CS&S(SH:600536) Zhong Guo Yin Hang·2024-05-30 04:33Investment Rating - The report downgrades Chinasoft Intl. to Neutral from Buy, iSoftstone to Sell from Buy, and Thundersoft to Neutral from Buy [4][10][28]. Core Viewpoints - The visibility for customers' IT services budget recovery remains low, impacting revenue growth for major IT services companies [3][4]. - Chinasoft Intl. is positively transitioning towards project-based IT services, but the recovery of IT services budgets may take time, leading to reduced revenue growth visibility [10][18]. - The overall revenue growth for China software companies was soft in 1Q24, with significant variances among companies [4][12]. Summary by Sections Investment Ratings - Chinasoft Intl. downgraded to Neutral with a target price of HK$4.9, indicating a +12% upside potential [4][11]. - iSoftstone downgraded to Sell with a target price reflecting a -7% downside [4]. - Thundersoft downgraded to Neutral with a target price indicating a +6% upside [4]. Revenue Growth and Visibility - The IT services market value in China saw a slowdown, with major companies reporting soft revenue growth in 1Q24 compared to 2023 [4][12]. - iSoftstone's revenue growth was boosted by the acquisition of TongFang PC, but excluding this, revenue growth was estimated to be negative [12][18]. - Thundersoft's revenue growth was minimal at +1% YoY, reflecting challenges in the smartphone and IoT markets [4][12]. Valuation Adjustments - Target PE multiples for Chinasoft Intl., iSoftstone, and Thundersoft have been reduced to 10x, 17x, and 32x respectively, reflecting slower earnings growth expectations [4][18]. - The report anticipates a cautious recovery in revenue growth for traditional IT services, projecting YoY growth rates of -4% in 2024, followed by modest recoveries in subsequent years [18][22]. Customer Concentration and Cash Flow - Chinasoft Intl. has reduced reliance on its largest customer, Huawei, but concentration risks may increase during economic downturns [13][15]. - The company's accounts receivable days increased to 132 days in 2023, indicating potential cash flow challenges [15][18].