CS&S(SH:600536)2025-11-24 01:46Summary of China Software 3Q25 Result Review Industry Overview - The report focuses on the China Software industry, specifically analyzing the performance of various software companies in the third quarter of 2025 (3Q25) and updating estimates based on recent trends. Key Points Overall Performance - Average revenue growth for the covered companies was 4% YoY in 3Q25, a decline from 9% in 1H25 [1] - Average net margin improved to 3% in 3Q25, compared to -3% in 1H25, indicating enhanced efficiency and profitability among software companies [1] Company-Specific Highlights - Kingsoft Office, Thundersoft, and Arcsoft showed strong revenue growth driven by increased demand for AI products, despite overall soft IT spending [1] - iFlytek, Sangfor, and Glodon experienced net income recovery in 3Q25 due to productivity improvements [1] Management Insights - Management teams expressed optimism regarding enterprise and government spending on AI applications, AI agents, and AI models to enhance productivity and creativity [1] - Despite positive sentiments, the report maintains a Sell rating on ZWSOFT, Glodon, Thundersoft, and Sangfor, primarily due to valuation concerns [1] Valuation Metrics - The average P/E ratio for China software companies is around 55x-60x, compared to a five-year average of 59x [2] - The average EV/Sales ratio remains at 8x-9x, lower than the 2020-21 average of 12x-18x [2] Individual Company Performance - Glodon: Revenue increased by 4% YoY to Rmb1.5 billion, driven by construction management and design software growth. However, the company faces weak momentum in new construction projects [11] - ZWSOFT: Revenue remained flat YoY at Rmb204 million, attributed to weak end demand in the China market. Management expects slight recovery in 4Q25 [22] - Thundersoft: Revenue grew 43% YoY to Rmb1.848 billion, driven by IoT software and automotive software growth. The company is focusing on next-generation automotive OS and AI edge solutions [30] - Sangfor: Revenue growth of 10% YoY to Rmb2.116 billion, attributed to strong demand for cloud computing solutions. The company launched new AI platforms to enhance efficiency [37] Earnings Revisions - Glodon: Net income estimates revised down by 6% for 2025-28E due to lower construction-cost software revenues and higher operating expenses [16] - ZWSOFT: Net income estimates revised down by 18% for 2025-27E due to lower revenues and gross margins [26] - Thundersoft: Earnings revised down by 15% for 2025-27E, mainly due to lower revenue in smartphone software [33] - Sangfor: Earnings revised up by 1% for 2025-27E, reflecting better-than-expected cost management [40] Future Outlook - Management of Glodon expects the new code of bills in the construction market to support revenue growth, while ZWSOFT anticipates recovery driven by overseas business growth and new client penetration [20][22] - Thundersoft is optimistic about opportunities from AI edge devices and the next generation of automotive OS [30] Conclusion - The China Software industry is experiencing mixed performance, with some companies benefiting from AI-related demand while others face challenges. Valuation concerns persist, leading to cautious outlooks for several firms despite positive management sentiments regarding future growth opportunities.