FAST NEWS: Kingdee Trims Losses, But R&D Costs Remain High

The latest: Kingdee International Software Group Co. Ltd. (0268.HK) announced Wednesday evening that it recorded a net loss of 302 million yuan ($47.5 million) last year, 9.9% narrower than its 335 million yuan loss in 2020.

Looking up: The company recorded revenue of 4.18 billion yuan for 2021, up 24.4% year-on-year. Revenue from its top-performing cloud services division rose 44.2% to 2.76 billion yuan, accounting for 66.1% of total revenue.

Take Note: Despite the rise in cloud services revenue, that business recorded an operating loss of 695 million yuan for the year, 14.5% more than the previous year, due to the company’s increased R&D investment.

Digging Deeper: Founded in 1993, Kingdee is a Chinese software maker that listed on Hong Kong’s small-cap GEM board in 2001 and upgraded to the Main Board in 2005. The company was an early mover in the cloud services industry, announcing the launch of its Kingdee cloud services strategy as early as 2012 to provide enterprise resource planning (ERP) cloud solutions. But after years of rapid growth and profitability, the group fell into the red in 2020 for the first time since 2012. Some analysts believe its performance has been weighed down by rising sales and marketing and R&D costs in recent years. That pair of items were equal to 41.7% and 28.3% of the company’s revenue in 2021, respectively. In the absence of significant revenue growth, those high costs are ultimately dragging down its profitability.

Market Reaction: Kingdee’s shares initially surged 14.8% to HK$17.94 in early trading on Thursday. They later gave back one-third of that but were still up 9.2% at HK$17.06 at the midday break. The stock is still 47% below its one-year high of HK$32.15 at the end of May last year.

Translation by Jony Ho

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