.49 16,162.73 18,889.82
COGS 5,807.80 7,207.68 9,062.90 10,818.52 12,711.24 14,723.17
Gross Profit 1,683.51 2,243.77 2,476.88 2,755.98 3,451.49 4,166.64
Business Tax and surcharge 78.83 96.82 115.90 135.74 153.55 179.45
S&M Expense 206.54 249.40 282.81 339.36 428.31 500.58
G&A Expense 514.82 606.72 713.58 855.19 1,018.25 1,190.06
Financial Expense -27.96 -29.75 -53.08 -34.75 -44.91 -53.82
Loss from Asset Write-down 29.57 42.24 5.66 61.01 33.96 38.08
Gain from Fair-value change 0.00 0.00 0.00 0.00 0.00 0.00
Net Investment Gain 47.24 9.07 24.57 22.00 25.00 30.00
Operating Income 928.95 1,287.40 1,436.58 1,421.42 1,887.32 2,342.30
Non-operating Revenue 53.56 110.44 55.35 156.11 184.26 213.45
Non-operating Expense 22.72 6.89 -3.51 12.00 8.00 8.00
Income before Taxes 959.80 1,390.96 1,495.44 1,565.52 2,063.58 2,547.75
Corporate Income Tax 142.48 230.81 213.75 227.00 299.22 369.42
Income after Taxes 817.32 1,160.15 1,281.70 1,338.52 1,764.36 2,178.33
Minority Interest 206.83 252.27 294.64 310.00 410.00 500.00
Net Income for Shareholders 610.49 907.88 987.06 1,028.52 1,354.36 1,678.33
Source: Company data, Credit Suisse estimates
Figure 40: Balance sheet
(Rmb mn) 2009A 2010A 2011A 2012E 2013E 2014E
Current Assets 4,488.37 5,337.85 6,051.67 7,907.23 9,655.05 11,719.30
Non-current Assets 1,060.19 1,161.30 1,169.84 999.54 1,047.86 1,093.30
Total Assets 5,548.56 6,499.15 7,221.50 8,906.77 10,702.91 12,812.60
Current Liabilities 1,410.38 1,587.56 1,654.78 2,379.18 2,799.58 3,246.61
Non-current Liabilities 49.11 49.43 48.96 59.13 72.08 85.71
Total Liabilities 1,459.49 1,636.99 1,703.74 2,438.32 2,871.65 3,332.32
Shareholders’ Equity 4,089.07 4,862.16 5,517.76 6,468.46 7,831.26 9,480.28
Minority Interests 611.49 672.74 730.08 1,040.08 1,450.08 1,950.08
Shareholders’ Equity excl. Minority Interests 3,477.58 4,189.42 4,787.68 5,428.38 6,381.18 7,530.20
Source: Company data, Credit Suisse estimates
Figure 41: Cash flow statement
(Rmb mn) 2009A 2010A 2011A 2012E 2013E 2014E
Cash Flow from Operations 915.52 1,097.86 1,194.55 1,454.70 1,792.49 2,198.25
Cash Flow from Investing 9.43 -206.68 -83.06 81.97 -102.50 -103.00
Cash Flow from Financing -289.85 -386.45 -610.45 -342.91 -343.71 -461.85
Net Change in Cash 635.10 504.72 501.03 1,193.77 1,346.28 1,633.40
Source: Company data, Credit Suisse estimates
10 January 2013
China Management Software 26
Companies Mentioned (Price as of 08-Jan-2013)
YGSoft Inc. (002063.SZ, Rmb15.01, NEUTRAL, TP Rmb14.5) Mesnac Co Ltd (002073.SZ, Rmb7.89) Kingdee Intl (0268.HK, HK$1.68) Inspur Intl (0596.HK, HK$0.31) Digital China (0861.HK, HK$13.42) Aisino Co., Ltd (600271.SS, Rmb14.73, OUTPERFORM, TP Rmb22.0) Yonyou Software (600588.SS, Rmb10.31, OUTPERFORM, TP Rmb12.0) Accenture Plc (ACN.N, $69.29) Salesforce.com Inc. (CRM.N, $169.97) Google, Inc. (GOOG.OQ, $733.3) International Business Machines Corp. (IBM.N, $192.87) Microsoft Corporation (MSFT.OQ, $26.55) Oracle Corporation (ORCL.OQ, $34.49) SAP (SAP.N, $79.89)
Disclosure Appendix
Important Global Disclosures
The persons primarily responsible for this research report certify that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject companies and securities and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
Price and Rating History for YGSoft Inc. (002063.SZ)
002063.SZ Closing Price Target Price
Date (Rmb) (Rmb) Rating
21-Apr-11 14.65 23.08 O *
12-Jul-11 14.33 17.69
10-Aug-11 16.92 19.23
24-Feb-12 13.13 19.23
28-Feb-12 12.39 17.08
14-Jun-12 13.61 14.50 N
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
Price and Rating History for Aisino Co., Ltd (600271.SS)
600271.SS Closing Price Target Price
Date (Rmb) (Rmb) Rating
20-Jun-11 23.59 31.50 O *
10-Aug-11 29.85 34.00
28-Oct-11 24.25 32.50
15-Mar-12 19.64 28.00
12-Sep-12 17.04 22.00
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
10 January 2013
China Management Software 27
Price and Rating History for Yonyou Software (600588.SS)
600588.SS Closing Price Target Price
Date (Rmb) (Rmb) Rating
18-Mar-11 17.50 15.83 U *
01-Apr-11 16.76 14.83
29-Aug-11 20.24 16.08
01-Nov-11 17.20 16.67
03-Jan-12 15.00 20.50 O
12-Mar-12 16.18 20.83
15-Jun-12 15.98 21.00
24-Jul-12 14.11 18.50
31-Oct-12 11.07 17.00
07-Dec-12 9.03 12.00
* Asterisk signifies initiation or assumption of coverage.
U N D ERPERFO RM
O U T PERFO RM
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
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Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
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*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 42% (53% banking clients)
Neutral/Hold* 39% (47% banking clients)
Underperform/Sell* 16% (42% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our s tock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual f actors.
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Price Target: (12 months) for YGSoft Inc. (002063.SZ)
Method: Our TP of Rmb14.50 implies 21x FY12E P/E, or 0.75x FY13-14E PEG, based on our FY12E EPS of Rmb0.67. We believe a PEG methodology is suitable for most China software companies because of their high-growth nature.
Risk: Risks to our TP include electricity industry risk (both upside and downside), client concentration risk, corporate governance risk and cross-industry expansion risk (both upside and downside).
Price Target: (12 months) for Yonyou Software (600588.SS)
Method: Our target price of Rmb12.00 for Yonyou Software is based on 0.5x FY14-15E PEG, or 15x FY13E P/E.
Risk: Risks to our target price of Rmb12.00 for Yonyou Software include ERP market risk (both upside and downside), strategy and execution risk, wage inflation risk and integration risk.
Price Target: (12 months) for Aisino Co., Ltd (600271.SS)
Method: Our TP of Rmb22.00 for Aisino is calculated from 15x FY13E P/E. This multiple is near the low-end of the company's five-year forward P/E band (between 18x and 37x). We believe it is justified since the company is meeting policy uncertainty as well as management changes in the near future. We believe its historical P/E range is a good valuation methodology for Aisino due to its long trading history and relatively stable historical valuation.
Risk: Risks to our TP include value-added tax policy risk (both upside and downside), corporate governance risk, execution risk and new product acceptance risk (both upside and downside).
Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (ORCL.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (ORCL.OQ) within the past 12 months.
Credit Suisse has managed or co-managed a public offering of securities for the subject company (ORCL.OQ) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (ORCL.OQ) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ORCL.OQ, CRM.N) within the next 3 months.
As of the date of this report, Credit Suisse makes a market in the following subject companies (ORCL.OQ, CRM.N).
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (600588.SS).
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (002063.SZ, 600588.SS, 600271.SS, ORCL.OQ, 002073.SZ, CRM.N) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
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China Management Software 29
Credit Suisse has sent extracts of this research report to the subject company (002063.SZ, 600588.SS, 600271.SS) prior to publication for the purpose of verifying factual accuracy. Based on information provided by the subject company, factual changes have been made as a result.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
The non-U.S. person, Vincent Chan is not registered/qualified as a research analyst with FINRA. They are not associated persons of CSSU and therefore are not subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse Founder Securities Limited is a joint venture established in the People's Republic of China between Credit Suisse AG and Founder Securities Co, Ltd.
See the Companies Mentioned section for full company names
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683.
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