【行业研究报告】用友网络-Distressed margin with non-standardized cloud

1Feb2023
CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdate
Yonyou(600588CH)
Distressedmarginwithnon-standardizedcloud
YonyouannouncedpreliminaryFY22netprofitofRMB200-220mn(-68.9-71.7%
YoY).TheweaknesswasattributabletoCOVIDresurgenceandFY4Q22andhigher
R&Dspending.WhileYonyou’sbusinessisslowlyrecoveringinFY23E,weremain
cautiousonitscloudmigrationprogressasitslargeenterprisecustomers(68%of
revenue)arelesswillingtoadoptstandardizedcloudmodel.Customizationwould
resultinhigherR&Dandthuslimitingbusinessscalabilityandmarginupsidefrom
cloudmigration.
YonyoupreliminaryFY22missedonCOVID-resurgenceandhigherR&D
expenses.YonyouannouncedFY22preliminarynetprofitrangedfrom
expenses.YonyouannouncedFY22preliminarynetprofitrangedfrom
RMB200-220mn(down68.9-71.7%YoY),missedconsensusestimateof
RMB505mn.Thewasattributableto1)COVIDresurgenceinFY4Q22and4Q
usuallyaccountsfor45%offull-yearrevenue2)higherR&Dand3)FY21
recordedone-offdisposalgainofRMB214mn.FY22corerevenue(software+
cloud)deliveredYoYincreasebutthegrowthratewaslowerthanthatinFY21
(+16%YoY).WethinktheFY4Q22top-lineweaknessislargelyanticipatedbut
theR&Dsurgeisnot.
BusinessslowlyrecoveringinJan,Yonyou’ssubsidiaryChanjettargets
30%YoYtop-linegrowthinFY23E.Yonyou’sHK-listedsubsidiaryChanjet
(1588HK)alsoannouncedFY22profitwarning.Yonyou’sbusinesstargeting
small/microenterprisesisoperatedthroughChanjet(Yonyouowns61.85%
stake).ChanjetFY22revenuewasup12-18%YoYwhileSaaSsubscription
revenuegrew+45%YoY.ImpliedFY4Q22revenuewasdown18%YoYto
RMB180mn(vs.+34%YoYinFY9M22).Managementhostedaconferencecall
andcommentedthatbusinessisslowlyrecoveringsinceJan2023.Chanjet
targetstoachieve+30%YoYintop-linegrowthandtobreak-eveninFY23E.
ThissuggestedRMB883mnrevenuecontributionbysmall/microenterprisesto
Yonyou,missedourpriorforecastofRMB1.1bn.
Customizationforlarge-enterprisesaddsmarginpressure.Wekeepour
viewthatYonyou’scloudmigrationpathistoughwithitlargeenterprise-focused
strategy(68%ofrevenue)asthesecustomers(mostlySOEs)arelesswillingto
adoptastandardizedcloudmodel.Thedemandforcustomizationwouldresult
inextraITserviceswork.Thisisin-linewithourobservationthatYonyouhas
increaseditsworkforceby4,000people(+20%YoY)toover25,000evenin
FY22.Also,sincethecompanylauncheditscloud-focusedstrategyin2019,1)
revenue/operatingprofitgeneratedperemployeehasbeendecreasing(fig.5-
6)and2)R&Dcapitalizationratewasupfromabout20%to35%.
MaintainHOLD.WecutFY22-24Erevenueby5-6%andderivednewtarget
priceofRMB22.27(priorRMB23.51),basedonunchanged6.0xFY23E
EV/sales.