In 1H 2019, Kingdee recognized a net profit of CNY 109.64 million. The cloud transition and the pandemic have cost the company dearly.
Kingdee International (Kingdee, 00268:HK) released its financial report for the first half of 2020 on August 18. The company reported a six-month earning of CNY 1,387.45 million. Losses attributable to the company owners were CNY 241.7 million, while in the first half of 2019, Kingdee reported a net profit of CNY 109.64 million.
Founded as early as in 1994, Kingdee started its business developing financial and accounting software for Chinese enterprises awakening to the importance of upgrading their work efficiency and cross-department collaboration in the digitalization process. Being one of the biggest domestic enterprise resource planning (ERP) Software-as-a-Service (SaaS) companies in China, Kingdee competes with other top players, including Yonyou (600588:SH), SAP (SAP:NYSE) and Oracle (ORCL:NYSE). In the accounting and financial enterprise services vertical, Kingdee tied with Yonyou, ranking first place in China, each taking 18.3% of the market share in 2019.
Kingdee is still in the transition phase from being a traditional software company to becoming an SaaS company. The transition is pushing the change in revenue drivers and increasing the investment costs for SaaS products. The financial pressure introduced by the transition is common for the industry. Adobe experienced a successive revenue decline in 2012 and 2013 when it started to promote Adobe Cloud products.
The coronavirus is another factor that deteriorated the company’s earnings in the second quarter. The high-end market is dominated by foreign competitors and Kingdee has a solid foundation among small and medium enterprises (SMEs). In the first quarter of 2020, over 460,000 SMEs shut down when the pandemic swept over the country. Kingdee’s business is therefore impacted by the economic downturn.
Kingdee released the profit alert in early July and the stock price slightly dropped from HKD 19.64 on the date of the half-year report publication to the current HKD 18.84.