CHINASOFT INTERNATIONAL(354.HK)：AI-DRIVEN GROWTH FUELS REVENUE AND PROFIT EXPANSION

Core Viewpoint - Chinasoft reported strong 1H25 results with improved operating metrics and optimistic revenue growth projections driven by AI and IoT initiatives [1][2][5] Financial Performance - Revenue increased by 7% YoY to RMB8.5 billion, slightly missing BOCI estimates by 1% [2] - Gross Profit Margin (GPM) improved by 0.9 percentage points HoH to 22% due to growth in full-scenario AI [2] - Operating Profit Margin (OPM) rose by 1.5 percentage points HoH to 3.0%, exceeding BOCI estimates of 2.5% [2] - Net Income (NI) grew by 10% YoY and 39% HoH to RMB316 million, beating BOCI estimates by 9% [2] - Headcount increased from 70,000 at the end of 2024 to over 75,000 in 1H25, indicating recovery in cornerstone business and expansion in AI [2] AI Business Growth - The full-scenario AI business generated RMB656 million in revenue in 1H25, marking a 130% YoY increase [3] - Management forecasts this segment to reach RMB2 billion in 2025 and RMB5 billion in 2026, driven by demand for city computing and vertical AI applications [3] Huawei and HarmonyOS - Management remains optimistic about the recovery of cornerstone business, including Huawei [4] - Cumulative revenue from HarmonyOS is projected to reach RMB3-5 billion over 2025-27, supported by increased penetration of KaihongOS and expansion of domestic ERP [4] Valuation and Rating - The 2025E EPS remains largely unchanged, while 2026/27 EPS estimates are raised by 5% and 6% respectively to reflect AI revenue growth [5] - The target price is maintained at HK$7.60, based on a 20x 2026E EPS, up from HK$5.60 [5]