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雷达卡
China Software Industry
Still in the early development stage
The Chinese software industry is still in the early stage of development:
Based on constant currency, China’s software industry has grown at a
2004-08 CAGR of 29%, outpacing real GDP growth by about three times
during this period. In comparison, the global software industry grew 6-
7.5% per annum over the same period, according to IDC and Gartner.
Modernization of industries and substantial government support: With its
ascension into the World Trade Organization (WTO) in 2001, China
quickly realized that inexpensive labor alone can only get it so far. To
further China’s economic advancement, more innovative and efficient
methods of production must be employed. China’s software industry is a
direct beneficiary of this trend, as software is a fundamental tool which
can dramatically enhance many industries’ productivity. Numerous
favorable policies supporting China’s software industry have been
introduced in the past 12 months.
► BUY VanceInfo - A leader in a fast-growing industry: We initiate
coverage of VanceInfo Tech with a BUY rating and TP of US$21.00.
One of China’s leading software-outsourcing companies, more than
half of VanceInfo’s business comes from clients headquartered in the
US and Europe, which together make up 70+% of the global IT
sourcing market.
► BUY Longtop - Riding high on demand for banking and insurance
software: We initiate coverage of Longtop with a BUY rating and TP of
US$32.90. Increasing competition and loosening insurance regulations
in China should drive demand for Longtop’s products, in our view.
► BUY Kingdee - Light at the end of the tunnel: We initiate coverage of
Kingdee with a BUY rating and a TP of HK$2.10. After a challenging
1H09, Kingdee has seen sales improve 20+% YoY so far in 2H09. With
its solid market position and the low penetration of enterprisemanagement
software among China’s small and medium enterprises,
we believe substantial growth remains.
Table of contents
Industry overview.................................................................................................. 3
Key drivers and trends .......................................................................................... 5
Focus on sectors with sustained demand and high growth................................... 13
Comparative valuation......................................................................................... 15
A-share company briefs...................................................................................... 17
VanceInfo (VIT US)............................................................................................... 23
Investment thesis................................................................................................ 24
Valuation ............................................................................................................ 26
Earnings outlook................................................................................................. 30
Cash flow and balance sheet ............................................................................... 36
Investment considerations................................................................................... 38
Company overview.............................................................................................. 40
Company structure.............................................................................................. 45
Market analysis ................................................................................................... 47
Company strategy ............................................................................................... 53
Risks to our investment recommendation............................................................ 54
Longtop (LFT US)................................................................................................. 55
Valuation ............................................................................................................ 57
Earnings outlook & financial condition................................................................. 60
Cash flow and balance sheet ............................................................................... 65
Company & market overview ............................................................................... 67
Company structure.............................................................................................. 73
Industry overview and competitive landscape ...................................................... 75
Kingdee (268 HK)................................................................................................ 85
Valuation ............................................................................................................ 86
Earnings outlook & financial condition................................................................. 89
Cash flow and balance sheet ............................................................................... 96
Company & market overview ............................................................................... 98
Industry overview and competitive landscape .................................................... 104
Appendix A: Important Disclosures ................................................................... 111
Yuanta Greater China Equities ........................................................................... 115
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