Kingdee International Software Group Company Limited (0268.HK) Earnings Call Transcript & Summary

[Audio Gap] Kingdee International 2021 interim results release. Let's welcome the moderator.

Ladies and gentlemen, I would like to welcome you to join us for the 2021 interim results release of the Kingdee International. First of all, please allow me to introduce the management team with us today. They are the Group Founder, Chairman of the Board and Chief Executive Officer, Mr. Xu Shao Chun; we also have Executive Director, CFO, Mr. Lin Bo; and also rotating President of Kingdee Software China, Mr. Zhang Yong; and the rotating President of Kingdee Software, Mr. Shen Chongfeng; and also the GM of IR Department, Mr. [ Wu Rex ]. Now let's welcome our Executive Director and the CFO, Mr. Lin Bo, to provide you the brief introduction as well as the strategic development for the H1 of 2021.

Thank you. Thanks for the moderator, distinguished investors and analysts and my friends from the media, good morning. Now I'm going to walk you through the interim result, please. I think all the slides and the material has already been published on our website last night. So I hope that you can also refer to those materials while listening to our presentation. Please go to Page 4 now. In H1 of 2021, the group revenue was up by 35%, reached CNY 1.87 billion compared with H1 of 2019. The 2-year CAGR was 12.3%. But because of the cloud consideration, it also helped to boost our revenue. And you can see that the cloud service revenue was up by 55%. We reached CNY 1.23 billion, and the 2-year CAGR was 50%. ERP and other revenue grew by 7.7%. And also in last year, year of 2020, we also accelerated the cloud transformation. We strategically shut down the KIS and the K/3 WISE production line. In 2019, you can see from the right side, those products contribute, jointly speaking, 31 -- CNY 310 million. But in 2020 and 2021, the KIS and the K/3 WISE product no longer contribute that much to us. That's the reason we strategically shut down those production lines. Please go to Page 5. You can see that we stick to the road of the cloud transformation, and we have more revenue from the cloud service. And it already increased from 57.5% of the cloud to the total ratio to 6.61% (sic) [ 66.1% ], and the growth is 55.1%. Please go to Slide 6. The company emphasized on the high-quality subscription service and our subscription ARR, and by the 30 July, 2021, it already reached RMB 1.27 billion, up by 71.5%. But I'd like to emphasize our ARR, excluding the other services, it's purely the subscription revenue. Our target is that from 2021 to 2023, our ARR can reach 50% growth. So H1 really showed us a very good score card. Please go to Page 7. You can see that in H1 of the year, the company made very intensive investment. The S&M was up by 22.3%, but our G&A was up by 9.7%. And it's because that we made some very stringent regulations on S&M and the G&A. And jointly speaking, S&M and the G&A, they're rising, but they accounted for less for the total expenditure. And we have the ever-increasing R&D, and it already reached 74.3% growth and accounted for 33.4% of our total revenue. Later, I'm going to go share with you why we have an ever-increasing R&D expenses. Please go to Page 8. You can see our R&D expense was up by 71%, and it's very similar as the cash expenditure, and you can also clearly understand our investments in the R&D segment. The reason is because you know that we made more investment into the Cosmic and the Constellation product R&D. But at the same time, our R&D capitalization rate was down-regulated from 62% to 34%, same level as what has been achieved in 2020. And why we down-regulated the R&D capitalization rate? The reason is because for the cloud product, it has a short period of the cost recovery. So we believe by reducing the R&D capitalization rate, it can actually lead to an impact of R&D expenditure of CNY 188 million, which means that the R&D expenditure up by 74%. Please go to Page 9. And you can say that in H1 of this year, the losses attributable to the parent company is already [ CNY 24.08 million ]. So it seems that we are losing money, but actually -- and we have 82% growth regarding the contract liability ratio. So even if we think that we have an extended losses, but still, we have a very good cloud contract liability. And in H2 of this year, we're going to see a healthy cash flow, and you're going to see for the whole year we're going to have a positive cash flow. And we believe the R&D expenditures are hitting the peak for this year. In the next few years, our cash flow is going to be more healthier. Please go to Page 10. And Page 10 shows you the growth of the cloud contract liability. I can say that by H1 of 2021, it already reached CNY 1.01 billion, up by 82.2%. Please go to Page 12. Now I'm going to introduce you the Kingdee Cloud Cosmic and the Kingdee Cloud Constellation product. And you can see Cosmic and Concentration signed a lot of major clients, including China Huaneng, Shagang Group, Guangxi Beibu Gulf Investment Group, [ Yongfeng ] Group, Harbin Pharmaceutical Group, Continental. And we also newly signed the 142 new customers and 105 upsell customers. The joint contract value is CNY 250 million. And especially for the new customer and per customer, the revenue is CNY 1.3 million. And the vitality is still be well contained. I think in the near future, we're going to further expand our customer mix. Please go to Page 13. It is worth mentioning that in H1 of this year, we have already delivered the product to some of the sample clients, including Huawei HR and the China Tobacco Yunnan Industrial Co., Hisense and [ SBIC ]. All those projects already entered into the second phase of the deployment. And currently, Kingdee has already replacing complete or core global ERP system for over 70 customers. And we also heard some rumors in the market, me, along with Robert, to go to the Huawei project. And we believe Huawei project has been highly advanced and will win the trust and the recognition from the clients. I would like to say that it is truly a great value for us to invest in this project. And besides the balance sheet, and actually, we build a lot of very valuable assets for the team. We are truly very capable of building the best HR applications in the world, and I truly believe this is going to be beneficial for our long-term development. So you can see that all the words on the slide has been carefully curated, and we ask for each of our companies to confirm all the information to make sure that all the data are objective and also be certified by our customers to make sure they are truly accurate. So I'd like to mention to all the investors and the media brands, and we always take a very prudent attitude on all the information we deliver to you. Now please turn to Page 14. This is a Cosmic and Constellation customer analysis. You can see that from the [ ad ] deployment perspective, the hybrid cloud accounted for 56%, and around 42.5% of the customer coming from the Cosmic, Constellation upsell customers. The 23.9% comes from the ERP upgrade customer, and 33.6% are coming from the new customers. From the customer industry perspective, manufacturing, retail, wholesale and the construction and the real estate are ranking top 3. Please go to Page 15. These are the 2 pies showing you the Cosmic and the Constellation subscription distributions. And you can say that jointly speaking, the Cosmic platform and the finance still taking the major ratio, which means they are truly mature products. But for this year, tax and the manufacturing cloud started to make new contributions to the Cosmic and the Constellation subscription. Please go to Page 16 and 17. On both slides, it shows us the Cosmic PaaS portfolio and the Constellation SaaS portfolio. And we further make investments to accelerate the product R&D so as to cater the customer needs, especially for the domestic replacement trend. And for the Cosmic product, we mainly have the workflow cloud, integration service cloud, blockchain cloud, data service cloud, development service cloud and AI service cloud. Whereas for Constellation products, it includes the finance, supply chain, manufacturing, project, coordination office, marketing, HR and data analysis cloud. Please go to Page 18. And I think many of the new investors or new analysts, I'd like to share with you what would be the difference between the Cosmic PaaS, and we were being regarded by Gartner as the high-productivity PaaS. And well for -- we are more close to the application end, which is different from all the PaaS suppliers in the market. Please go to Page 19. On Page 19, we show you how the Cosmic platforms work with the major cloud players in the market. You can see that we truly work with the ad vendors as well as the information controllable supply chain, and we will be highly recognized and verified in this industry. Now I'd like to introduce you the Kingdee Cloud Galaxy product. Please go to Page 21. Galaxy product is the product facing the high-growth enterprises. It has the most complete industrial solution and also a lot of example use cases. It's the most mature and reliable product we have, and it's already been rolled out in the market for quite a long time. By H1 of this year, we have accumulated more than 23,000 customers. The dollar retention and the customer retention ratio are also very sustainable, represent 87% and 84%, respectively. ARR was up by 57.7%. And also, the 35% revenue growth also shows how the subscriptions being greatly improved. It actually helped to greatly contribute to the subscription contract liability, and also the profitability of the Galaxy products has also been greatly improved. We are also happy to see that many of the high-growth enterprises in China are now making breakthroughs. They are in the life sciences, high-tech and the manufacturing industry, for example, like PharmaBlock, Angelalign and Smartee and Sillumin as well as DASolar and the ZET and the Sunny Precision Industry. They are also being a part of our customer list, and we are happy to serve them to make our huge contribution to support their future growth. Please go to Slide 22. On the left side, we show you the customer subscription distribution of the customer of the Galaxy. You can see that almost all the customers use the finance. Around 50% of the customer use the supply chain module and the same as manufacturing module. The ratio is ticking up. While regarding the industries and the [indiscernible] and the service industry, manufacturing industry and the retail industry are the key. On the right side data, it shows you the 2021 H1 new customer mix. And you can see that among all the new customers, around 22.4% are the on-premise upgraded to cloud. Now please go to Slide 23. And this slide shows you the Galaxy SaaS portfolio. Please go to Page 25. I'd like to share with you the Kingdee Cloud Stellar and the Kingdee Cloud Jingdou. And for Cloud Stellar, while it's been around in 2020, it received positive market response and already 5,700 customers being assigned. Stellar, along with other industrial vendors who are now trying to build a small and micro tax and finance ecosystem. While for Cloud Jingdou, currently, we have accumulated customer of 186,000, and the customer retention ratio is 77%, close to the level of 2020. And jointly speaking for Stellar and Jingdou, both combined revenue grew by 54%. Please go to Page 26 to see the Stellar and the Jingdou SaaS portfolio. And they are actually focusing on the operation, finance, ecosystem and the data service. Now I would like to take you through the cloud market updates. Please go to Slide 28. According to IDC's Chinese enterprises application market trends and the EA SaaS market in China in the next 5 years, the CAGR will be 31.7%, where as a mainstream leader in this market, we are achieving and targeting a higher subscription growth. Please go to Page 29. On Page 29, we show you that on the EA market, we made a lot of explorations. You can see that according to the slide, we are the only one that is being included into the Gartner's 2020 Application Platform Software. And we are also the only Chinese vendor who won IDC's 2020 Global SaaS Customer Satisfaction award, ranking #1 in ERP SaaS customer satisfaction. And we are also the only Chinese enterprise SaaS vendor selected into Gartner's Cloud Market Guide for Cloud ERP. And later, you're also going to see that the SaaS customer satisfaction is something to continuously to contribute to our business upgrading. And now please go to Slide 31. I'm going to walk you through our core strategies. And for the company, we stick to the platform plus the finance, HR, tax and ecosystem as our overarching strategy. You can see the yellow part or the word highlighted in yellow shows you that we have a relatively complete business system. Where on the left side, for the blue highlighted area, and we are focusing on the finance, HR and tax. While for ecosystem, we are working with our partners to promote the building of the ecosystem. Please go to Slide 32. You can see that in H1 of this year, and we also launched Xu Shaochun's personal WeChat public account in which we received 5,000 effective inquiries. And we also received 240 customer appreciation letters. And the customer complaints decreased by 40% Y-o-Y. And as I said, it received 5,000 effective inquiries. Many of them are related to the service and the product. And this WeChat public account is also a way for us to reach our customers to further optimize our service and product. Please go to Page 33, and that's our guidance for the next 3 years. We would like to keep our original thinking, making sure that ARR's 3-year CAGR would be 50%. And in 2023, we're going to hit the target of CNY 3 billion and leveraging subscription service of making another new Kingdee. And for H1, we made a good scorecard. And in H2, we're going to double our assets. You can see that we're still very positive on the digital investment made by the enterprises and the replacement of a domestic brand product. We're going to leverage the Cosmic and the Constellation product to work with a large company for the primary settings. And the Cloud Galaxy is still going to work for those high-growth enterprises center, and the Cloud Jingdou is going to serve SMEs to build the HR, finance and the tax service. That's the brief introduction about our performance. Right after Slide 35, we show you the specific financials, and I'm not going to elaborate on them one by one. Now let's get into the Q&A session, please.

[Operator Instructions] Coming next, let's welcome the first question. The first question comes from CITIC Securities, Mr. [ Zhang Hamburg ], please?

Okay. I come from CITIC Securities, and I'd like to congratulate on your wonderful score card for H1 of this year. I have 2 questions. My first question is that in the H1 of this year, the ARR and the contract liabilities are performing very well, which also shows how robust the Cosmic platform is. And what's your strategy and especially the changes being made in order to better roll out the Cosmic product? And in the near future, when the Cosmic started to be more material, whether we're going to see a turning point for the channel building and the product delivery for the Cosmic platform.

Thank you. Channel is something that Kingdee attaches great importance to. For the past few years, we'd like to leverage, co-build and co-win at our strategy. So for the past few years, on channel perspective, we do more management with our partners and also make sure that we empower and train our distributors on the channel side. That's why we made a very good growth on the China business. And another point is that you can say that the Cosmic product and the contract value [ under ] CNY 1 million could actually be hand over to our channel distributors. That can make sure that our channel distributors has more power to [ service ] the customers for us. And we worked with more than 20 universities and colleges in China of making sure that we train the talent and to send them to our partner companies to improve their competency. And in H1 of this year on the Cosmic product, and you can see that many of our customers, they make breakthroughs on the product side, especially on the Galaxy side, and many of the projects could be done by our partners. And for H1 of this year, and we'll also work on the product integration with Kingdee product, which can truly help to further consolidate our solution in the Galaxy product delivery, which can provide a more diversified product portfolio for our vendor, which can truly help to cover more high-growth enterprises by leveraging our Galaxy product. So you can see that, jointly speaking, all of them are supporting our H1 growth. But for H2 of this year, we're going to continue the development and work and the cooperation with our channel partners to make sure that they can also see a sustained growth in the near future.

My second question is regarding your [ KA ]. You also set up your [ BT ] for the [ KA ]. So what's the strategy you have? And for the [ KA BT ], what is it going to do in the near future?

Thank you very much. Since last year end, you can see that in China, the digital key accounts, they are embracing the digital transformation trend, which is very robust since last year end. But you can see that from 2020 and to H1 of 2021, and I think for the big enterprises, and they still have a difference on the product as well as the team they need. So in order to make sure that we can cover as many as big enterprises to further improve our delivery capacity. So you can see that from our headquarter and from our front-line salespeople, we have a united team to work together. And you can see that for this year, and we're going to have our headquarters work with the sales teams, the licensing team and the subscription team and the services team. And in the near future, we are going to make sure that we target this market to provide them the united service. In this way, we'll be able to better serve the big enterprises with their unique demand. And why should we set up the [ BG ] for the big enterprises? The way is because we want to take our market share back. We make sure that we are the #1 brand in the big customer market by having Cosmic and Constellation product. And we are very also happy to make sure that the Chinese software could also be the mainstream choice for the Chinese big enterprises.

Okay. Great. Thanks. And let's go to the second question, come from [indiscernible] Securities, Mr. [indiscernible].

Can you hear me, ladies and gentlemen?

Yes. Yes, we can hear you, please.

I have 2 questions. The first question, just now as introduced, you mentioned that your R&D capitalization rate was reducing. The reason is because the cloud service, the cost could be recovered very quickly. But as you are providing the cloud service from the [ current ] kind of revenue perspective is not going to be as fast as what we were achieving. And because customers, they pay for us on a yearly basis. So I was curious, why should you further reduce the R&D capitalization rate, which lead to a financial losses for us? And what's the reason behind that?

Let me explain it in this way in the past, and we use the current product in making the R&D of the next generation. But now as you integrated in your question, and even if we have a longer time for the product to the cost being recovered, but you can say that, generally speaking, we'd like to reduce the R&D capitalization rate to make sure that it impacts our profitability in a rational level. And that's what we talked with the auditing team. And you can see the R&D capitalization rate has already been kept at a very stable level. So can say that my understanding that because of the accounting rules in the past and the products were going to be iterated every 3 to 5 years. But because of the cloud, it's being iterated much faster. So that's the reason. And you can recover the cost more faster and then you can help to reduce R&D capitalization rate, yes, indeed.

My second question is that for the whole year for your cloud service. And for H1 of this year, the revenue growth was 55%. What's the guidance for H2? Would you mind to share with us your insight, especially with the economic backdrop, along with the macro trend in the society. And what's your guidance of the cloud revenue growth for H2 of this year? What's the normal target and what would be the challenging target and especially for Cosmic and Constellation customer? And how they are going to further improve the revenue from the customer side?

Two very good questions. In the market, there are a lot of voices. You can see from the fundamentals. And also due to the COVID-19, many of the target is hard, people will say. Some people are pragmatic and some people are quite positive. But the cloud digitalization or the digital transformation is always a must for majority of the companies. And yesterday, we had an independent chair who already said on the Board meeting, they attach great importance to the digital transformation. So we believe that the digital transformation is still going to be a good opportunity in this market. And the second part to answer your question is that, what would be your up value for the Cosmic and the Constellation product? Why should I ask the question because from the industry of management software, for the specific utilization and their unit price is even higher than our value, CNY 1.3 million per customer. So as a platform, I think you probably can further improve this value. And we don't see too much changes now, but we will keep an eye on it in H2 of this year. We were also trying very hard to improve the value per customer. And you can say that if we don't have too much Cosmic or Constellation customer, and if there's any volatility happens, for example, we have more major projects or less small projects, that is also going to impact our value or the value per customer. But jointly speaking, we believe that the contract value is going to be up again in the near future for the Cosmic and the Constellation product per customer.

Let's welcome Duan Bing to raise a question. Duan Bing is coming from Nomura.

Congratulations on the management team for your very good service in the H1 of this year. Your cloud revenue, ARR and the contract liability are also scored with a new height. Same question from me regarding your growth guidance for H2 of this year. It seems that you said you are not going to change your guidance for the whole year. Would you like to share with us for the Cosmic and the Constellation product and what would be their specific growth guidance? And especially for this year, you started to launch the Constellation product as an independent brand. So would you like to share with us on the Cosmic platform and on Constellation and what would be the forecasted growth, respectively? And also whether the Galaxy product is going to still maintain a product iteration. And within 2 years, the CAGR would be 30% to 40%. Does the CAGR, 2-year CAGR for Galaxy still going to be maintained at 30% to 40%? And my second question is regarding the Huawei Global HR project. This one is already being launched in H1 of this year. Is it possible for the management team to further introduce this project? And what are the response and feedback from the customers? How about the comment on the system performance as well as probably some other feedback from the customer? And more importantly, I'd like to know that, do you have any next dev plans, whether you're going to further expand the product to more BUs and whether you're going to further expand the application, too.

So now I think I'm going to have the Rotating President, Mr. Shen Chong Feng, to answer the question regarding Huawei Global HR system project.

Since February of this year, we launched Phase 1 of the Huawei World HR platform, including the HR fundamental management. And it's been launched for a few months, and we received very positive feedback from Huawei. And Huawei said, this product is beyond their expectations. And this helped to manage 200,000 Huawei staff covering 170 countries and cities. And the customer experience is much better than other system applications. This is the Phase 1 product. We are now, we are also working with Huawei in doing the blueprint drawing for the Phase 2 product. And then next, we're going to execute the product. And then both sides is going to get into the system R&D. So you can say that still we have a smooth growth for this project. And it seems that we and Huawei are also having a very good cooperation.

Just now you mentioned, the first question regarding Cosmic platform and the Constellation. You can see that the Cosmic and the Constellation is being separated as 2 different brands, but did not for a very long time. So that's the reason we don't provide any guidance to the market by separating the brand. And we're still going to provide you the data by the end of this year.

Regarding the Galaxy product, the 2-year CAGR, is it going to still be 30% to 40% as the guidance?

Yes. 30% to 40% as the guidance for the 2-year CAGR for Galaxy product.

Let's welcome the next question. Let's welcome Miao Xin Jun from Tianfeng Securities.

I'm Miao Xin Jun from Tianfeng Securities. And congratulations on your achievements. I have 2 questions. The first question, as we can say that in the domestic replacement trend and Kingdee has already become the first mover of covering the big key accounts or the super key accounts as a domestic ERP vendor. But I think this is an opportunity but also a challenge, how can we further improve the quality of Cosmic and the Constellation product delivery. I think this is probably also a concern for the company. Do you have some kind of internal KPI to assessing the product delivery capacity, especially from the workflow from the team perspective? What did you do in order to improve the delivery capacity for the Cosmic and the Constellation product?

Yes. Product delivery is always key for our business. For this year, we started to do more work on project management and also have a requirement on the margin of the project. And we also have some KPI being set. So internally speaking, we have a lot of criteria in assessing the capacity. But for the system perspective, especially from the commercial stage, we started to do the project management and also to well define the boundary of the project. So you can say that we have a project management department. This department is responsible for the management and the consultant management for the whole nationwide business. And we also have the product delivery service in supporting our project managers nationwide and also leveraging our ecosystem resources to support and to polish the project delivery capacity. And from this year on, we also started to work more on the project delivery. You can see in recent days, we are working with KPMG as well as a China software group of making sure that we have more cooperation to further enhance our product delivery service. I think in the near future, there are going to be more vendors and more partners to work with us in order to further improve our high-quality project delivery to the customer and then working together to make good contribution for the digital transformation for Chinese enterprises.

I think for Kingdee products, especially the Cosmic and the Constellation products, these products can be the leading products in the market if you're further enhancing your quality of delivery that is going to consolidate your leadership again. My second question is regarding the Galaxy product. For the past 2 to 3 years, you are working on Cosmic and the Constellation a lot, how can you make sure that you also have a few resources allocation to the Galaxy product, especially for the past 2 years, I'd say Galaxy product, they have a very stable up value. And what's your internal kind of progress on the cross-sells of the Galaxy product?

Actually, I know that we are intensifying our investment into Cosmic and Constellation, but it doesn't mean that we are shifting down on the investment of the Galaxy. And we are making more effort in stabilizing the Galaxy product to optimize the performance. Well, for the frontline salesperson, and we have a more direct sales and cross-sell capacity enhancement, especially empowering our customer. For the upsells, the value per customer is also being optimized, especially for our existing customer. We hope that we can also make sure that we further improve the value per customer. And this is the general trend we have. You mentioned about the CRM, HR module and along with other specified modules and for example, [Foreign Language] base module. And this can help our Galaxy client to have a better application and widen their application portfolio. In this way, the value per customer is going to be further optimized. I have one more comment on this question. You also mentioned the way we set up the big enterprises BG or the KABG and then that is responsible and help to coordinating the sales and the marketing work for the enterprises with CNY 10 billion value. And we also made a clear divide over the big enterprises and the middle-size enterprises. In this way, we can do a targeted and precision marketing for the Cosmic, the Constellation product and the Galaxy product. In this way, we can have a dedicated team and the resources to invest in different customers.

Let's welcome the next question. Liu Ye from Huatai Securities.

I have 2 questions. My first question is regarding Cosmic and Constellation, the direct sales and the product delivery. And what's the ratio would you like to share with us and how you also deliver the product through a partner. And I think if working with a partner of selling the Cosmic and the Constellation, it, to some extent, will further improve its margin. But you did say that in H2 of this year that won't help to improve our GP margin as a whole. What's the reason?

Let me repeat your question again. The Cosmic and the Constellation product, when we work with our partners for the project delivery, you believe it's going to dilute our GP margin, right?

Let me repeat my question in this way. I think once you work with the partners, it should help to optimize your GP margin and reduce your cost. Should I say so?

Yes, indeed. Yes, such situation may happen, but you can say for the Cosmic and the Constellation products, we are not having too much of the products being signed through the partner. So it doesn't have too much impact on our GP margin now.

So when are we going to see how the Cosmic and the Constellation be impacted by having the partners to help to deliver the product?

I think it's going to be a long-term thing. You probably need to wait until next year, the year of 2022 to see the result. We need to train our partners to make sure and they also have enough business volumes. That cannot be done overnight. So you at least need to wait for next year, year of 2022. Let me say a few words. According to our road map, we are still sticking to the road we draw for ourselves. But for Cosmic and the Constellation product, we also train our capacity of delivering product. It really takes time for us to train and empower partners. But in the near future, working with a partner to deliver the product would be the overarching strategy we have. We are still going to very actively promote these products. But it will also involve the organizational changes for our company if we go for this model. It's going to have some positive impact to us in H2 of 2022.

My second question is regarding your R&D expenditure. And I think that you have a lot of cash expenditures on R&D. And what are the R&Ds being made? Does it mean that you have more modules for the Cosmic and the Constellation product or do you have more scenarios to be covered? And when the R&D expenditures would hit its peak?

This is a very specific question. And I think for this year, it's already reaching the peak for the R&D expenditures because we made a lot of investment for the past 2 years. But at the same time, we're also driving up ourselves to make sure that the R&D to the revenue ratio can be rationalized. While regarding where does the investment being made, I think we are making more expansions on the modules and also expanding the scenarios. So that's why we made a heavy R&D investment on the Constellation product.

I have one more point to share with you. And for the Constellation product, in the past, it's only focused on finance, but now it's also covering tax, manufacturing and the HR platform. Constellation are ready in this time to further expand its scenario, but you can say as it's covering more scenarios and it also needed to make sure that it has the scenarios specifically being covered.

Now let's welcome the next question comes from Mark Li from Citibank.

My name is Mark Li from Citibank. Congratulations on your achievements. My first question is that for Cosmic, Constellation product. And regarding the retention rate, would you like to share the specific number with us? And it seems that for Galaxy product, its customer retention rate has also been stabilized. So whether it still has any room to further be optimized and how we are going to optimize it? Another question is that by the end of this year, our cloud contract liability, whether you have a guidance to share with us?

Regarding the Cosmic, the Constellation, the customer retention rate is more than 100%. We're still going to work much harder to benchmark our performance with the international vendors. While regarding the subscription numbers and for the Cosmic, the Constellation, we are still marching towards the AI-based trend.

Please wait. And we're still waiting for the Chinese line being restored. Please wait. And we are waiting for the Chinese line being restored. Please wait for a few minutes. And we're waiting for the Chinese line being restored. Please wait in the line because we are still trying to restore the Chinese line. There is still some technical break out there.

So moderator, can you hear me now?

Yes. We can hear you. Please continue your answer.

I have to say sorry that we have a drop-off with the line just now. And now you can hear me, right? I have to say sorry that it seems that we have a bad telephone line just now. And I think by the end of this year and for Galaxy, we hope that we can make the revenue, I mean, the subscription contract liability, it can be CNY 1.3 billion by the end of this year.

What would be the retention rate of the Galaxy product? How you're going to improve this number? And what are the measures you're going to take?

Well, for Galaxy product, we hope that it can, the retention rate is 87%. We hope it can be up by 2% in the near future. And for the Galaxy product, we are also going to do upsells in the near future. So this has the complete module now. We are also trying to analyze the module sales of the Galaxy product to identify some in-depth application to make sure that the high-growth enterprises can fully embrace the Galaxy product to further improve the upsells and then to improve the retention rate for Galaxy product.

Coming next, let's welcome Robert, and to make a brief summary to all the investors and the analysts and the friends from the media, please.

Can you hear me, ladies and gentlemen?

Yes. We can hear you, Robert, please.

I'd like to thank you. Thanks for the investors, thanks for supporting Kingdee for such a long term. You see that the Chinese economy is getting to the high-quality growth period. And we're leveraging the digital solution of improving the work efficiency of each enterprise. This is already the mainstream trend in China. Where on the other side, because of the technical friction between China and the U.S., many of the big enterprises in China are trying to adopt more Chinese software solutions. Well, for Kingdee, after 28 years development, we have already have a very robust technical portfolio, especially in recent years, we did the R&D and rollout the Cosmic and the Constellation product. And to some extent, we can already compete with international software vendors. Domestic replacement trend means that you have to have the product that can benchmark with international peers. In this way, we can serve the Chinese customer better. Well, for Kingdee and the way we are trying to further improve our sales performance, you can see that we have more than 20 years of cloud service experience and we also learn from someone else. Well, for Kingdee, we emphasize on the product in China. And we also hope that the Cosmic and the Constellation product is not only for China market but also the world market. What we're going to take is not only in the market share but also the confidence of the Chinese software from the Chinese customers. The H1 statistics shows us that in the SME market Kingdee still outperformed international peers. For consecutively 17 years, we have been ranking as the #1 market share holder in the SME market, reported by IDC. And you can see that some big clients, for example, like Huawei Global HR system, China Tobacco Yunnan Industrial Co., Hisense and SPIC. And by introducing the Cosmic and the Constellation product to those customers, we have every confidence to believe in the next 2 to 3 years we're also going to be a #1 brand for the large-sized enterprises. Since 2014, we started to roll out our cloud journey and we experienced the ups and the downs. From this year on, we also get into the cloud transformation period. We will try our best to stick to the customer-centric approach and also to deliver our professional service and product. More importantly, we will always have a very prudent strategy in the market, along with our corporate culture and our spirit. We will continue to deliver a scorecard to the investors to satisfy you. Thank you very much for your long-term support to Kingdee. Thank you.

Thank you. Thanks for all the investors and thanks for taking care of Kingdee. And see you next time.

Here comes the end of the 2020 interim results release. Thanks for your support. See you next time. [Statements in English on this transcript were spoken by an interpreter present on the live call.]