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

Distinguished investors, analysts and our friends from the media, good morning, and I'd like to welcome you to join us for 2025 interim result announcement. First of all, please allow me to introduce the management team with us here today. Mr. Shao Chun Xu, Chairman of the Board and CEO of the company. Yong Zhang, the President of Kingdee; Executive Director and CFO of the company, Mr. Lin Bo; Vice President and GM of R&D Center, Mr. Liu Zhongwen; and the General Manager of IR Department, Wu Chao. Ladies and gentlemen, coming next let's welcome Mr. Lin Bo to walk us through the financial performance and the future outlook, please.

Distinguished investors, analysts and friends from the media, good morning. I welcome all of you to join us for 2025 interim result announcement. By the end of 2024 or at the beginning of 2005, when we were formulating the annual plan of 2025, management team has already anticipated persistent microeconomic challenges. While at the same time, we also see the opportunity from artificial intelligence. So that's a reason we adjusted our strategy. On one side, we're seeking more opportunities where on the other side, we also will control our internal risks. Here is the financial result, I'd like to show to all of you. In H1 of this year, revenue increased by 11.2% on a Y-o-Y basis, reaching CNY 3.192 billion, so we, on one side, introduce more AI talent, where at the same time, we continue to leverage technological innovation to continue to further downsize the team our team size being decreased by 9% compared with the beginning of this year, close to 1,000 headcounts. So capital income generated per capital grew by 19.4%. As many of you may know, that import expenses be a component of our overall expenses. So team structured development can actually help to further grow our business. where the grow subscription revenue grew by 22.1% on a Y-o-Y basis. Where for product implementation and other income is also to grow. We actually changed our way of information disclosure because we already want our investors and analysts to understand our business more [indiscernible] rather than mixing the business together. Cloud business is the cornerstone business we have is also a high-margin business. And you can see that the margin is more than 95%, so we do hope this wind business and the subscription business going to be a high revenue contribution of the company as a whole. We have program implementation, we really want to outsource it to the third party and making sure it's can keep a reasonable presence within our overall presence of the e-com and the revenue. On the right side, as you can see, because of the business changes, our GP margin grew by 2.4%, reaching 65.6%, still have ample room for further growth. So that's the reason we are very confident for our future business growth. But at the same time, the expenses and the fee ratio has been further optimized. The proportion of the subscription business continued to increase. The renewal rate also be improved. The same as the sales and the promotional expenses are all being decreased. And you can see we made heavy investment for R&D. On the right side, the majority of the products are indeed co-maker matter for large, small or medium-sized enterprises, we are all using Cosmic platform to continue to improve R&D efficiency. Even if you can see expenses down by 3.8%, but we continue for investment, and we also introduced many of the AR patents to continue to lead to the business expenses ramp up. Let's also take a look at the SMG, it was growing up by 2.1%, which is very much different from what I say internally, the key reasons because we further optimize our team. Here is a onetime compensation for the employees. And it is close to CNY 80 million. So this is an interpretation we'd like to share with you on that onetime expenses, where last year, the loss of the same period was CNY 280 million, where for this year, it's actually been reduced to CNY 98 million, significant drop. But at the same time, our operational cash flow was very decreased significantly. What I can say for software people and actually, the human cost used to be very high, and the bonus need to be paid in H1 of this year. So that's the reason our operating cash flow as being stressful. And in H1 this year, actually, revenue generally accounted for 50% to 55%, were 40% to 45% in H1 of this year, but it's a reverse story of expenses. We surely believe for this year, we're going to have a good profitability. Operating cash flow should be more than CNY 1 billion. So just now I'll walk you through the operational in H1 of this year. I also would like to specifically talk about the long-term guidance. I have to see the external environment is volatile. And for our forward-looking statement, it's also subject to our feelings and our -- of the external environment. Please just take it as a reference rather than quote or 100%. I have to say the guidance we provided indeed contain a certain degree of the that activity. Now we are a cloud service company based upon the subscription model, as we have already mentioned. This is what we have in H1 of this year. Actually, cloud subscription revenue grew by 22.1%. The ARR grew by 18.5%. And the contract liability of the cross subscription grew by 24.7%, while at the same time, you can also see the GP margin was 96.2%, 0.9 percentage growth compared with last year. Why? The margin was growing because we're using the third-party eyes, but as we continue to develop the IT technology with ever improving computing power and our understanding of the market competition, even if we believe the GP margin of subscription is already 96.2%, but this year, it has every opportunity to be further improved. Let's also take a look at the cloud subscription. In quarter, majority of the larger worried about whether the cloud subscription of the consolidation is looking right on margin. If this line is not huge, our growth rate is looking very well. actually, for Kingdee Cloud Cosmic and Constellation and the Subscription revenue grew by 41.1% and its return rate was 108%. Where at the same time, the net dollar retention rate for the corresponding constellation subscription was 108%, while at the same time, for the startup, it's -- ER was 23.8% and 93% still with a good performance, that is also the reason why after the business transformation will still be able to maintain a very strategic growth with our large customer base. Same as what we used to plan we have already changed the traditional onetime license transaction business model. Cloud business or cloud subscription has become a key stream of our total revenue. Cloud subscription attributed from more than 50% of our revenue. We are truly enhanced with our clients as partners for co-development. All those indicators could actually be clearly same from the indicator. As long as we maintain a good customer relationship as long as we actually maintain a good NDR and retention, that would be the key priority of the company. And in the past, we only work on customer development, but now we continue to improve the service and mobilizing our clients to get more of our product, prolong the life cycle of the customer with ever increasing customer returns. In H1 of this year, and you can see with artificial intelligence with advanced management tools being provided by Kingdee. And for constellations, we contracted more than 500 corporate clients in H1 of this year. We actually upload our slides to the website. But as you are here in the offline channel, let me just share with you what did we do for our corporate clients. For Kingdee Constellations, what did we do and what we offer to each company. Many people know we do provide the business management tools. What other value? Let me just demonstrate to you. For example, at the China Merchants Group, we can help to further reduce the expenses for their accounting people by using artificial intelligence. At Hyson, the cantered process efficiency improved by 41%, where, at the same time, at the national trade and we also help them to bring great cost savings where for CGM, and we also help them to further improve their savings. by finding the corresponding taxation policies. And I can also see even for WeChat, we actually help them to further empower their domestic alternative operating. We help all those customers have further improving their operational efficiency, whereas for Kingdee, they actually have the double-rate ERP. They need ERP for group and ERP for subsidiary, those leader of the ERP has been well connected, making sure the entire group on the umbrella is just using one system. This is also a core innovation can be made with the customer, where we're also supporting some of the specialized and high-growth enterprises by bringing them great efficiency gains. For example, you see [indiscernible] Holdings and Huizhou, those are whole efficiency gains we provided to each company, including the turnover efficiencies settlement and the sales completed data delivery and we do have the one quarter loan profit refined consolidation of the cost for each of the company. Well, coming next, please allow me to walk you through what we presented to you a slide from our 2026 interim results. In the past, we believe the licensed ERP model going to be shifted to cloud management. Those are older slides showcasing what has been done by Robert. We are actually shifting from B2B and B2C and also continue from the licensing to the subscription model you can see what has been achieved by us. In 2015, revenue was CNY 1.5 billion, where by end of 2024, it was already CNY 6.2 billion, where for today, I surely believe the interim result revenue is going to be even higher. Our cloud subscription revenue for the cloud service revenue, cloud service revenue has already accounted for 82.6% of our total revenue of the group. If you take a look at the track record from the group or from the total revenue perspective, the CAGR used to be 50%, where for the cloud service, the CAGR was around 47.3%. There might be some low baselines, but which also help to further prove the success of the cloud transformation. In next stage, we're going to continue to transfer for artificial intelligence. This is a new slide. We start from SaaS, continue to building our EBC capacity, and now we emphasize on enterprises AI management. Our revenue tell us our SaaS business is going to continue to be strengthened. But when we transform from SaaS to cloud and AI is a new opportunity for SaaS. For SaaS revenue, it's going to have a very healthy growth for the next 5 to 10 years, but there is also a new opportunity from AI agent and also from the data sets. So generally speaking, I should see for AI core network platform, in the past, we do have the EBC enterprises capacity, which indeed complementary to our existing AI agent that can help to leverage and mobilize resources from EBC for business management. So what are the scenarios we are targeting now? Let's take a look at our product portfolio. Let me just make it simple. The more enterprises use SaaS application, the more data is going to generate. And the more likely that AI is going to be further above the more AI you use, the strength of the SaaS could also be further improved. This is leveraging SaaS to generate more data, data support enterprises in a complementary role and AI were, to some extent, further strengthened the performance of SaaS. We are actually this great opportunity. We have already provided data to public cloud business from many years ago. then what are those typical AI scenarios we can provide? Let me just give you an example from the manufacturing industry, AI is everywhere for us. Majority of the time, we were talking about financials, but talking about manufacturing industry, let me just show you 2 very typical applications in the future. No matter for product R&D, for manufacturing, for quality management, for supply chain management, to sales to human resources management and the entire flow of the company procedure, you will be able to hide more applications of having AI. But what is our key priority when we design the procedure to the companies and we will be able to have an integration with PM and PM does has the collaborations with our design software for the smart scheduling for quality management, for supply chain management and human resources and financials. All those applications need artificial intelligence. Artificial intelligence, to some extent, has been seamlessly embedded into every part of the process. But when we talk about AI, it's not only a concept or technology, we hope that AI can truly unleash its power and value to indeed helping everyone to further improve the productivity. Let me just show you a customer case. It's a drone company, and this is actually the requirement statement from the client. After receiving this requirement statement, artificial intelligence can help identify the highlights of the requirement and also have the internal source for our database and also identify the very similar model machine to become the prototype template and then to actually identify the performance gap between the requirements and the model we have and be able to identify the indicators, including the flight speed and cost requirement. It will be able to identify the existing database with the samples and then be able to make an adjustment in the software design. So indeed, AI is empowered every industry. But somewhere, especially the media was a question whether AI is taking revolutionary rate changes to software. But let me just tell you, it's not because AI majority of the time, it actually uses the data delays from the margin, where for one enterprises, you need a complete set of the data, especially the completeness of the ERP data [indiscernible]. If you ask AI different questions, you may get a very different answer. For any company, you need to have a very strong underlying data, which can make sure you have a good data consistency. So AI can also help us get access to the backstage data, and it can actually help to translate this 4-wing Robert into a 6-wing Robert. This is how AI-empowered design. Let's also take a look at how AI support sales process. It is an agent. It's actually senses sales people. We improve the rep and cores being made to the fixtures for the property projects. Some people [indiscernible] only received incorporate rather than having a largely fixed. She doesn't want to people with order to someone us, but no worries now we have the quotation agent as long as you input information into the [indiscernible] application. Application is built in product and of the sales people to understand what the client needs in position and allocate the right solutions. By understanding the full plan, the AI will help to -- refer to the design press and product revenues identified [indiscernible] providing the product configuration and price. No process has been done autonomously maximize and empower our salespeople. We're using lending cost continue to improve the accuracy and the success of product recommendation. If a client is not happy with the result, in the AI quotation system can also make an adjustment in high and energy seen in this process being greatly reduced compared with many labor besides the professional product recognition in the coating, it also has a fresh capture and flash search. It actually has a multimodal intent and images were able to help identify any pictures that we taken by the clients over [indiscernible] or even [indiscernible] purchase form right on the page and how respond to different customer inquiries, reducing cat menu arrow and identify the right product portfolio. 9 helping to further reduce the time for quotation. AI implication provided by it can actually provide pricing according to the pricing system, whilst the client will click on the quotation, it will actually generate a quotation for confirmation. It can also be shared to the WeChat chat of the clients. Here concludes the quotation journey, a journey that used to engage multi-department elaboration has already been simplified as AI sales force for highly effective separation we are actually transforming the business and service tuition. Thank you very much and hope that for both cases, you will have an intuitive feeling on how we use AI to further improve the production design, reducing the sales cost and also further improve the internal collaborations between different departments. But for sure, as I have already mentioned, there will be more AI and AI agents to support enterprises for their business. Where in 2025, besides cloud subscriptions AI and globalization, and we surely made some good progress in globalization. On the slide, we have already set up our subsidiaries in every country listed here, including we support the China Merchants Group and [indiscernible] as well as [indiscernible] for their international expansion. Yesterday, we newly signed a group customer in Malaysia. And actually, today, we have already received the order, which could be converted into millions of RMB per yen. So our business model in Malaysia truly recognized by the local customer. We believe our international expansion is going to be of great success in the near future. I think many of you may really would like to know how can we leverage cloud subscription to rebuild Kingdee and for the target of this year as we promised to the investors, we're going to make a profit for this year. Operating cash flow should at least be more than RMB 1 billion, where we also hope after discussing with the Board of the Directors. After the calculation, even if the guidance to the market may have some uncertainties or subactivities, but we have every confidence. In 2030, the AR revenue accounted for 30% of our total revenue as I'm the one in charge of the finance. In [indiscernible] by then, our operating cash flow, the forecast here is quite conservative. We believe we will be able to make it more than CNY 3 billion. This is actually a conservative assumptions we have based upon the business growth rate we have. AI revenue were also accounted for 30% of our total revenue in 2030. We really would like to become a AI company, the world-leading one. Okay. Coming next, we were going to the Q&A session. But right before the Q&A session, let me just welcome you to test our AI-empowered product. That is the Gold Key financial report application. It can actually help you to do the financial report analytics of listed companies, including the ones on Asia market and the U.S. I personally experienced that, which is quite innovative and very empowerful. But for sure, I know the app still needs to be further improved. It can actually complementary to our existing internal financial analytics. I would like to welcome you to join us to have the hands-on experience of the AI Gold Key financial analytics app. Thank you. Thanks for all the investors. Now let's welcome the management team to be well stated on the stage. We will start the Q&A now.

Ladies and gentleman, we're going to proceed to the Q&A session. First question let's welcome that is sitting in the first front row, please.

My name is Daley Li. I'm an analyst from Bank of America. Congratulations to the company of your wonderful performance in H1 of this year, your AI business and subscription revenue was growing very good, the same as profitability. Two questions from me. The first question, you will talk about large, medium-sized and small-sized enterprises. What the drive of the demand may look like? Because I think for this year, your Constellation business was growing very fast, especially for subscription and the same as mid- and small-sized subscription business. What is the subscription trend do we see? Especially for large enterprises, many of the companies are taking profitability as a key. So whether the competition landscape be improved. My second question is regarding AI. And in H1 of this year, your AI backlog is actually CNY 150 million in May after releasing the AI product, including the recruitment assistant, AI agent as well as the Gold Key financial report analytics app, May I just kindly ask about the pricing model you have or even the feedback from the customers. What are the business that may have some good revenue or order contribution in H2 of this year?

Thank you very much, and thanks for your question. Let me respond to your first question. In Asia, for mid-small and large-sized enterprises, there are some demand trend changes. For large enterprises, we do have SOEs plus POEs, where for SOEs or central SOEs. I think you probably know that for indigenous self innovation, we do have the 2027 time line where SESAC and also asked for the penetrating management. The Central SOE and SOC are actually having a penetrated management of all the companies within just one umbrella. Well, for large companies, at least from their demand, I say many of them are integrating their different business lines, making the supply chain management more transparent and supporting their business worldwide. Those are indeed the highlight of the demand we see, where for middle-sized enterprises, they still need fast deployment, lower cost, standardized product, best practice, along with the industrial-specific attributes being built into the system. So those are the changes we see from the large and medium-sized companies, not too much changes for the SMEs. Your second question is regarding AI. On 4th of May of this year, we launched some AI-powered product. We received a very good response from the market. For example, for recruitment AI for our ChatBI product, we do have some large companies who come here to ask for a test pilot of the product. where for midsize and small company, what they need is a full system. But for large companies, they ready as to break down the talks of the AI agent. They're going to have the AI agent for different scenarios with different applications. As we discussed with the client and we identify some new demand, we're just helping the clients fi-tune their existing solution to take care of the customer needs. Okay. Let me just make one more comment. As Mr. Zhang has already mentioned, in H1 of this year, we actually launched many AI-powered products. We received many feedback from the customer. For example, like our Gold Key financial report analytics app, we showed this product with many senior executives of the company. We received very positive feedback from them. Especially, they believe our product is quite intelligent with very accurate data. As you can see, that artificial intelligence, people are still quite concerned of using it in financials because of the accuracy reason. But our product still received very positive response from the market. My second point, as Mr. Zhang has already mentioned, we launched many AI-powered products in May of this year. They are quite intelligent. For example, like the recruitment agent as well as the travel agent, it's actually a fully intelligent one clique support. For recruitment, agent, it can help to generate job descriptions by just having one sentence and recommending the right candidate for you. But it is more fit for the medium size and small company. But for large enterprises, we do have a very refined management internally. Each of our products are having multiple agents inside, for example, like a recruitment agent, recruited one agent. We actually have module agents in the underlying structures to support the agent as a whole. For large enterprises, maybe the recruitment agent will be break down into small agents to support large enterprises for their refined operations and management by providing a good alternative for good key financial report analytics, we embedded 70 agents inside. Our ultimate result is to deliver on financial report analytics of one company as a whole. We still provide a complete result rather than build it into different agents. We are talking about the future planning. On one side, we're still going to work for the customer, take care of the customer needs to roll out more AI agent experience. For example, just as I mentioned in May, we do have one platform with 5 major agents being launched. And Mr. Li also mentioned about product design, R&D agents and also sales and quotation agents. Those are all new products launched in H1 of this year. Along with artificial intelligence, the performance and efficiency has been further improved. We will continue to launch more agents in H2 of this year. And for sure, more artificial intelligence would be allowed into our key SaaS system.

Let's welcome Liu Yang from Morgan Stanley, please.

I have 2 questions here. My first question, Kingdee adjusted a product price in H1 of this year? Some used to be free of charge service started to charge in H2 of this year. So it's being implemented for one month, how's the feedback from the customer of the product is being charged any price adjustment plan? My second question, Mr. Lin, you were talking about the team optimization. And what about the people who do project implementation, whether the implementation business size and growth would be impacted because business implementation has everything to do with customer product launch.

Thank you. Two points you mentioned. Let me just respond to them one by one. In H1 this year, I do see some of the media and investors are making such a discussion regarding the price. And we are just separating and advanced services from a standard service of making sure we provide full access to all the customers. Some people said we're just increasing the price. It may be true, but we don't recognize that because it's advanced service. Many customers still take it. First of all, by soon, it can actually make our subscription offerings being more standardized. And we will also be able to understand the cost and service we provide for some advanced or higher demand I think right business meeting, we actually provided a certain data I do think the customer really like the separate charge of the advanced features. We have 800 enterprises. We signed for these advanced studies with a very nice growth. Your second question you were asking about team optimization. I think I have already mentioned in my presentation is high growth of the subscription business. Team optimization is not only for the implementation team. The whole team is going to be more refined and follow the lean management. We're not going to sacrifice the customer experience. What we're trying to do is to have the tailormade service and handle or outsource those implementation service to our third-party certified third-party partners to further improve our product delivery quality without customer satisfaction, other things are organ to be mite. I have a few things to share with you. You will talk about the service changes. I think for any of the company, the change of the service has everything to do with the value of the service. Recently, we just refine our service value. We'd like to provide high-quality standardized service to our customer. So in July, we made a switch. And later, we're actually going to let the customer feel the changes from our service by providing value to the customer. You also asked a question regarding team optimization. On one side, we improved the personnel efficiency, along with organizational change. For this year, regarding delivery for large enterprises, we'd like to have a more centralized management and delivery. Some of the consultant, they're going to be built into one team, further improving the work efficiency, where we're also developing our Eco Partner team. We actually strengthened our certification and assessment system. We have our partners in different verticals and industries, making sure they will help us to deliver the product to the customer. And thirdly, we are also working with some of the leading companies for project implementation. For example, we are working with Shannon digital technology, which is indeed a company who used to do the SAP delivery in the energy sector. Starting from 2024, we and this company are actually worked with Unit Energy investment team. We produced the team. They help us with implementation. They have already become a key partner we have energy sector. We're in Guangdou Energy Group. We are working with KPMG for the product deliveries, and we are responsible for the product design. We are supporting some high-end professional partners to help to take care of the large enterprises need as one team, but more importantly, for Kingdee, as Robert mentioned, we have 4 highlights of our business, including systematic, standardized, procedure-driven and data focused. Those are all things that can continue to do, where you know that for me, in software industry in China, we touch great importance to our system building. By having all those measures in one place, you will see a consolidated management of Kingdee with the efficiencies being further improved.

Next question, let's welcome Guosen Securities Representatives.

My name is [indiscernible] from GF Securities. I have 2 questions. At the very beginning, you used to be the pioneer for the cloud business transformation, you show good progress, but how likely the sustainability might be in the near future. where for artificial intelligence, what would be your 2030 development goal? My second question, yesterday, in your financial report, your large enterprise business grew by 30%, total revenue close to CNY 800 million but we all noticed for the last few years for SAP, the growth in China was quite flat with very small growth, while business reaching a certain level and our market share continues to go up, what would be the final alter limit for the large enterprises business growth?

Artificial Intelligence business growth, starting from the rollout of dips, people started to be more diluted artificial intelligence. And still, the market may have some reliables, but we're still very competitive. Let me just mention one point. If you take a look at our AI revenue, we're going to consolidate into the financial report. But when we report the data to our investors, we take a very cautious and rigorous way of on the entire categories of our data. In long run, as I mentioned, in 2030, we hope that AI revenue accounted for 30% of the total group revenue. And then by then, how the company size might be, roughly speaking, we hope that in the near future, we'll reach a double-digit growth every year, probably 15%, 1-5, a number to calculate what the CAGR might be for the past few years -- for the future few years. Okay. Jason, would you mind to help to respond to the second question?

Thank you. You will ask me about the upper limit of the large enterprises business. In short run, I think we'll still be able to grow our business sustainably. Because for subscription business, our market share was only 50 -- subscription business only accounted for 50% of our total. We hope we can make it to 80% to 90%. Well, for large enterprises, the opportunities are there. In China, for large enterprises, it used to be dominated by the international brands. But in China, the market is indeed worst. And Chinese company are now having a fundamental understanding and the needs for management. once artificial intelligence comes, the work efficiency and AI adoptions being further accelerated by large enterprises in China. So still, there are more growth opportunity for us. And you know that this afternoon, our goal for travel. And we have a major project in Malaysia. And the value was more than RMB 10 million. Subscription is a few millions of RMB. International market also presents good opportunities I think is a matter for China or international market, we face good opportunities. International, we were being challenged by large enterprises, enterprises because you have many competitors, you have to take care of the local policy and the market social and compliance. But for this year, we hope, at least, we will be able to continue to grow our business in China and also continue to develop our business internationally.

Lady sitting in the back, please. [indiscernible] from CICC, please.

And congratulate on the company's AI priority, subscription, prioritized strategy with nice progress. My first question is regarding subscription. Mr. Lin has already shared with us in 2030, the AI got contribute to a certain ratio of your total revenue. For the company, would you like to share with us what would be the GB merger of subscription revenue? And how likely is going to be contributor to your total revenue? And Mr. Zhang, you also mentioned you have some international business in Southeast Asia and Middle East, then what would be your plan for international business? Any of your strategies in different regions may differ from one to another?

Thank you. Let me just respond to it first. Now we have Jason to give more comments. Let me make it in this way. I hope that I will be able to combine the subscription revenue along with AI revenue. For subscription data, we hope that we will be able to have a subscription from AI revenue together, at least to be 80% to 90% of the total revenue of the company, and the margin will surely provide us good returns. But it already takes time. It has everything to do with the global strategy. where for the global strategy, we still like to follow out in raw business. We're going to follow a Chinese company for international expansion on one side, while at the same time, you can see also in Singapore, in Malaysia, in Vietnam and in Thailand and the Middle East. And we also continue to deploy our business following the [indiscernible] strategy.

Thank you. Let me just give some additional comments talking about international strategy. For this year, South East Asia and the Middle East would be our 2 key markets. Starting from '24 to now for business opportunities and the project, they are looking very well. But what we're trying to do is to localize our product there? We have already published the product back in 4 countries and regions to feed into the local business application and be adopted by the local market. because some regions, their frames for trade and manufacturing the supply chain, we just want to make sure our product truly reflect local market need. But each region and market have different requirements. For Middle East, for Middle East Asia, Southeast Asia for Japan and Europe and North America, for sure, the market differs a large. But as Mr. Lin mentioned, we're going to follow Belt and Road Initiative to continue our international expansion. In 2025, we want to consolidate our foothold Southeast Asia and the Middle East, starting from 2026, we will go for Africa, to go for mid-Europe and Japan.

Coming next, let's welcome from the media friends.

I come from the 21st century. I have a question regarding agent people claiming this would be the first year of agent. You also published a corresponding product. Many people believe, not many people would like to actually have a good renewal of the product for agents. How you're going to comment on that? And the DeepSeek actually reduced the AI development cost? How can you avoid the homogeneous competition?

Thank you. Thanks for your question. Let me respond to your first question regarding the agent service renewal. First of all, for Kingdee, we are serving the customer no matter how the product we provide, no matter it's ERP software SaaS or the future AI-empowered product. it only gives us on the form of the product or technology. But as we own as we serve the customer, we still would like to join hands with the customer to continue to create value for customers. This remains unchanged. For Kingdee, as we are there for SaaS and for the subscription model, our renewal rate and our NDRs been quite high. And we see for large enterprises, 108%, med and small science company, 94% and 93%, respectively, the near future, when we provide agent product to customers, we still join hands with customers to create the value be with the customer all the time. No matter which technology or service we provide to customers, at least for Kingdee, we are there to provide the service to the customer. So for the renewal rate or the NDR, it will continue with a very high baseline. When the customer would like to renew the service or not, it truly depends on the product value to them or not. But still now, we are quite optimistic about NDR. And the second question is regarding when DeepSeek is coming up, how can we avoid the homogeneous competition? We actually internally made some reflections on that. When we choose the product, we always think about which product we're going to build. In the market, there are many of the tech giants. They actually build AI agent company. We also have a start-up companies building AI agent company. Some of the tech subsidiaries of the large company, they also have a self R&D of the AI agent then what do we do? We'll still be quite cautious and prudent. For any product we launched at the very beginning phase, those products are ready close to customer needs and especially the high frequency demand of the customer. Why can get can do so? Because when we provide AI agent or product, we consider multiple factors, First of all, you need to have the application or scenario. You can't blindly make the product with any future or potential application. Tech giants company, they can release the product for faster iteration. But B2B business, not like so if you don't have the customer with good application or scenario, you want to be able to literate your product continuously. My second point is regarding data. We need to have enterprises who are willing to join hands with you to hand over the data for you. So that's the reason for Kingdee, we actually accumulated a very consolidated baseline by doing SaaS business. Customers are happy to share their data with us for business co collaboration, where at the same time, as I have already shared with you, for the Gold Key Financial Report Analytics app. It's actually our professional expertise for the past 3 decades. We can leverage DeepSeek, and we also recruited many of the algorithm and AI experts with industrial professional knowledge along with our financial expertise and the customer trust, and the potential application, then we will be able to win. If a product is going to make a success, you have to consider multiple factors. We had pick the right applications we build with the right technology. Just now we mentioned about the renewal rate, whether it is high or not because we just have the AI product at ASN will still take time to see what the [indiscernible] look like, the dollar retention rate. As long as the product provide good value to the customer, the dollar retention rate would be very high, still a huge room for us to grow the business. One more point. I think you will talk about general large language model is going to challenge our industry. I think for Kingdee, we do have our own moat because general large language model are for general ability where we do have in-depth industrial know-how because of our 3 decades accumulation. You need to know the taxations, financials and business principles of each industry. That's why we will be able to differentiate from the general large language model. And I also mentioned about the trusted custodies of the data. Enterprises, they all be able to run the data on generalized large language model, they have to choose someone they trust and they can work with long term. They will always be able to find such a partner to work way by trusting their data to us. We can also use their data and their business to support guidance and support for the customer. Certainly, I think ecosystem and data integration means large. I think generalized large language model won't be able to generate such good cooperation opportunities in short run. For Kingdee, we're a professional ERP solution provider, we do have a remote after many years' development. In the near future, I believe data is still the key. As in the slide, we show you the data product. In the near future, we may have the data product plus our AI platform. This is going to be the 2 major moves we have in the near future. You know that for me, I was trying to experience many AI products because many of them have been launched to the market. For AI product, you have to consider the data source. Those companies who have the data source be more valuable in AI age. As I demonstrated to you, we do have an end-to-end AI empowerment designed to prototype production to sales, you need a complete set of the data, AI is more like a function, but you still need a complete set of the data and to make the AI to be more supportive. The more versatile the generalized large language model would be, it's also going to support the business.

Let's welcome [indiscernible] from [indiscernible] Securities.

My name is [indiscernible] from [indiscernible]. Congratulations to the company with one for performance in I clearly noticed you disclosed your subscription revenue for the first time. And then we are very happy to see so a question regarding financials. A few years ago, Mr. Xu as your proposed subscription prioritized strategy. And for this year, your subscription business continued to be accelerated. Your GP margin cash flow and profit will show great momentum for growth. I have a question to you. then what would be the profitability, the cash flow for these? And what would be the normalized or stable margin or the free cash flow rate in the next few years, I mean, 2 to 5 years. Any outlook you may have.

Thank you. Thanks for [indiscernible] Securities of supporting the company all the time as has been introduced at just now. The company improving the contribution from the high-margin subscription business. Our financials would be improved continuously, and we're also going to show very strong profit growth and cash flow growth in the next few years. I have already provided a conservative forecast. I want to be able to give you an overoptimistic growth. our operating cash flow surely going to be more than CNY 1 billion. But to what extent it's going to be I don't disclose it here because we would like to play conservative. I was talking to my budget team. And we believe by 2030, we have every confidence we can make sure operating cash flow more than RMB 3 billion. Those are all conservative data because the growth rate was looking good. work for margin, we made some internal discussion. If margin is looking right, we will surely use the margin for further investment. As far as I believe, if we make 8% of the margin, we believe we'll still be able to hit it 8% margin. And we still need the money for more investment. So 8% would be the sustainable margin. I still would like to focus on that. According to my understanding, our operating profit margin, if we don't consider all the investments, it should be more than 50% to 20%. But going back to the operational profit, we hope 8% would be a conservative number by referring to other large companies like Huawei on how to manage the financials.

Next question, let's give the opportunity to friends from the media, please?

I come from the data economics news. I have a question regarding the team optimization. It's a concern of the market. What would be your team optimization plan any plan you have, how many people need to be optimized? My second question, regarding AI and the large language model, how the transitional ERP and the SaaS market competition landscape may look like? It's going to see fundamental reshuffle.

For team optimization, we're not doing optimization for optimization reason. We also introduced many high-quality titans we actually proactively introduce high-quality project managers and product managers AI people to come to our company to work. As far as I know, for team optimization, at least in H1 of this year, compared with H2 of 2024, our labor expenses would be further saved because we don't have the onetime compensation as what we see in H1 this year. But in the longer run, we'd like to stabilize our team or even with a slight market optimization, but we still continue to optimize the team structure, putting more efforts on AI investment. continue to optimize the team structure for our business growth.

Let's welcome the investors sitting in the middle, please.

I have already noticed your international revenue a few years ago are still in the infancy stage. But it seems that your international strategy has been showcasing very strong growth momentum. I noticed from your financial report, besides Singapore company, you also engaged more than 200 companies home and abroad to strategic corporation. So Mr. Yong and Mr. Lin, I'd like to ask you for your future global business. Besides Belt and Road Initiative as your key strategy, is there any other plan you have for international market? For the next 1 to 2 years, what would be the international business revenue growth? My second question is also have something to do with globalized business. When you go for going global, are you going to take out the capitalization strategy or financing strategies for your strategic business deployment worldwide?

Let me respond to your question. a few points as already mentioned. Let me see indeed for Kingdee. We actually started our international business and already started from Hong Kong. But besides that, there's no further movement. But starting from 2024, we accelerated our international business. For the past 2 years, we are following Belt and Road Initiative to expand our international business. It's not easy for Chinese software company for international journey because you have to know the regulations that our securities and the compliance in every country in the region. So on one side, we made many efforts to be adaptive to the local laws and regulations. Otherwise, you won't be able to build a business in that country or region. By then, we hope in the next 3 to 5 years. International revenue could be 5% to 10% of the total revenue of the company. That was our assumption by then. That is also indeed what our international team is working on to catch up. I hope we will be able to realize this go as early as possible. That would be great. Where at the same time, I also place new requirement over my product team. For the past few years, when we're in international market, we spend many time to study the product features and the international needs. And we now also have international business product unit to support our international business, continue to help them to advance their business in regions and countries outside China. We now provide for the country region product package with 4 language available. And in the next 3 to 5 years, we hope we will be able to make sure international business accounted for 5% to 10% of our total revenue. Thank you.

Your second question is regarding the capitalization movement. We still keep no pentice to that. We're also talking to brokers and investment banks, but we're surely going to take a very cautious way of doing that. Thank you.

Next question, please.

Management team, my name is [indiscernible] Li coming from [indiscernible] Securities. I have a question. It's an industrial question. In 2025, people believe AI application in China is lagging behind than those in U.S. It seems that we don't have any further progress in China. But I know that each company does have very different cadence. So I'd like to ask you as you advance your AI agent product, what are those factors or constraints? Is it the capacity of the large language model or we like the enterprise data or the customer perceptions or the ROI region, what are those constraints that may limit the AI applications in China?

A few sentence for me. Two points. Let's first talk about demand. In churn, we are all go for booked initiative, reducing costs, improving efficiency secondly, leveraging artificial intelligence to empower decision-making of the operationals and predict the business for sure. Thirdly, -- and we do need a business model that can overturn the traditional business model. That's for the demand. But I think you were talking about the hurdles of the AI application in China, there are a few. First of all, hurdle from the data. for Chinese enterprises, the data quality is not looking right. For the past few years, we don't have a very good data quality from Chinese enterprises. And many of the companies are indeed having the data silos. My second point, many of the enterprises, they have their security concern over the data. They don't want to mine their data into cloud and we worried about the decade of the data? Those are going to constrain the application for Chinese company. The second point is on technology and talent. We are indeed short of the top-notch AI product algorithm and business will not be well connected. We don't have any hybrid talent who know the business and AI at the same time, were short of such titans. So when AI be applied for business in [indiscernible], enterprises do not about it, no right candidate to help to implement the project. They just want to make some simple tempts rather than just continue to have AI. Another way is the business transformation. Many of the companies being worried once AI comes the existing organizations and human resources would be replaced. The organization itself is going to be quite reject introduction. But for enterprises, they have to think about how to use AI to liberalize their people for more variable and meaningful drugs. And finally, we are also facing ecosystem and standard constraints. In China, we all have the standardized API interface. We don't have any mode benchmark cases in one industry. And even the multi-agent scheduling or calls also be a big hurdle. Those are all the hurdles, I believe, may have constrained AI of having good implementation in China. A few more comments from me. Mr. Zhang has already made a complete answer, but let me make it in this way. I'd like to emphasize on AI ecosystem. Indeed, Enterprise service in overseas market has been quite complete. Many of the company indeed have the API interface, which is a common practice. But in China, many vendors, their product is not actually be interoperable compared with overseas vendors. In China, let's just make it simple, the so-called entrance thinking is more important than interconnected thinking. Another reason is because the time frame. In international market, when ChatGPT 0.5 was available, that was in November of 2022. It's been around for a few months. And Chinese market also being constrained ChatGPT 0.5 for a few months. In China, we waited till the beginning of this year when Deep 6 be available, then artificial intelligence being since positive growth. We just have a half year after Deep 6 we introduced. I believe in the near future, there will be some nice ecosystem build based on artificial intelligence in China.

Any further question from the on-site audience. I have a question to you. What will your CapEx on the AI business?

For our company, we make some investment, but it's not going to pressure us because the company is not building the computing power. We just have the computing power on leasing model, where as you can see, we have already defined our margin. So AI investment is not going to be a huge investment. We're not going to be a key part of the context.

Analysts to sit in the back, please.

Management team my name is Lowe Yang from Tonghai Securities. Just one question from me regarding agent development. I have already noticed agent industry started in the infancy stage. We still need to have the development project in different applications. What about your R&D team compensation? Are you going to change the algorithm used to use agent, how long the development might be in the near future, whether the agent development or product launch going to be sustained, a few agent per year? Or are we going to have accelerated product release, I mean, for agent?

For our company, our overall development is still the generalized or general purpose agent if we are embracing AI, we have to leverage a standardized agent to take care of the customer needs. If you do agent development to every customer need, they're not going to be right. But for tailor-made agent, as Jason has already mentioned, we are developing our ecosystem partner. They will be able to help to run the tailor-made AI development. But for the company, we have what we provide is a standardized product. I have one more content. It truly depends on how you see the program, made the agent we divide the AI product targeting on a few applications. If you ask me to count on the number of the agent, then you have to consider some of the application with deep engagement of agent. Maybe 5, 10 or few doses in the near future. As I have already showed with you for each agent, we have multiple small agents inside. For example, recruitment agent, we have the agent inside, including job descriptions, candidate, matchmakings the candidate profilings and AI interview agent. Some companies just have one AI interview as a separate product, but in our recruitment agents, we have a small agent in the underlying lease. For example, for Gold Key Financial Report Analytics, it has 70 agents in the underlying leisure. And we need the product team, engineering team and algorithm team of working together to have a professional task force to divide a specific agent product, where for Cosmic platform, we also have the agent development SAP platform. Our developers, our business people, they can access to the Cosmic platform using the low code or 0 code and be able to build any agent they need such agent, the number would be huge in the near future. So this is how Kingdee and our ecosystem would be able to present. We will surely be able to have it into our SaaS key applications. Those are the 2 agents products we have. The first one is AI native agents. And the second one is AI-enhanced SaaS agents. Thank you.

Now let's welcome Robert to give the final closing remarks, please.

Dear investors and our friends from the media, thank you very much. Thanks everyone of keeping an eye on Kingdee and you always support. Three sentence from me. My first sentence. At the very beginning of 2025, I have already mentioned the Golden -- the Golden round decade of AI plus SaaS is already here. Here now, I still believe in this statement, AI plus SaaS golden decade is not only here, it's also been accelerated for more literation and evolution. You can see from the Kingdee H1 data, our subscription revenue still keep a 22% growth, but at the same time, the contracted value of our AI cities is already RMB 150 million. And I also noticed, for any enterprises, if you don't embrace cloud, it could be very hard for one company to divide its AI service. No cloud, no AI. This is my statement. So I surely believe artificial intelligence will continue to advance the adoption of SaaS among enterprises, where at the same time, because as we have data accumulation from SaaS, it will also enable the development of AI. This is my deep conviction. I believe the golden decade of SaaS and AI is already in progress. My second sentence to all of you, in the next one decade, artificial intelligence and plus management will surely become a key competitive strength of the company. AIs management would become the key strengths of any enterprises. And if we describe the core competence of any enterprises, we need to consider quality, cost and speed Artificial intelligence transformation for any company will surely help to improve the product quality. It will also help to further reduce the cost. And also accelerate the speed of the product development. So AI plus management will surely become the key competitiveness of the company, whereas we are in the financial adjustment stage. All companies are seeking for transformation, including the operational transformation, business transformation, ecosystem transformation. But ultimately, the most important one is to the management transformation. Management transformation means we have to embrace artificial intelligence in artificial intelligence age. For any advanced company, advanced enterprises need to count our management, where advanced management count on advanced management needed to compound AI using Kingdee would be your value enablers for this journey. We are leveraging advanced management using Kingdee is the great enabler. It is not only the commitment we made to the customer, but also the common pursuit we have. We can see that the transformation for the past one decade, Cloud subscription has already accounted for 52.8% in H1 of this year. And our team size is already 11,000. In 2030, if we continue to control our team size at 10,000. Then, if we have a double-digit growth for the business. By 2030, our AI revenue of the company would reach more than 30% as a whole. We at least have an output of 1 million per capital more importantly. We're going to have more enterprises, no matter from China or abroad to adapt Kind Enterprises management AI. So for Kingdee, we have a pursuit. We hope that we can make the Chinese management model rise. AI technology from the best enterprise management practice from China, along with Chinese management philosophy, we'll surely being able to make our product adopted worldwide. So for Kingdee we are indeed a company of great value. I was talking to my colleagues all the time. We take a look at the foreigners out of the world. If they all use the Chinese smartphones driving the Chinese EV that also showcase the great strength of China. Imagine if one day, if they don't use the kinase management software it cannot showcase the true strength of the Chinese model. I do believe the strength of the China not only depends on our economic trends, but also the soft power management software is the soft power. So I always have a pursuit in my mind leveraging our solution to make Chinese management model right. This is our belief. If we are a group of the people with firm the determination with our great belief with the trust with concrete actions. Then you can imagine, we use advanced management with Chinese management software for advanced management. These were one day be realized. And ultimately, Kingdee would become a company of great value. I would like to thank for the investors and friends from the media for your long-term support. We have experienced 3 transformations. Now we undergo the AI transformation. In the next 5 years, we have more opportunities to go for. Thank you very much.

Thank you very much and thanks for the closing remarks from Robert. Here comes to the end of the interim announcement. We have arranged the exhibition hall visit on the service floor of the Kingdee Cloud Beauty. The demo being shown in our slides or have the on-site demo with our staff on-site for interpretation. And for our investors and friends from the media, please go to the service floor to visit our exhibition hall. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]