1H15 Results Review: Table-1: Chanjet s Income Statement Analysis RMB (Thousand) 1H15 1H14 YoY Comments -Sale of software 170, ,278 0.

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1 GTJA Research 国 泰 君 安 研 究 Company Report: Chanjet Information Technology Co. Ltd. (01588 HK) Ricky Lai 黎 柏 坚 公 司 报 告 : 畅 捷 通 (01588 HK) ricky.lai@gtjas.com.hk Stronger Effort to Push Cloud Platforms, Buy 更 努 力 去 推 动 云 平 台, 买 入 Rating: Buy Maintained 1H15 results were below expectations, due to lower than expected cloud software contributions and decline in profit margin with more expenses to boost cloud platform utilization. 评 级 : 买 入 ( 维 持 ) 6-18m TP 目 标 价 : HK$33.00 Revised from 原 目 标 价 : HK$45.00 Revise down FY15-17 software revenue estimations by 9.0%/10.4%/11.8%, respectively, due to lower than expected cloud platforms monetization in 1H15 and products adoption. 1H15 net profit margin was 27.2%, down 10.9 ppt yoy, which was affected by stronger R&D and marketing costs to boost cloud products utilization. FY15-17 net profit margin is revised down by 8.6 ppt/5.2 ppt/5.5 ppt, to 92.0%/93.5%/95.0%, respectively. Maintain the Company s investment rating as Buy and cut the TP from HK$45.00 to HK$ FY15-17 EPS is revised down by 15.0%/17.6%/18.3%, respectively. The new TP represents 58.9x FY15 PER, 44.7x FY16 PER and 34.0x FY17 PER. Share price 股 价 : Stock performance 股 价 表 现 % of return HK$ 年 上 半 年 业 绩 低 于 预 期, 是 由 于 低 于 预 期 的 云 产 品 贡 献 和 利 润 率 因 较 高 的 开 支 而 下 降 以 加 强 云 产 品 的 使 用 分 别 下 调 财 年 软 件 收 入 预 测 9.0%/10.4%/11.8%, 是 由 于 上 半 年 低 于 预 期 的 云 平 台 的 货 币 化 和 产 品 的 使 用 15 年 上 半 年 净 利 率 为 27.2%, 同 比 下 降 10.9 个 百 分 点, 因 受 较 高 的 研 发 和 营 销 开 支 以 提 高 云 计 算 产 品 的 利 用 率 我 们 分 别 下 调 财 年 净 利 润 率 8.6 个 百 分 点 /5.2 个 百 分 点 /5.5 个 百 分 点 至 92.0%/93.5%/95.0% 维 持 公 司 的 投 资 评 级 为 买 入 及 目 标 价 从 港 元 下 调 至 港 元 我 们 分 别 下 调 财 年 每 股 盈 利 预 测 15.0%/17.6%/18.3% 新 目 标 价 相 当 于 58.9 倍 15 年 市 盈 率 44.7 倍 16 年 市 盈 率 及 34.0 倍 17 年 市 盈 率 (50.0) Sep-14 Nov-14 Feb-15 May-15 Aug-15 HSI Index Change in Share Price 股 价 变 动 1 M 1 个 月 Chanjet 3 M 3 个 月 1 Y 1 年 Abs. % 绝 对 变 动 % (25.3) (66.6) (14.6) Rel. % to HS index 相 对 恒 指 变 动 % (13.0) (45.4) (2.0) Avg. share price(hk$) 平 均 股 价 ( 港 元 ) Source: Bloomberg, Guotai Junan International. Year End Turnover Profit EPS EPS Change PER BPS PBR DPS Yield ROE 年 结 收 入 股 东 净 利 每 净 利 每 股 净 利 变 动 市 盈 率 每 股 净 资 产 市 净 率 每 股 股 息 股 息 率 净 资 产 收 益 率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 2013A A (28.6) F (16.4) F F Shares in issue (m) 总 股 数 (m) Major shareholder 大 股 东 Yonyou 72.3% Market cap. (HK$ m) 市 值 (HK$ m) 2,967.0 Free float (%) 自 由 流 通 比 率 (%) month average vol. 3 个 月 平 均 成 交 股 数 ( 000) FY15 gearing (%) FY15 净 负 债 / 股 东 资 金 (%) Cash 52 Weeks high/low (US$) 52 周 高 / 低 / FY14-17 PEG (x) 1.9 See the last page for disclaimer Page 1 of 6

2 1H15 Results Review: Chanjet s 1H15 results were below expectations, due to lower than expected cloud software contributions and decline in profit margin with more expenses to boost cloud platform utilization. There was a RMB10.4 million expense in 1H15 related to the employee trust benefit scheme, which was used for attracting and recruiting talents for building the cloud platforms. Table-1: Chanjet s Income Statement Analysis RMB (Thousand) 1H15 1H14 YoY Comments -Sale of software 170, , % -Rendering of services 18,898 14, % -Sale of purchased goods 462 1,607 (71.3%) Total Revenue 189, , % Cost of sales & services provided (15,269) (14,694) 3.9% Gross profit 174, , % Other income & gains, net 37,216 26, % Moderate growth in total revenue due to flat software revenue improvement Contributed by stronger interest income, investment interest and VAT refunds Research & development costs (49,682) (30,302) 64.0% Due to the innovation of cloud platform products Selling & distribution expenses (64,863) (43,754) 48.2% Higher costs to boost cloud products utilization Administrative expenses (40,561) (44,956) (9.8%) Income tax expense (4,745) (7,956) (40.4%) profit 54,480 72,745 (25.1%) EPS (RMB) (43.5%) Gross profit margin (%) (0.1 ppt) profit margin (%) (10.9 ppt) Source: the Company. Decline related to higher R&D and marketing costs for promoting cloud products Revise down the Company s FY15-17 sale of software revenue estimations by 9.0%/10.4%/11.8%, respectively. The revenue generated from T+ series software increased by 50% yoy in 1H15, and accounted for more than 45% of the Company s revenue. The revenue contributions from cloud products increased because of the Company s strategy of shifting its marketing focus from traditional software to cloud platforms and the launch of new software series to improve users experiences. Accountant Home, Easy Accounting Agent, Biz Chat and Customer Management are the Company s major cloud software for monetization. In 1H15, the Company has issued three versions of T+ V12 products which include popular version, standard version and professional version for different market segment in MSEs. The Company will launch the accounting agent company version of Easy Accounting Agent which can help accounting agent companies to serve customers of account-keeping better, manage businesses better, and deal with account-keeping tax declaration with higher efficiency. We expect the Company s cloud platforms monetization would ramp up in 2H15 with the launch of more marketing activities and promotions to attract customers for products migration. The Company s major competitor Kingdee (00268 HK) has formed strategic relationships with JD.com (JD US) and Amazon (AMZN US) to expand its ERP cloud business, which would affect its customer base development. We revise down the Company s FY15-17 sale of software revenue estimations by 9.0%/10.4%/11.8%, respectively. Profit margin was affected by higher R&D and marketing costs to boost cloud utilization. profit margin dragged down by 10.9 ppt to 27.2% in 1H15, due to higher R&D, marketing expenses and employee trust benefit scheme. R&D expenses as a percentage of revenue in 1H15 was 26.2%, up 9.9 ppt yoy, owing to cloud products development. The See the last page for disclaimer Page 2 of 6

3 Company will raise the R&D expenses in 2H15 for Chanjet Cloud Service Platform, enterprise payment system and cloud applications. The Company plans to improve the Chanjet Cloud Service Platform so as to better support third-party developers to develop, launch and operate their application thereon, and to finish the R&D for big data platform and cloud applications so as to develop PSI cloud applications for micro enterprises and provide service in terms of PSI management cloud applications for MSEs. We revise up FY15-17 R&D expenses as a percentage of revenue by 3.0 ppt/1.2 ppt/0.1 ppt to 26.0%/24.4%/23.5%, respectively. Selling and distribution expenses as a percentage of revenue was 34.2% in 1H15, up 10.6 ppt yoy. The Company is going to launch more marketing activities for enterprise payment and cloud platform usage. We revise up FY15-17 selling and distribution expenses as a percentage of revenue by 1.7 ppt/2.8 ppt/3.0 ppt to 38.0%/38.0%/38.0%, respectively. FY15-17 net profit margin is revised down by 8.6 ppt/5.2 ppt/5.5 ppt to 27.0%/29.7%/28.7%, respectively. Figure-1:Chanjet s Software Revenue and YoY Growth Figure-2: Chanjet s Total Revenue and YoY Growth RMB (Million) 600 Sale of software revenue (LHS) YoY growth (RHS) 35.5% 40% % 100 Gross profit margin profit margin % 5.2% -3.4% 18.1% % 0% A 2014A 2015F 2016F 2017F -20% A 2014A 2015F 2016F 2017F Profit Revisions: FY15-17 EPS is revised down by 15.0%/17.6%/18.3%, respectively. FY15-17 total revenue is revised down by 8.5%/9.0%/9.4%, respectively, due to the revisions of software revenue and service revenue forecasts. In light of higher R&D and marketing expenses, FY15-17 net profit margin is revised down by 8.6 ppt/5.2 ppt/5.5 ppt to 27.0%/29.7%/28.7%, respectively. FY15-17 EPS is revised down by 15.0%/17.6%/18.3%, respectively. Table-2: Financial Estimation Revisions OLD 2016F 2017F 2015F NEW 2016F 2017F 2015F CHANGE 2016F RMB (Million) 2015F 2017F Sales of purchased goods (9.0%) (10.4%) (11.8%) Rendering of services (7.8%) (9.0%) (8.8%) Sales of purchased goods sold % 0.0% 0.0% Total Revenue (8.5%) (9.0%) (9.4%) Profit (14.6%) (16.8%) (17.6%) EPS (RMB) (15.0%) (17.6%) (18.3%) Source: Guotai Junan International. Valuation: Maintain the investment rating of Buy and cut the TP from HK45.00 to HK$ We maintain the Company s investment rating of Buy due to the Company s effort for launching new products and software versions to improve cloud products usage. The new TP represents 58.9x FY15 PER, 44.7x FY16 PER and 34.0x FY17 PER. See the last page for disclaimer Page 3 of 6

4 Table-3: Peer Comparisons: PER (x) PBR (x) ROE(%) ROA(%) Company Ticker Currency Price 15F 16F 17F 15F 16F 17F 15F 15F Enterprise Management Software Group in HK Kingdee International Sftwr 268.HK HKD Chanjet Information Technology 1588 HK HKD Chinasoft International Ltd 354 HK HKD Sinosoft Technology Group Lt 1297 HK HKD Simple Average Weighted Average Game Software Group in HK Kingsoft Corp Ltd 3888 HK HKD Igg Inc 8002 HK HKD dragon Websoft Inc 777 HK HKD Forgame Holdings Ltd 484 HK HKD (0.4) 0.2 Boyaa Interactive Internatio 434 HK HKD Simple Average Weighted Average Enterprise Management Software Group in the A Share Market Yonyou Software Co Ltd-A CH CNY Shanghai Hyron Software -A CH CNY n.a. n.a. n.a Beijing Ultrapower Softwar-A CH CNY n.a. Hwa Create Co Ltd-A CH CNY Chengdu Santai Electronics-A CH CNY (0.4) Hundsun Technologies Inc-A CH CNY Simple Average Weighted Average Enterprise Management Software Group in the United States Salesforce.Com Inc CRM US USD n.a (7.5) (2.6) Intuit Inc INTU US USD Workday Inc-Class A wday US USD n.a. n.a. 3, (21.4) (10.9) Microsoft Corp MSFT US USD Oracle Corp Orcl US USD Simple Average Weighted Average Overall Average Overall Weighted Average Source: Bloomberg. See the last page for disclaimer Page 4 of 6

5 Financial Statements and Ratios: Income Statement Balance Sheet Year end Dec, RMB m 2013A 2014A 2015F 2016F 2017F Year end Dec, RMB m 2013A 2014A 2015F 2016F 2017F Sales of purchased goods PPE Rendering of services Intangible assets Sales of purchased goods sold Available for sale equity investments Total revenue Deferred tax assets Costs of sales (27) (26) (27) (32) (42) Total non-current assets Gross Profit Inventories Trade and bill receivables Other income and gains Prepayments, deposits and other receivables R&D costs (61) (75) (93) (105) (137) Due from related parties S&D costs (118) (119) (136) (163) (222) Cash & equivalents 503 1, Admin costs (46) (91) (82) (86) (117) Available for sale investments Business tax & surcharges paid for interest on entrusted loans (1) Total current assets 580 1,193 1,141 1,109 1,058 Total assets 685 1,343 1,363 1,386 1,417 Profit before tax Income tax (11) (9) (9) (12) (16) Trade payables Other payables & accruals profit Due to related parties Minority interest (1) (5) (5) (5) (4) Tax payables EPS (RMB) Deferred income DPS (RMB) Provision Total current liabilities Cash Flow Statement Year end Dec, RMB m 2013A 2014A 2015F 2016F 2017F Deferred tax liabilities Profit before tax Total non-current liabilities D&A Interest on entrusted loans (19) Issued capital Other non- items 5 8 (11) (11) (11) Reserves , Working capital change 13 (35) (118) (17) (3) Proposed final dividend Interest received Equity attributable to owners 547 1,225 1,241 1,261 1,289 of the parent Income tax paid (12) (5) (8) (11) (15) Non-controlling interests Cash flow from operation (3) BPS (RMB) CAPEX (75) (50) (96) (105) (113) Financial Ratios Others 10 (2) Year end Dec 2013A 2014A 2015F 2016F 2017F Cash flow from investment (66) (52) (88) (96) (103) Profitability (%) Gross margin Dividend paid (88) (102) (85) (106) (140) margin Others ROA Cash flow from finance (67) 555 (85) (106) (140) ROE Liquidity & Solvency Cash & equivalents change (11) 601 (175) (56) (59) Current ratio (x) Cash balance at year begin , Quick ratio (x) Effect of FX change (0) (3) (2) (1) (1) Cash balance at year end 573 1, gearing See the last page for disclaimer Page 5 of 6

6 Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for SMI Holdings Group Limited (00198), China Fire Safety Enterprise Group Limited (00445), Guangshen Railway Company Limited-H shares (00525), China All Access (Holdings) Limited (00633), Guotai Junan International Holdings Limited (01788) and Binhai Investment Company Limited (02886), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 6 of 6