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

Welcome to Kingdee International Software Group Company Limited 2023 interim results announcement. Before we begin, let me introduce the management representatives: [Foreign Language] Chairman of the Board, Chief Executive Officer, Mr. Robert Xu; [Foreign Language] Executive Director, Chief Financial Officer, Mr. Bo Lin; [Foreign Language] President of Kingdee Software China, Mr. Jason Zhang; [Foreign Language] General Manager of IR Department, Mr. Rex Wu. Now let's give the floor to Mr. Bo Lin to introduce Kingdee's interim performance and development strategy in 2023. Welcome.

Good morning, ladies and gentlemen. I'm Lin Bo from Kingdee. I'm the CFO. And [ I do this at ] Hong Kong for many times, and I know a lot of you sitting here, and thank you again for supporting us. And my presentation today could be divided into 4 parts. First, I will talk about the financial overview. And then I will talk about Kingdee Cloud. Then I will look into the market of China's enterprise SaaS. And finally, there is appendix of the financial statements. In the first half 2023, our group revenue is RMB 2.57 billion, up by 16.8% year-on-year. And the subscription ARR stands at CNY 2.54 billion, up by 36.3% year-on-year. Cloud service revenue registered CNY 2.04 billion, up by 21.5% year-on-year. The net loss attributable to shareholders is RMB 284 million, down by 20.5%. And the cash and cash equivalents reached CNY 3.83 billion, so it is very safe and sound. So let's look at some of our businesses in the first half of 2023. We still commit to the platform plus talent plus HR plus ecosystem. And our aim is to build the capability of digitalized management for enterprises. And this year, we've achieved a lot of honors. We've been ranked #1 in terms of ESG rating in the Sustainability Yearbook 2023 by S&P Global. And we also ranked #1 in China SaaS EPM market by IDC. And it is notably saying that we are actually ranking among top 10 as a high productivity aPaaS platforms by Gartner for 3 consecutive years [ and have served almost half ] of China top 500 companies. And you can also see that our clients -- more and more of our clients are SMEs. We have served many technological advanced SMEs. They are very dynamic and energetic in terms of development. And our staff headcount is 11,968, up by [indiscernible] of last year [indiscernible] increased. So now let's [indiscernible] financial overview. [indiscernible] 2017 in addition to 2020, when we are influenced by the pandemic, you can see that our CAGR reached 20%. It is because that we have been committed to our subscription-based business model, which has brought us a stable [indiscernible]. And previously, a lot of people paid attention to Kingdee. Actually, people are saying that whether -- what kind of company we are, are we a product-based company or a subscription-based company. So here, you can see in this picture, our growth is double digit, but the headcount is actually -- that the increased rate of the headcount is decreasing. And I also stressed that these several years are actually representing a turning point for us. And here is our financial summary. As I mentioned before, our group revenue has increased by a little shy of 17%. And in terms of net operating cash flow, it is minus CNY 169 million, better than last year. And the net profit attributable to shareholders is minus RMB 284 million. And for Kingdee actually, the second half of the year's revenue will be higher than the first half. So we believe that we can still maintain the momentum. Our cash flow could reach more than -- the operating cash flow can still reach a very high level. And we will also consider about the subscription fee paid by our customers, and we are very confident that our operating cash flow could reach over CNY 600 million. And the CAGR rate is expected to be [ 50% ]. We were confident about that based on our performance in subscription business. And now let's look at the cloud services as well as the share of cloud services. We are promoting our cloud transformation. So as you can see here, the share of our cloud services among all the businesses has reached 79.5%, up by 21.5% to compare with previous years. And for the subscription ARR, it has increased by 33.3% (sic) [ 36.3% ] year-on-year to RMB 2.54 billion. And the macro economy has influenced our cloud subscription business a little bit. But I think the momentum is still there. This year, we have seen some of the changes in the industry, but we are still confident about our future development. And the financial structure -- and the financial performance for the subscription business will be better and better in the future. And here is our operating expenses. With the rise of our revenues, you can see the operating expenses has been decreased -- has been adjusted a little bit because we have delivered a lot of products to our clients. So you can see the operating expenses are kind of decreasing. Let's look at the S&M. Sales and marketing expense, it has been down by 3.3 percentage points, reaching 44.8% (sic) [ 44.5% ]. And for G&A, it has been decreased by 1.4 percentage points. And for the R&D expense, although the absolute value is still increasing by 6.6%, however, to compare with the previous year in terms of the share of R&D expenses, it has been decreased by 2.8 percentage points because we have adjusted our structure a little bit. And in the future, the structure of our expense will be more rational. And in the future, we will shrink further our share of operating expenses. Now let's look at the Kingdee Cloud. Before this meeting, we have shown you a lot of videos about our clients into -- clients. So you can see we have a large customer base. That's -- I hope that could provide you with a new perspective to look at us. And first of all, let me show you a little bit about the Cosmic -- Kingdee Cloud Cosmic. Total contract value is CNY 550 million. New customers is 297. ARR growth is 95.9%, and NDR is 108%. The growth is very optimistic. However, it's still a little shy of our expected results. And here are some of our important clients we have signed this year. For example, like [ China Building Materials ] is a state-owned enterprise. We also have iFLYTEK, [indiscernible] and [indiscernible]. So here, you can see we have helped a lot of state-owned enterprises to shift to a domestically made software to manage their enterprise. We have helped 177 enterprises in China to do that this year. And we believe that Kingdee Cloud Cosmic GPT is the best generative AI for enterprise management. Technology is developed [indiscernible] and will always [indiscernible] with the updated technology. But of course, we will be very vigilant about that. We will also cooperate with other enterprises in the industry. We haven't invested a lot in model layer. We are actually cooperating with those enterprises providing generative AI, for example, Baidu, Microsoft, Huawei and so on. So we are putting our capability mainly on service layer and capability layer. With experience -- years of experience during the past 30 years in terms of management and enterprises, we are actually focusing on the services capability. And a lot of people are worried about the safety of by -- of using this kind of generative AI, but we can show you that all data will stored locally. Some details [indiscernible] technologies. And so in the 30 -- in our celebration of the 30th year birthday, we've invited many experts to our celebration. And I also noticed that some of you are sitting here today have attended that conference. And in that conference, we have -- we presented a lot of our achievements, AI achievements to all the attendees. And in the future, we'll have more opportunities like this to help you experience our technology. So I think AI has brought us new opportunities for growth in the future. And through the Cosmic GPT, we also have a finance feature. We have established this finance AI assistant. And these are actually practical application of AI, for example, generative AI in finance, in HR. Let's take AI assistant as an example. Previously, the assistant can only do preset Q&A. But now they can understand intention and to generate answers. For example, previously, if you asked the question about the reimbursements of the travel fees, in the previous model, the assistant needs to resort to a lot of different data and then analyze. But now it can do it in a very fast way. It can understand intention of the questions being asked. I will not give you further illustration on that. Maybe in the future, you can experience this feature by yourselves. Here is an example of -- about our collaboration with Guangdong Airport. We have helped us -- we have helped them to improve efficiency of approval time. And their report production time has been shortened by 47%, and the monthly settlement time has been shortened by 30%. So the -- we have also provided them the GPT customer service. Previously, the customer service is kind of slow. They would only use the word search in a big database. But now this whole process has been simplified with GPT customer service. And this is Cosmic GPT plus HR. We have also shown this feature in our celebration previously held. For example, now this new feature can make recommendation for the HR. And they will also tell you some of the logics or reasons behind the selection or decision made by the AI. So as to make the profiling more complete and comprehensive, it will also take into account of the internal or external environment of the enterprise. Here is an example with Hisense. And in Hisense, we have helped them to rebuild enterprise management. We not only provide them with the assistance for those experts, it can also help the enterprise to make decisions to help everyone working in the enterprise to make better decisions. And this slide is about Cosmic GPT plus development. In the area of development, I think GPT is doing really well. If you have ever paid attention to the generative AI, you may know that this generative AI is -- has understood data analysis, process development, coding. So it can help us to form construction, compile code into right remarks or comments, which can simplify the process of development. It can also decrease the error rate. So all in all, Cosmic GPT is actually rebuilding the enterprise digital power, especially in terms of rebuilding experience, rebuilding assignment and rebuilding decision-making. Experience is very important for clients. In the past, we see that a lot of enterprise that the leadership team hasn't used the software very often. They will only collect the data from the -- their assistants or the staff. But now with Cosmic GPT, the management team can get the data by him or herself. It's like dialoguing -- having dialogues with a real person, and this real person is so knowledgeable that -- so that he or she can answer you literally any question you ask. And let's move on to the next part. I will talk about the Kingdee Cloud Galaxy. The customer base is 34,000, and NDI is 96%. It is a little bit fluctuating but still remaining at a high level. ARR growth is 28.6%, and operating margin is over 20%. So in Galaxy, here on the slide, you may be worried about the active usage -- the active subscription among the SMEs. But here, you can see actually among these client base, we've done really well. For example, here are some of our clients on the slide. And this year, AI is a buzzword. So here, I've listed some of the AI enterprises, which are also our clients. For example, like iFLYTEK and many other companies like Phytium and Biren Technology, SoundAI and so on. So it proves that we have indeed served a lot of technological-advanced SMEs, and those companies are very profitable. And we have also got other clients like [indiscernible] And here [indiscernible], and they're actually focusing on the optic membrane. We also have other clients like Roche and many other enterprises in other fields. So our clients are located in different fields, and they are all very dynamic. And since the launch of Galaxy, I said our expected customer base could reach -- should reach 40,000. And now we've already approaching that target. Why would I give you an introduction about Galaxy? I really want all the investors to know better about our pattern or momentum of development. At the very beginning, since the launch of Galaxy since 2020, the OPM is only 7%, but now it's 28%. We also have Galaxy flagship. And with 34,000 -- with enlarging client base, we believe the OPM will increase further in the future. And the clients for Galaxy are actually -- most of them are SMEs. We believe Constellation will move a little bit slower. Maybe the road ahead for Constellation is tougher. However, that is our direction of efforts. Still, let's circle back to Galaxy. We are actually exploring upsell opportunities. And you can see now Galaxy customers with annual fee over RMB 100,000 has contributed to about 40% of the Galaxy ARR. To compare with -- to 2022, you can see that not only for the AI enterprises or the PV enterprises, they are growing. And the share of the customer with annual fee over RMB 100,000 will be larger and larger in the future because we have always done an upsell for these loyal customers. And those customers with annual fee over RMB 100,000 is not only increasing in number, but also the total share of these batch of customers is increasing all the time. And here about the Cloud Jingdou. The customer base is 39,000. NDR is 89% for Cloud Stellar. And for the Cloud Jingdou, the customer base is 279,000, and NDR is 85%. So you can see all of these stats on the slide. So among our -- all of our clients, all the SMEs are very vital. They are very dynamic. And now comes the third part, the outlook of China enterprise SaaS market. So let's look at the platform as a service, PaaS. And these are some of our analysis on the slide. So according to our estimation, we believe that the product TAM for PaaS could reach CNY 23 billion by 2030. And our focus may be in the application infrastructure and middleware PaaS or AIMPaaS. And for China financial software SaaS market outlook, of course, these data are from Gartner. And according to their estimation, the product TAM could reach CNY 47.5 billion. So in this area, this is actually our core capability. We will cover all of these links, like the financial growth, financial management and accounting part. We will cover all of these pillars in finance. And for HR software as a service market. By 2030, the TAM -- product TAM could reach CNY 44 billion. That's a large market. And we've collaborated with Huawei in -- we want to help them to address their pain points in terms of the transformation of their business. So I think our product in terms of HR is very competitive. So in terms of building a win-win ecosystem, we have collaborated with [indiscernible], a shareholder -- a stockholding company, and we are also cooperating with [indiscernible] in handling information and KPMG. And now 147 enterprises are developing their own product solution based on our Cosmic -- Cloud Cosmic platform. And we also have a Xu Shaochun public account. It's being used to enhance customer life cycle experience. We want to develop our new culture. We want to be customer-focused. Customer always comes the first. We also want to make better products to be delivered to the customers and to improve the satisfaction among them. And the launch of public accounts of Xu Shaochun has improved the customer satisfaction. And for example, we have received 385 customer appreciation letters, and the complaints have been reduced. The appreciation from customers has been increased. And for subscription ARR, as for the 3-year target, as you can see here, to compare with the guide, we have adjusted a little bit. Based on our expectation over the macro environment, we have adjusted our target a little bit lower to RMB 3 billion. I hope that investors can pay more attention to the operating cash flow. We are very confident that our operating cash flow could reach RMB 600 million. And in the future, 2 to 3 years, we believe the CAGR for that could reach 50%. I think that is very natural for us if we can commit to -- if we can stick to our business model and the layout of our business in more cities. We need to sustain our operation. We need to do the operation in a sustainable way. And there are lots of trusted products, for example. The RMB 3 billion to RMB 4 billion, we have put them in a deposit account. We haven't invested those into those high-risk products or derivatives. And that is all my sharing. And thank you again for your support and your care. Thank you.

[Operator Instructions]

I'm a researcher, [ David ] from Merrill Lynch. First of all, I want to say congratulations to all the performance you've achieved. I have 2 questions. First is about the target of ARR. You said you have adjusted that a little bit lower. But still, the absolute growth rate is still very high. It's 44%. But in the first half of the year, it was 36%. So it's still increasing. What is the driving force behind this increase of the ARR? And the second question is about the strategy to develop big clients among big companies. We know that Cosmic, Constellation are developed really fast against fierce competition. We can see many enterprises entering this battlefield. So what is your strategy to develop big clients, key accounts? For example, will you categorize your accounts into super large accounts or large accounts? And how do you categorize them by?

First, let me answer your second question about the key accounts. Since 2020 Kingdee has made more efforts to develop key accounts, those large companies, and we have made breakthroughs in those super big companies. And we have launched the products for them, for example, like Huawei, [indiscernible] and so on. And last year, we have signed contracts with Shanxi Road and China Construction Bank. I think the launch of these products and the signing of the contracts with those big companies have been a testimony for their trust for us. And we have also collaborated with [indiscernible], and in August 1, we can see that our product is better than ICP products they originally use. So in the future, Kingdee will speed up our efforts in big company. And we will focus on several fields, for example, manufacturing of equipment, and another one is bioscience or [ medicare ]. And the third field is new energy. And previously, we -- our focus would be tobacco as well as the real estate industry. We will still make efforts in those industries. And this year, we've helped 177 enterprises to use our products and to transform their business. So we are very experienced in this regard. After we -- especially after we established collaboration with those super large enterprise, like China construction company and [indiscernible]. And yesterday, there is a news saying that Microsoft stops their service to Russia. I think that's a very major event, which will speed up the Chinese enterprises to consider about how to -- to consider to adopt a domestically made enterprises. The Chinese market is very large. And previously, the Chinese software -- or SaaS or PaaS market is actually dominated by the international counterparts. So maybe in the future, I hope that more and more enterprises can adopt domestically made software. And we, in Kingdee, will make more efforts in terms of recruitment of talent and to develop our products. And we hope that in the future 2 or 3 years, we can have more breakthroughs among the big clients. As for the first question, we've actually assessed all the orders we've achieved in the first half of the year. And after June and July -- I think in June and July, we have achieved beyond our expectations. So that is why we give a 44% as our ARR growth expectation.

I'm [ Dan Bing ]. And also, I want to say congratulations to you for your performance. And just now Mr. Lin has talked about your outlook into the future. Like in the future several years, the CAGR could reach 50%. So my question is, for example, for Mr. Xu, how do you perceive the strategy or direction for the future 2 to 3 years in terms of business or products? Do you have any new development path? And can you shed a light on your internationalization strategy? And in the future 2 to 3 years, the cloud transformation has come -- has gone to the -- has already been reached a very high level, accounting for 80% of your business. So in the future, how do you perceive -- how do you sustain your growth with already saturated cloud business?

Thank you for your question. In the future 2 to 3 years or even longer time, for example, like 3 to 5 years, Kingdee strategy is very clear. First, we will keep carrying out our transformation of cloud subscription-based model. Our cloud subscription -- the share of cloud subscription business has accounted for 79%. We also pay attention to the sustainability of ARR in subscription -- cloud subscription. And in the future 3 to 5 years, we will improve our performance in this regard. And we want to become a company fully featuring cloud subscription. We want to be the partners for our clients. This subscription-based model will show our clients that our company is very valuable. Just as Mr. Lin has mentioned, like for the Cloud Stellar or Cloud Cosmic, the customer base is 34,000. If we can make that tenfold, the value will be astronomical for us. And in China, I think it's highly possible that we can extend our customer base by tenfold. And second, in Cosmic, Constellation, especially for Cosmic, in the past 5 years since the launch of Cosmic, the performance was pretty well. It proves that we are a company equipped it with core technologies. With challenges brought by AI, in the future 3 years, we will enhance our application in AI to better deploy Cosmic GPT and to integrate Cosmic GPT into aPaaS so as to provide better services and experience for our clients, bring more value to them. Third, Kingdee will upgrade our internationalization strategy. On August 8, we have issued an announcement saying that by 2026, we will strive to become #1 in Asia Pacific market, EPC market. And by 2030, we want to become 1 of the top 5 globally. So looking into the future, in the following 3 to 5 years or even longer, we are very confident.

I'm [ Harrison ]. And my question is about Cosmic. And actually, the first half of the year for -- the growth rate for Cosmic is actually higher in the first half of the year to compare with the second half of the year. And why there is a discrepancy between this growth rate? That's the first question. And the second question is about the withdrawal of Huawei from better ERP. So will that be a drawback for Kingdee? Because Huawei is a very competitive -- is a very strong competitor.

I will answer the question about the -- your first question because the contract will be fulfilled in the second half. More contracts will be fulfilled in the second half of the year for Cosmic. And the reason why we are confident about the future development is reasonable because previously we have served many big companies. We know that the model is very complicated. We have received many lessons and experience along the way, along the past 3 to 5 years serving those companies. And for those big enterprises, those projects are very tough for us because they have been adopter of the software from the international vendors for many times. So we are actually helping them to transfer their habits. And our recent clients is China Construction Bank. And we only -- we successfully delivered our project to China Construction Bank, which is, to my surprise, a pleasant surprise. So I think based on our experience and lessons learned in the past, we believe that we are confident about the future growth of the business -- the subscription-based business. And the second question is about Huawei. Maybe Mr. Zhang can answer this question.

Actually, we've attended the events held by Huawei for 2 times, and those events have gathered many ERP vendors. And we have -- we actually -- we are actually collaborating with Huawei, and Kingdee is a part of the MetaERP. For Huawei, their positioning for the MetaERP is only for internal use, and Huawei hasn't clarified the development of this product. And in the future, maybe there are some enterprises adopting Huawei's solution. But now the MetaERP is only used for -- it's only for internal use. And our aim in Kingdee is actually to help enterprises improve the user experience. And for different companies in this regard, we may have different orientations or propositions. And for us, we have accumulated several decades of experience, and the Chinese market is very large. I think we are able to have our foothold in the Chinese market. And our focus should be our technology and our services. And the landscape is also developing really fast. It's ever-changing. You need to be very responsive. We also hope that Huawei can focus more on the infrastructure building. That is also the expectation of the government on Huawei.

And now we can answer questions from online.

I'm [indiscernible] from CICC. I have 2 questions. The first question is that in the first half of the year, we have made achievements in terms of the group revenue. So how do you perceive the profitability of the company in the future? And second, about the Stellar. The profit margin is more than 28%. So do you have any outlook for the profit margin over the following like 20 -- in the long term?

And in terms of the growth, we hope that investors should pay more attention to our operating cash flow. And we believe that by 2025, we can strike a -- we can reach a balance. But I cannot give you an exact time line. Based on our statements, you can see in the past, no matter -- during the time when we were influenced by the COVID, our CAGR has reached about 20% all the way. So I think in the future, if things will only be easier for us, and we will make sure that in the future, the headcount will stay the same. We will explore more clients and to improve our -- the share of subscription business. At the same time, we'll maintain the headcount. I think that is the overall direction of our growth strategy. And in terms of the second question, let me still use the example of Stellar. The OPM reaching 20% is one of our -- is still -- is always our direction and expectations.

[Operator Instructions] Next question.

I'm [ Lei Zhang Jing ] from CCB. I have 2 questions. The first question is about the big clients, enterprise clients. Previously for Kingdee, most of our clients are those traditionally large clients. But this -- the first half of the year, things have been changed a little bit. And for Constellation and Cosmic, the customer base increase rate has been decreased a little bit. So what is the reason behind that? And also, I want to ask more about the gross margin. And second question is about the expense. Actually, the expense has reached a record low. So what did you do to maintain such a low level? And what is your outlook for the future development -- for the future status of the expense?

And for big clients, enterprise clients, I think in the first half of the year, we have contracts -- or we have signed several -- a lot of contracts with them. However, those projects can be very large. So the delivery period will be long. So maybe in the future, you can see the return of those businesses with the big clients. And the -- and actually, some of the projects signed under the -- signed related to Constellation and Cosmic are actually categorizing to the traditional business. Here represents only 1%, maybe only 1 order. And in terms of the gross margin, for Constellation, the delivery cost is high. So maybe the gross margin will be low to compare with other products. And this year, the overall gross margin for the enterprise has been increased by 2%. And for the cost of [indiscernible], I think in the future will be decreasing. As long as we can improve the share of our subscription-based revenue, we can do a better job in the future. I think that is a result of [ accumulation ]. The subscription business will bring up our gross margin definitely. And in the past, we have many traditional products. So we would deploy more staff on those traditional products. But now we are doing cloud transformation. We are making -- we're actually deploying the Cosmic -- Cloud Cosmic more. So that is why the expenses have been largely -- have been decreased this year. We believe the headcount should be controlled so as to guarantee the future development of our company. I think it's a long-term thing. If we can do every step right, the result will be very natural. And we hope that in the future, we can leave more work related to the customization as well as delivery to our partners. We want to do -- we are -- we want to focus more on service providing. If we can have more of our businesses to be subscription-based, the gross margin will definitely be higher.

The third question from online.

I'm [indiscernible]. I have 2 questions. The previous plan is from 2021 to 2023 and that we already approached the end to the previous plan, and we've done a really good job. So my question is about the influence of AI on the overall landscape as well as your company, and how can we maintain an upper hand in the era of AI? And the second question is about the competition for those big clients, big enterprise clients. Are they still price-sensitive?

And the first question is about AI. We pay -- attach great importance to AI. I think AI is a disruptive technology. So we will invest more in AI. And AI is an important pillar for digitalization. So in the future, Kingdee will invest more for better understanding of AI and to launch more technologies to better help this business' -- business -- different business scenarios. And for big clients, we believe the competition is always there. And after 2 years of development, I believe that Kingdee's performance has been -- and the capability for serving those big clients have been tested. We've also highly recognized by those clients. Our professionalism and experience have been recognized. We believe we are the most professional in this regard. We believe that could be our upper hand. Our experience and expertise will be our upper hand in the competition. The competition will only become fiercer and fiercer. So I hope that through our product and service building, we can have more big clients.

Any other questions from the site?

I'm [indiscernible] from [indiscernible] Securities. I have 2 questions. One is a follow-up question on the gross margin because the subscription will bring up the gross margin. However, one of our direction is to expand our market of the big clients. And the big clients will focus on customization, which will decrease the share of subscription in a way to decrease the gross margin. And previously, you've done a really good job in terms of acquiring SMEs, but due to the macroeconomic environment this year, will that be pessimistic in the future? Will that be influenced?

And for SME environment, and we also acknowledge that we are challenged because of the macro economy. But this year, we focus on the technologically advanced SMEs. So based on our performance, I think we've already done a good job. We've served 43% of the technologically advanced SMEs. We will -- we have been influenced. However, the market is also large enough for us to survive and also thrive. We can use our expertise to guarantee our own share of the market. Despite all the challenges, the potential ahead of us is still very large. And during the past several years, our more than 2,000 vendors as well as our branches already understand the demands of our clients. So we are very confident that in the future, we can get greater progress in this market. And another question is about the gross margin for those big companies. And in the past several years, we have made breakthroughs in those benchmark clients and the reference clients as well as the big clients. And through the collaboration with them, we are actually accumulating experience. For example, like in the industry, tobacco, we are collaborating with [ Greenland Tobacco ]. We -- with this experience, we are collaborating with more enterprises in this area, for example, [ Tongxing Tobacco ] and [ Jiangxi Tobacco ] and so on. And in terms of manufacturing, after we collaborated with a very big manufacturing company in China, we acquired another big client in this area because we have already got this expertise. And after 1 year of delivery, we think that the achievements we've got is very prominent. We have replaced 142 original processes of ICP. And on August 1, the settlement period is 7 hours, 50 minutes. And ICP -- to compare with ICP, the settlement period is 54 hours. So we have largely shortened the settlement time for our clients. So in the future, we can see there are more and more enterprises collaborating with us like the automobile industry, [ Zhongjia Automobile ] and many other equipment manufacturing enterprises. They have already seen our best practices. They will be willing to collaborate with us. So in the future, with those benchmark enterprises as a preference, we will have a greater development in the future. So we will make breakthroughs in those -- in our focus industries. Definitely, we will not be a jack of all trade. We will choose the industry to enter in based on our own experience and expertise. Another focus is that we will develop more partners in the ecosystem. We are collaborating with China's software and the accounting for -- the big 4 accounting firms. We are involving those big names in our ecosystem so as to improve our profitability in this market. I want to add something. And for those big companies, why do we stress subscription-based model? Actually, for those big companies, as you mentioned, the gross margin is what -- will be low at the very beginning. However, with -- as time goes on, in the long term, those big projects will bring us more profits because they will extend their business. In the video, there is -- we have a client, Hisense. At the very beginning, we invested a lot in that project. But now Hisense -- sorry, it has -- we have already received much return from this project. But the premise is that we need to have an excellent customer base in which we can collaborate with to create more value altogether. And for SMEs in the first half of the year, the overall environment is kind of pessimistic. However, for our clients, small-sized enterprises, the growth rate is still 30%, which is really good. And for those small enterprises, they are not necessarily small names. For example, like [indiscernible], some of the big names in TV industry, they also use our Stellar -- Cloud Stellar solution. So I'd say -- what I want to say is that our clients, although they are categorized as SMEs, they are doing pretty well in their own industry. We still need to provide good -- the best services to them. And we also have many AI partners. They are not very big companies, but they are doing -- they're actually leading the industry. We will take into account of the macro economy or the risks in the environment. We will also stay in close relation with our clients. And our clients are also developing. They're also growing. I want to add up something. We really focus on the word of mouth, the reputation. And I asked -- I told all our staff, if you do not have the confidence to provide great services to the clients, don't do the deal. That is our -- one of our principles. It is also the secret behind our sustainable development. We need to guarantee the customer satisfaction among all the enterprises.

Due to the limited of time, we -- let's give the floor to Robert for a closing remark.

Thank you again for your support. In the face of the macro economy, at the very moment to celebrate the 30th anniversary of Kingdee, I want to have 3 lines. First, I think the economy is not decreasing. It's actually embracing a new momentum of development. For some industries, decrease is there. However, for new energy, for bioscience and health care, for equipment manufacturing industry, they're actually increasing. So I think in this macro economy, Kingdee has made our strategy based on the market segment. And the second line I want to make -- statement I want to make is that the market is changing. The market is still there. Actually, we are faced with a lot of opportunities. We need to focus. We need to focus on our strategy. Our strategy is featuring a platform plus finance, HR, tax, plus -- and plus ecosystem. We will consolidate our platform and to empower our platforms with AI. And in finance, tax, HR, we need to stick to our expertise in this area as we always do. And we also need to establish partnership with our collaborators in the ecosystem to co-create value. In the first half of this year, we've done a really good job to compare with previous years. So we are confident that we are moving towards a brighter future. And the third statement I want to say is that a great company will always be the one who dares to make a move in -- against the ever-changing environment. Now this environment is ever-changing. I think the ever-changing environment exactly bring us opportunities. And in the following 30 years, we are confident to become -- in the past 30 years, we have already become the #1 in China. And we're very confident that by 2030, in the following 7 years, we can also become the world #1 in our focused area. We want to provide quality, high-value services to the clients. I always believe that behind the greatness of China, there should be a software solution provider for those enterprises to better manage themselves. I think Kingdee can be that enterprise, can be the software provider. Thank you again for your support.

That's the end for today's meeting. Thank you again for joining as well your support. See you next time. [Statements in English on this transcript were spoken by an interpreter present on the live call.]