YONYOU(600588)：BUSINESS ADJUSTMENT IMPACT GRADUALLY FADING-格隆汇

机构：招银国际
研究员：Saiyi HE/Ye TAO/Wentao LU

　　Yonyou reported (26 Apr) 1Q24 results: revenue was RMB1.7bn, up 19% YoY (1Q23: 15% YoY), 13% better than Bloomberg consensus driven by solid revenue growth in large enterprises. Net loss attributable to ordinary shareholders was RMB453mn, missing Bloomberg consensus by 16%, while adjusted net loss (excluding change in fair value gain or loss of investment) narrowed by RMB44mn YoY to RMB451mn, driven by expansion in gross margin aided by increase in cloud services revenue contribution and efficient cost control in operating expenses. Yonyou’s business adjustment impact is gradually fading. The YoY growth in contract value should accelerate from 2Q, and operating leverage should continue with revenue growth recovery and opex optimization, while the increase in cloud services ARR contribution remains a key metric to watch. We maintain HOLD with a new target price of RMB12.11 (previous: RMB12.33).
　　1Q24 revenue beats expectation aided by robust cloud revenue growth in large enterprises. In 1Q24, cloud services revenue was RMB1.3bn, up 32% YoY (1Q23: 27%) and ERP revenue fell 11% YoY to RMB454mn. As a percentage of revenue, cloud services revenue contribution increased to 72.0% of total, up 7.6pp YoY. Revenue generated from large/mid-sized enterprise/small and micro sized businesses came in at RMB1.1bn/288mn/213mn for 1Q24, with respective growth of 20/6/9% YoY.
　　Gross margin expansion better than consensus expectation. GPM improved by 6.2pp YoY to 50.8% in 1Q24, driven by healthy revenue growth, and was 2.3pp better than consensus, as the contribution from cloud revenue is increasing. As for operating expenses, S&M expenses grew 11% YoY in 1Q24 (29.2% of total revenue, -2.0ppts YoY), administrative expenses rose 24% YoY in 1Q24 (16.8% of revenue, +0.7ppts YoY), and R&D expenses climbed 12% YoY in 1Q24 (31.4% of total revenue, -1.9ppts YoY).
　　Business adjustment impact is fading, while ARR contribution remains key to watch. We lift 2024-2025E revenue to reflect better-than- expected revenue growth from large enterprises, but cut net profit forecast to RMB105mn/436mn to reflect the impact from fair value change of investment. We remain positive that Yonyou will swing from net loss to net profit in 2024, as business adjustment impact is fading, and the positive impact from headcount optimization should gradually translate into bottom line, in our view. Yonyou is striving for greater revenue contribution from cloud subscription, which should improve overall operating efficiency and drive for long-term margin expansion, while the increase in ARR contribution remains a key metric to watch, in our view. We maintain HOLD with a new target price of RMB12.11, based on unchanged 3.7x 2024E EV/sales.