Summary of Key Points from the Equity Research Report Industry Overview - **Industry**: China's Industrial Software Sector - **Current Demand**: Mild recovery in demand observed in 9M25, with overall industrial digitalization demand remaining lukewarm. Many software players are experiencing low capital expenditure willingness and delayed project implementations [3][8] - **Market Performance**: Share prices of Baosight and BOCHU corrected by 29% and 4% YTD, respectively, while Longshine's share price increased by 26% YTD, outperforming the CSI 300 index which rose by 17% YTD [3] Company-Specific Insights Longshine (300682 CH) - **Recommendation**: Upgraded to Buy from Hold with a target price lowered to RMB19.00 from RMB22.00. Expected net profit CAGR of 42% from 2025 to 2027, driven by growth in grid digitalization, EV charging platform nearing breakeven, and power trading [4][18] - **Valuation**: Currently trading at a 0.6x 2026 PEG, compared to the peer average of 0.8x, indicating attractive valuation post-correction [19] - **Earnings Estimates**: 2025 net profit estimates reduced by 14% to RMB446 million, and 2026 estimates lowered by 6% to RMB666 million due to lower online utility payment trading volume and EV charging volume [10][28] - **Revenue Estimates**: Total revenue estimates for 2025 adjusted down by 1% to RMB4.726 billion, with stable growth expected in energy digitalization [11][28] BOCHU (688188 CH) - **Recommendation**: Maintained Buy rating with a target price lowered to RMB153.00 from RMB160.71. Expected net profit CAGR of 22% from 2025 to 2027 [35][46] - **Earnings Estimates**: 2025 net profit estimates reduced by 4% to RMB1.067 billion, with slight increases in revenue estimates for 2025, 2026, and 2027 [39][43] - **Market Position**: Anticipated growth in smart welding and precision processing, despite challenges from intense competition in the laser cutting equipment sector [38][52] Baosight (600845 CH) - **Recommendation**: Maintained Buy rating with a target price lowered to RMB23.00 from RMB32.00. Expected net profit CAGR of 16% over 2025-2027, despite short-term demand pressure in steel digitalization [4][43] - **Earnings Estimates**: Significant cuts in revenue estimates for 2025-2027 by 30-37% due to underestimated impacts from destocking in the downstream steel industry [4][43] Key Risks and Considerations - **Longshine**: - High client concentration with top five clients representing 66% of total revenue, leading to potential revenue volatility [27] - Competition from state-owned enterprises could intensify, impacting market share [27] - Goodwill impairment risk due to significant goodwill on the balance sheet [27] - **BOCHU**: - Intense market competition may lead to gross margin deterioration [52] - Potential share reduction by major shareholders could pressure share price [52] Conclusion - The industrial software sector in China is experiencing a mild recovery, with specific companies like Longshine and BOCHU showing potential for growth despite facing challenges. Longshine is favored for its robust earnings recovery and attractive valuation, while BOCHU is recognized for its overseas expansion and smart welding progress. Baosight, while facing short-term challenges, is still expected to benefit from long-term digitalization trends in the steel industry.