Summary of China Software 2Q25 Conference Call Industry Overview - The conference call focused on the **China Software** industry, particularly the performance of various software companies in the second quarter of 2025 (2Q25) and the first half of 2025 (1H25) - Average revenue growth for the covered companies was **9% YoY** in 1H25, with an average net margin of **-3%** due to weak seasonality in the first half [1][2] Key Company Performances - **Kingsoft Office, Thundersoft, and Sensetime** reported revenues in 2Q25 that exceeded expectations due to increased AI spending - **Glodon and Sangfor** showed better-than-expected net income in 2Q25, attributed to improved employee productivity [1] - **Yonyou** reported a revenue growth of **7% YoY** in 2Q25, recovering from a **-21% YoY** decline in 1Q25, supported by small and medium business (SMB) growth [9] - **Thundersoft** experienced a **50% YoY** revenue increase, driven by strong growth in its AIoT business [26] - **Glodon** faced a **-5% YoY** revenue decline, but net margin improved to **13%** due to product mix upgrades and cost management [17] Core Insights and Trends - Companies are focusing on: 1. **Monetization of AI tools** to provide value-added features [2] 2. **Diversification** into overseas markets or new categories to counteract slower IT spending in certain segments [2] 3. **Integration of AI** with core software products to capture a larger share of clients' budgets [2] - The average **P/E ratio** for China software companies increased to **55x-60x**, indicating early signs of AI monetization, while the average **EV/Sales** ratio rose to **8x-9x** [2] Company Ratings and Recommendations - **Buy** ratings maintained for **Empyrean** and **Kingdee** - **Neutral** rating for **Yonyou** - **Sell** ratings for **ZWSOFT, Thundersoft, Glodon, and Sangfor** [3] Earnings Revisions - **Yonyou**: Revised down 2025 net loss to **Rmb594m** from **Rmb517m** due to lower revenues during transformation [12] - **Glodon**: Revenue estimates revised down by **1%-3%** for 2025-28E, but earnings revised up by **18%/12%/2%/1%** due to improved productivity [20] - **Thundersoft**: Revenue estimates revised up by **8%/5%/4%** for 2025-27E, reflecting higher revenues from the IoT business [30] - **Sangfor**: Revenue estimates revised down by **9%/2%/1%** for 2025-27E due to lower security software revenues [46] Other Important Insights - **ZWSOFT** launched new products with enhanced 3D CAD features, which are expected to support long-term growth despite current muted growth in 3D CAD software [39] - **Sangfor** is expanding its cloud computing product offerings, which is expected to contribute to revenue growth [45] - The overall sentiment in the industry is cautiously optimistic, with expectations of improved productivity and revenue growth driven by AI integration and new product offerings [1][2][3]

Core Viewpoint - Tariffs create significant uncertainty for businesses and investors, impacting stock market predictions and evolving weekly [1] Group 1: Walmart - Walmart has substantial vendor power to influence prices and can pass costs to consumers if necessary [4] - The retailer's sales increased by 2.5% year-over-year to $165.6 billion, with operating income rising by 4.3% to $7.1 billion [6] - Despite a high valuation at over 40 times trailing earnings, Walmart is considered a safer retail stock under current macroeconomic conditions [7] Group 2: Home Depot - Home Depot does not anticipate raising prices due to tariffs, as suppliers can source goods from multiple countries [9] - The company expects single-digit sales growth of 2.8% for the current fiscal year, with comparable sales rising by 1% [10] - With shares down 7% this year, Home Depot's valuation at a P/E of 25 is modest and aligns with the S&P 500 average [11] Group 3: Microsoft - Microsoft has low tariff risk, generating around 22% of revenue from product sales, with most coming from services [12] - The company reported a 15% revenue increase to over $70 billion in its April quarter, with Azure and cloud services sales rising by 35% [13] - Although trading at a P/E of 35, Microsoft's diversification and financial strength make it a strong growth stock for long-term investment [14]