China Software_ What's New from 2024 Citi China Conference – How AI Is Reshaping SaaS

Summary of Key Points from the Conference Call Industry Overview - The conference focused on the impact of AI on the Software as a Service (SaaS) industry, particularly in China, with insights from companies like Bairong, Beisen, and Kingdee [1][3][4]. Core Insights 1. Monetization of AI: Four key areas identified for monetizing AI applications include: - Boosting revenue - Compliance management - Cost reduction - Enhancing efficiency for customers [1][8]. 2. AI Startups: Successful AI startups should possess strong customer resources and industry knowledge to effectively leverage AI technologies [1][5]. 3. Vertical vs. Generic LLMs: Competitive vertical Large Language Models (LLMs) are deemed irreplaceable by generic LLMs due to their specificity and professionalism tailored to enterprise needs [1][4]. 4. Growth Projections: Some SaaS companies anticipate 2025 as a pivotal year for AI applications, expecting significant growth acceleration [1][3]. 5. Kingdee's Position: Kingdee is expected to benefit from price reductions by LLM vendors, with its CosmoGPT product being tailored to lower costs and enhance efficiency for its customers. A breakeven point for Kingdee's bottom line is projected for 2025, alongside potential growth in the CosmoGPT business [1][9]. Company-Specific Developments - Beisen: The company has integrated AI LLM into its human capital management SaaS offerings, launching products like AI Interviewer and AI Course Assistant. Management views AI capabilities as a competitive advantage and plans to increase R&D investment [3]. - Bairong: Bairong has adopted both discriminant AI and Generative AI in its services, primarily targeting financial institutions and internet companies. The company anticipates rapid AI adoption driven by increasing demand, although it faces some resistance from clients concerned about implementation risks [4]. Additional Considerations - SaaS Demand: There is a rising demand for AI applications across various industries, creating opportunities for SaaS companies that can effectively integrate AI/LLM capabilities into their offerings [5]. - Investment Risks: Key risks for companies in this sector include: - Intensifying competition among enterprise cloud service providers - Delayed IT spending due to economic slowdowns in China - Rising costs associated with staff and R&D [12]. Valuation Insights - Kingdee's target price is set at HK$8.9, based on a sum-of-the-parts valuation, applying a 10x forward PE to its traditional software division and a 3.7x forward P/S to its cloud SaaS operations [11]. This summary encapsulates the critical insights and developments discussed during the conference, highlighting the evolving landscape of AI in the SaaS industry and the strategic positioning of key players.