China Tech

September 25, 2015
China: Technology: Software

Equity Research
Local leaders in fast-growing niches set to flourish; initiate on Aisino (CL-Buy), Yonyou (Sell)
A small, but fast growing market
Chinas software / IT services industry is small in a
global context at US$25 bn - only 5% of the US. It is
also low relative to GDP at 0.3% (vs 3% in the US)
and makes up only 7% of Chinas overall IT spend,
vs a global average of 34%. We see two reasons for
this under-penetration: a bias to Manufacturing in
the economy; and low pricing. We expect the gaps
to narrow, however, as Services raises its share of
GDP and as China firms look to harvest efficiencies
to compete globally. Gartner forecasts 10% CAGR
in China software / IT services over 2014-19 (vs 3%
globally), with spending reaching US$41bn in 2019.
Stock picks in focus

We initiate on Aisino at CL-Buy for its monopoly
in tax control, which we estimate to grow at 25%
CAGR over 2014-20, driven by a broadening of
VAT. It trades at a coverage low of 21x 2016 PE.
We upgrade iFLYTEK to Buy for its 58% share in
Chinese language intelligent speech recognition,
which we think will grow fastest at 37% CAGR.
We initiate on Yonyou at Sell, as we think that
trading at 57x 2016E P/E it is overvalued, given it
operates in the slower-growth ERP segment (15%
CAGR) and its newer businesses are still nascent.
RATING AND TARGET PRICE SUMMARY

Company
Aisino
iFLYTEK
Shiji
Hundsun
Ultrapower
NavInfo
Yonyou
Ticker
600271.SS
002230.SZ
002153.SZ
600570.SS
300002.SZ
002405.SZ
600588.SS
Rating
New
Old
Buy*
n.a.
Buy
Neutral
Neutral
n.a.
Neutral
n.a.
Neutral
Buy
Neutral
Neutral
Sell
n.a.
TP (Rmb)
78.60
38.60
96.30
47.90
10.00
21.70
14.10
Upside
Downside
55%
37%
9%
5%
-9%
-15%
-45%
*on Conviction List. Given the comparative

underdevelopment of the China software and IT services
sector, we base our 12-month target prices on 2020 EPS,
then discount back to 2016.
Source: Datastream, Gao Hua Securities Research.
SOFTWARE + IT SERVICES SPEND/GDP, 2014

4.00%
Software+ITservicesspending/GDP
3.50%
3.00%
2.50%
Identifying home-grown winners

The public sector makes up 50% of spending, but
private firms are starting to value the benefits of
developing IT systems. Provision of service is very
fragmented, but foreign firms dominate: the top 30
software vendors take 65% market share, with local
firms only 13%. With fierce competition, we prefer
leaders in fast-growing niches with high barriers
to entry those with a broad customer base and
needing localized knowledge. Our framework flags
eight sectors where local firms should flourish.
Carol Jin
+86(10)6627-3467 carol.jin@ghsl.cn Beijing Gao Hua Securities Company Limited
The Goldman Sachs Group, Inc.
We initiate with Neutral on Shiji and Hundsun,

both of which take c. 50% in restaurants & hotels
(15% CAGR) and financial securities (20% CAGR),
respectively. Both are trading at fuller valuations.
We stay Neutral on mapping & navigation leader
Navinfo, with its 40% segment market share.
2.00%
1.50%
1.00%
0.50%
0.00%
Source: CEIC, Gartner.
We downgrade Ultrapower to Neutral on sluggish

growth in its core IT service business and limited
contribution from its mobile game business in the
near term.
Goldman Sachs does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware
that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a
single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure
Appendix, or go to www.gs.com/research/hedge.html. Analysts
employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
Global Investment Research
September 25, 2015
Contents
China software/IT services industry in six charts
How we identify potential local winners: Overview of segments and key participants
China underspends on software and IT services ripe for growth
Change is on the way, leading to a fast-growing software/IT market
11
Identifying local leaders youll find them in niche and high-growth markets
20
Valuation: Long-term discounted P/E: We favor leaders in faster growing subsectors
23
Industry Risks
31
Company profiles
31
Aisino (600271.SS): Tax control system leader to benefit from VAT reform; initiate CL-Buy
32
iFLYTek (002230.SZ): Upgrade to Buy; clear leader in China intelligent speech
34
Yonyou (600588.SS): A challenge to gain share in ERP market; new business unclear; Sell
38
Ultrapower (300002.SZ): ITSM slowdown, and no near-term catalysts; down to Neutral
42
Shiji (002153.SZ): Leader in high-end hotel & restaurant systems, stable growth: Neutral
46
Hundsun (600570.SS): financial software leader forays into cloud-based solution; Neutral
52
NavInfo (002405.SZ): Telematics to fuel growth; Neutral on fair valuation
58
Disclosure Appendix
62
Priced as of the September 22, 2015 market close unless indicated otherwise. The author would like to thank Jason Xu for his contribution to this report.
Exhibit 1: Our Buy ideas in China software / IT services are Aisino (on Conviction List) and iFLYTek
Our A-share technology coverage comp sheet, Rmb
Companyname
Asharestocks
Aisino
Hikvision
Joyson
iFLYTek
Dahua
Shiji
Hundsun
Ultrapower
NavInfo
Yonyou
Ticker
Rating
Marketcap
($mn)
12mTP
Current
price
Upside/
downside
15E
P/E(X)
16E
17E
15E
P/B(X)
16E
17E
15E
600271.SS
002415.SZ
600699.SS
002230.SZ
002236.SZ
002153.SZ
600570.SS
300002.SZ
002405.SZ
600588.SS
Buy*
Buy*
Neutral
Buy
Neutral
Neutral
Neutral
Neutral
Neutral
Sell
7,340
20,965
2,478
5,657
6,092
4,290
4,432
3,420
2,779
5,895
78.6
51.0
34.3
38.6
43.6
96.3
47.9
10.0
21.7
14.1
50.68
32.85
24.84
28.10
33.19
88.49
45.74
10.96
25.62
25.76
55%
55%
38%
37%
31%
9%
5%
9%
15%
45%
Average
Median
27.8
19.7
30.4
61.8
28.9
65.1
82.1
25.2
104.9
71.2
51.7
46.1
21.4
14.9
24.4
41.4
21.9
43.9
65.6
29.8
75.1
57.2
39.6
35.6
16.4
12.2
18.7
27.8
17.2
30.8
37.6
24.4
52.6
48.3
28.6
26.1
6.2
6.9
5.6
5.8
6.1
12.1
13.2
4.0
6.9
6.4
7.3
6.3
5.4
5.3
4.7
5.3
4.9
9.9
11.6
3.6
6.5
6.1
6.3
5.4
4.7
4.1
3.9
4.7
4.0
7.9
9.6
3.3
5.9
5.7
5.4
4.7
1.8%
1.8%
0.7%
0.5%
0.5%
0.2%
0.4%
1.0%
0.3%
0.7%
0.8%
0.6%
Dividendyield
16E
17E
2.4%
2.3%
0.8%
0.8%
0.7%
0.5%
0.5%
0.9%
0.4%
0.9%
1.0%
0.8%
3.1%
2.9%
1.1%
1.2%
0.9%
0.7%
0.9%
1.0%
0.6%
1.0%
1.3%
1.0%
*Denotes stock is on our regional Conviction List.

Goldman Sachs Global Investment Research
September 25, 2015
China software/IT services industry in six charts

Exhibit 2: China software/IT services spending is lower than DMs in $ term
Exhibit 3: and in terms of penetration
Software/IT services spending by region US$, 2014
Software/IT services spending penetration, 2014
Software
(USDmn)
1,200,000
4.00%
ITservices
3.50%
3.00%
1,000,000
2.50%
2.00%
800,000
1.50%
600,000
1.00%
400,000
0.50%
0.00%
200,000
China
India
Japan
Western
Europe
US
Source: Gartner.
Source: Gartner, CEIC.
Exhibit 4: One reason is the smaller share of Services in the economy
Exhibit 5: and another reason is low product pricing due to low IT wages
US, India and China GDP decomposition
Yearly wage comparison, 2014
Agriculture
Industry
(USD)
90,000
Services
2000
80,000
2014
70,000
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
60,000
US: 5XofChina
50,000
40,000
30,000
20,000
10,000
0
All
industry
US
India
China
Source: CEIC, Wind.
US
India
China
China
IT
All
industry
IT
Japan
All
industry
IT
US
Source: CEIC, National Bureau of Statistics of China, Bureau of Labor Statistics
September 25, 2015
Exhibit 6: China software+IT services is smaller than other IT segments but is

growing fastest
Exhibit 7: China software market is crowded and dominated by global giants

Market share for Top 30 software vendors in China, 2014
China IT spending, 2019 vs 2014
Domestic
Otheroversea
vendors,13.8%
Kingsoft,1.1%
Microsoft,
19.9%
Neusoft,1.4%
Kingdee,1.6%
Inspur
Genersoft, EMC,2.2%
1.9%
Founder,3.0%
SAP,3.6%
IBM,8.9%
Oracle,
6.1%
Yonyou,4.0%
Source: Gartner.
Source: Gartner.
How we identify potential local winners: Overview of segments and key participants
Despite many challenges and intense competition in the sector, we see opportunities in some niches with higher entry barriers and
stronger growth. We identify eight verticals that meet our two key selection criteria:
(a) Stronger growth than the overall software/IT system in the next five years.
(b) Highly local characteristics and a fragmented customer bases that set higher barriers to entry for global firms and new
entrants. These segments have a higher concentration of top 3 players, which imply a higher entry barrier for small firms.
Within these eight subsectors, we find tax control, mapping & navigation, intelligent speech, financial - securities, and restaurants &
hotels have higher market concentration than the other three. We initiate coverage on: Aisino with CL-Buy for its solid growth in
tax control system and attractive valuation, and Neutral on Hundsun and Shiji Info on their fuller valuation. We initiate on Yonyou
with Sell on its demanding valuation and low visibility in its new business. We upgrade iFLYTek to Buy from Neutral on the rapid
ramp up in the intelligent speech market and downgrade Ultrapower to Neutral from Buy on slowdown in its core ITSM segment
and its lack of long-term growth driver.
September 25, 2015
Exhibit 8: Our framework for identifying niche leaders
Verticalsector
Highlylocal
Opportunityexposure
Fragment
Highgrowth
Marketsize Marketgrowth
2014($mn) (201420ECAGR)
GM
(%)
OPM
(%)
ERPforSME
Creditinvestigation,
2,242
cloudcomputing
15.0%
6085%
615%
Healthcare
HIS,CIS,EMR,PBM,
chronicdisease
1,150
treatment
15.0%
7075%
2030%
Securitysoftware
AdvancedPersistent
624
Threats,BYOD
10.0%
7080%
1025%
Taxcontrol
Einvoiceandcredit
581
investigation
25.0%
4046%
1013%
Mapping&navigation
IoT,telematics,O2O 565
22.0%
6580%
510%
Intelligentspeech
IoT,telematics
494
37.0%
5060%
020%
Financialssecurities
Fintech
356
20.0%
8090%
1020%
Restaurants&hotels
InternetO2Orequires
323
moreITsystem
15.0%
70%
34%
Top3players
inChina
Yonyou
Kingdee
Grasp
NeuSoft
Wonders
Winning
Venustech
NsFocus
VRV
Aisino
BeijingWatertek
Hengbao
NavInfo
AutoNavi
eMapgo
iFLYTEK
Baidu
Apple
Hundsun
KingdomScitech
Apexsoft
ShijiInfo
JointWinsdon
Armitage
SinoData
Baosight
YGSoft
Marketshare
inChina(2014)
11%
8%
c.5%
9%
7%
5%
27%
16%
6%
90%
4%
4%
41%
35%
22%
58%
13%
12%
51%
34%
8%
49%
5%
5%
c.1%
4%
3%
Globalpeers
Oracle,SAP,Intuit,
Salesforce
McKessen,Cerner,
Siemens,Epic,Allscript,
ExpressScripts,
Symantec,Intel
(McAfee),IBM
N.A.
Google,Nokia,TomTom,
CoherentNavigation
Nuance
Fiserv,FIS,EXLS
Oracle,Sabre,Amadeus
Banking
4,342
13.4%
7080%
510%
Fiserv,FIS,EXLS
Manufacturing
5,606
10.3%
5070%
010%
Oracle,SAP
1,647
10.9%
3050%
1525%
Oracle,SAP
Utility
Others
7,542
0.6%
Oracle,SAP
Total
25,148
10%
Note: Total market size and growth for ERP in SME, restaurants & hotels, tax control, mapping & navigation, the growth for healthcare and financials are all GS forecasts; market size
for healthcare and financials, plus market size and growth for security software are from Gartner; market size and growth for intelligent speech are from ETIRI. Ultrapower does not
operate in a niche market. ERP stands for Enterprise resource planning; BYOD stands from bring-your-own-device. Gross margin (GM) and operating margin (OPM) range represents
the business-as-usual margin range of top players during the past three years.
Source: Company data, Gartner, ETIRI, Gao Hua Securities Research.
September 25, 2015
China underspends on software and IT services ripe for growth

While China has a lively smartphone and e-commerce market, it spends less on software and IT services as a share of GDP than
many other large regional and global markets, including India. We attribute this to its economy being more oriented to
manufacturing (labor intensive) and to its lower software/IT services pricing.
However, as Chinas economic model develops to being more services oriented and with pricing rising, Gartner expects China
software/IT services spending to grow at 10% CAGR in 2014-2019, indicating growth from US$25bn in 2014 to US$41bn in 2019.
China software and IT spending small in real terms and as a share of GDP and overall IT spend
Gartner estimates that US$25 billion was spent on software (US$8bn) and IT services (US$17bn) in China in 2014 making up only
2% of global spending and equivalent to 5% of US spending. This is considerably less proportionally than its share of GDP 14% of
Global GDP and equivalent to 58% of US GDP (Exhibits 9 & 11). This US$25 billion on software/IT services made up only 7% of
Chinas total overall IT spending, compared with 34% worldwide, 47% for the US, 42% for Japan, and 22% for India (Exhibit 10).
A useful way to illustrate the variance between countries is to assess spending as a share of GDP as it removes the impact from
pricing differences. China software/IT services spending as a share of GDP, at 0.3%, is a third of that in India, and around a tenth of
that in the US. Although India is renowned for its IT outsourcing which may have some positive impact on domestic software/IT
services spending for infrastructure construction we do not think it makes up the entire differential in spending between India and
China as outsourcing is growing in China and the rapidly growing e-commerce sector requires growing IT infrastructure. We also
note that the ratio in Thailand is also three times that of China. On this basis, we believe China is underpenetrated in software/IT
services, and that the sector is ripe for growth as the economy transitions to a greater contribution from Services.
Two main reasons for the current under-penetration

We see China relative under-penetration in software/IT services stemming from two causes representing 60% and 40%,
respectively, of the gap with the US:
Weaker overall demand due to the structure of its economic model with a greater weighting towards Manufacturing
than Services.
Lower product pricing for software/IT services in China, which is often a function of Chinas relatively low wages for
software technicians.
September 25, 2015
Exhibit 9: China software/IT services spending is considerably smaller in

absolute terms than US and Europe...
Exhibit 10: ... and in relative terms as a share of total IT spending

IT spending by types/countries, 2014
Software/IT services spending by region US$, 2014
Software
(USDmn)
1,200,000
100%
ITservices
90%
Telecom
services
80%
1,000,000
70%
60%
800,000
Data
center
systems
Devices
50%
40%
600,000
30%
400,000
20%
ITservices
10%
200,000
0%
Software
China
India
Japan
Western
Europe
US
Source: Gartner.
Source: Gartner.
Exhibit 11: China software+IT services account for only 3% of global total
Exhibit 12: and is a much smaller percentage as a share of GDP
Software/IT services spending market share by regions, 2014
Software/IT services spending penetration, 2014

4.00%
Emerging
Asia/Pacific
2%
Mature
Asia/Pacific
5%
GreaterChina
3%
3.50%
Japan
10%
Others
8%
3.00%
2.50%
2.00%
NorthAmerica
43%
1.50%
1.00%
0.50%
Western
Europe
29%
Source: Gartner
0.00%
Source: Gartner, CEIC.
September 25, 2015
Weaker demand due to low services contribution to GDP and lower labor cost
We believe this weaker demand in China relative to other economies is due to two main reasons:
Services make up a smaller proportion of GDP. Although the contribution of services to Chinas GDP has risen to 48% in
2014 from 40% in 2000, China still lags the US and India in this regard in 2014 with a proportion of 53% in India and 76%
in the US (Exhibit 13). The service sector places natural emphasis on IT systems to improve productivity and efficiency,
whereas in manufacturing industries competitiveness can be achieved by cutting costs in raw material, labor, natural
resources, energy, etc which have been the platform on which China has developed its economy over the past few
decades. Taking labor cost as an example, the fully loaded hourly rate in China was much lower than developed countries
and regions, and also lower than Taiwan (Exhibit 14). There is upward pressure emerging on wages, however, and China is
not as low cost for labor as many countries in Southeast Asia.
Many Chinese enterprises have not made it a focus to develop longer-term strategies. Over the past two decades, the
industrial sector in China has benefiting from multiple advantages such as favorable government policies, lower labor
cost, cheaper energy and raw material cost, and limited focus on environmental protection which have allowed it to
compete with more developed countries and regions. This provided multiple opportunities and led to many growing rapidly,
without the impetus to develop long-term strategies to compete with global players. This meant that little attention has yet
been paid to enhancing productivity and building out IT systems.
Exhibit 13: Although the services segment is growing, industry still

contributes more to GDP than in India or the US
Exhibit 14: while low labor cost have suppressed the motivation to
improve efficiency and productivity via better IT
GDP decomposition of US, India and China, 2010 and 2014
Labor cost of countries/regions, 2014
Industry
Services
2000
Fullyloadedhourlyrate(USD)
Agriculture
2014
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
US
India
China
Source: CEIC, Wind.
US
India
50
45
40
35
30
25
20
15
10
5
0
China
Source: CEIC, BEA.
September 25, 2015
Lower pricing for software/IT service products

Chinas lower labor cost is also a key reason behind the smaller market size for software/IT service lower pricing. Engineers
salaries make up the main cost for providing software and IT services and therefore make up the lions share of product prices
this is especially so for IT services, which are normally charged by engineers hours spent on the project. Although IT average
wages are higher than the all-industry average wage, China still has a significantly lower IT average-wage than Japan and the US.
We believe this lower relative cost for labor lead to lower charges for headcount-based consulting and outsourcing services (Exhibit
15). For example, we estimate that Yonyou charges 68% less than Accenture for IT services (Exhibit 16). We acknowledge that the
branding may also contribute to the pricing differential, but consider this to be a small portion.
It is similar for software products. Although it is more difficult to compare software products between companies given different
functions, our analysis indicates Chinese software products are normally priced at a significant discount to global peers. Comparing
ERP products with similar functionality and user ranges, we find that Yonyou and Kingdee, two leading Chinese ERP vendors, price
their products below US$1000 per set, whereas products from global peers are above US$2600.
Exhibit 15: Chinas IT professional wage is only a fifth of that in the US,
meaning lower charges for man-hour based IT consulting/outsourcing
services
Exhibit 16: Yonyou charges 68% less than Accenture for IT services
IT consulting man-hour charge comparison, 2014
Yearly wage comparison, 2014

(USDperman
hour)
160
(USD)
90,000
80,000
140
70,000
60,000
120
US: 5XofChina
50,000
100
40,000
30,000
80
20,000
60
10,000
40
0
All
industry
IT
China
All
industry
IT
All
industry
Japan
Source: CEIC, National Bureau of Statistics of China, Bureau of Labor Statistics.
US
IT
20
Accenture
Yongyou
Source: Company data, Goldman Sachs Global Investment Research, Gao Hua Securities Research
September 25, 2015
Exhibit 17: ERP software products from Chinese companies have lower prices than those offered by global firms
ERP product pricing as of 2014
Company
Yonyou
Kingdee
Sage
Infor
SAP
Oracle
MicrosoftDynamics
GlobalShopSolutions
Rootstock
SAP
Product
T3
KIS
SageERPX3
InforVISUAL
BusinessOne
EBusinessSuite
GP
GlobalShopSolutions
Rootstock
SAPBusinessByDesign
Userrange
50300
50300
201000+
5500
251000
251000+
25500
3300
10400
10tounlimited
Price
$600800
$500700
$2600/user
$12k$100k
$25k$250k
$12k$350k
$10k$100k
$5k$500k
$150/user/mo
$150/user/mo
Source: Top10ERP, Company data.
10
September 25, 2015
Change is on the way, leading to a fast-growing software/IT market

However, we see a confluence of two trends spurring growth in the China software/IT sector in the next decade:
The technology itself has developed sufficiently to enable more flexible business models to provide products and services
to a variety of clients across many sectors; and
With changes in the economy and with China moving up the value curve, Chinese enterprises are now looking to compete
in global markets.
Software/IT services to grow faster than other IT spending

According to Gartner, global software/IT service industry growth (5%/3% 2014-19E CAGR respectively) should outpace hardware
(slightly decrease) in 2014-2019. Gartner expects China software/IT services spending to grow at c. 10% CAGR in 2014-2019, flat for
devices, 5% for data center systems and 6% for telecom services (Exhibit 18 and 19).
We believe the relatively fast growth in China software/IT service spending is mainly due to three main reasons:
Requirement to improve productivity

As Chinas economy develops, the service sector will continue to grow and contribute a greater share of GDP. We expect this to
drive greater demand for software/IT service in order to improve productivity. Moreover, although higher wages have put pressure
on all sectors in China, wages in the service sector have risen more rapidly than in other sectors. Since 1999, China the average
urban wage for service sector has increased at 8-25% yoy (except 2014). However, service sector wages per unit of output have
remained flat or increased slightly via improvements in productivity (Exhibit 20). Going forward, our economists note that labors
contribution to GDP is diminishing (Exhibit 21), which will encourage stakeholders to seek improvement in productivity to grow the
economy and to offset the impact from increasing urban wages.
Even for industrial sector, there is significant upside potential for productivity improvement via software/IT system to better allocate
resources and manage business operation. Alongside labor rising costs, Chinese manufacturers are also facing new pressures to
comply with environment protection regulation, more generous labor benefit systems, and less favorable taxation. According to a
2012 survey conducted by the Pew Research Center, the Chinese people are increasingly aware of environmental and health issues.
They now hope for and expect a better lifestyle (Exhibit 22). With over 90% of people surveyed by Pew evaluating themselves as
having a better standard of living than their parents had at a similar age, we think many Chinese people believe the country can now
afford to improve working and environmental conditions.
With more people becoming concerned about the welfare of society and the environment, Chinas leaders appear to be responding.
President Xi Jinping has set out the Chinese dream to build a prosperous society and realize national rejuvenation. Since the
start of 2013, the government has also paid increasing attention to food safety, environmental protection and being more judicious
in conserving resource.
11
September 25, 2015
Cloud computing is changing the rules of the game

China is catching up with global new technology trends, such as cloud computing, which is broadening the potential client base and
changing the business models. Cloud computing has been available in the US for 6-7 years, and server visualization and software as
a service (SaaS) have been adopted widely. However, we believe China is still at an early stage of cloud computing. Gartner projects
that Chinas public cloud services end-user spending to grow at 20% over 2014-2019 CAGR, vs. 16% for the US (Exhibit 23). We see
the growth in cloud computing bringing two key changes to the industry:
Pricing and payment for software/services. Cloud computing and storage solutions allow users and enterprises to store
and process their data at third-party centers. For those enterprises, data management costs have become an operating
expenditure rather than a capital expenditure, and they now pay monthly subscription fee. Cloud computing / storage
reduces the cost of installment and allows enterprises (especially smaller ones) to try out software and services at much
lower upfront cost. We believe this will lower the entry barrier for many enterprises to adopt new software and services
motivating demand. The monthly payment method also changes software/service vendors business models, with recurring
revenue rather than one-off license fees.
Business model for software/service providers. Cloud computing allows some software/service providers to transform
from being solely a product/service provider to a platform operator. IaaS (infrastructure-as-a-service), PaaS (platform-as-aservice) and SaaS (software-as-a-service) all run like platforms, which may provide more value-add and flexible services by
analyzing the underlying data running in the platform (with end-user permission).
New and localized application and demand for mobile internet

China has a vibrant mobile internet and we think there will be increasing need for new and localized applications. While many
current mobile applications are likely to remain online such as mobile gaming, online shopping, etc we see the increasing use
of O2O (online to offline) models and growing demand from traditional business to move online. As more data is collected and
stored online, we expect business operators will increasingly want sophisticated data analytics to reveal business intelligence and
drive revenue/profit. Such demand will create the needs for value-add applications and this therefore should benefit software/IT
services companies.
12
September 25, 2015
Exhibit 18: Globally, software + IT Services exhibit the best growth potential
Exhibit 19: China Software + IT services is small but growing fastest
Worldwide IT spending, 2019 vs 2014
China IT spending, 2019 vs 2014
Note:Bubblesizeandnumbersinboxesrepresentmarketsizein2014.
Note:Bubblesizeandnumbersinboxesrepresentmarketsizein2014.
Exhibit 20: Productivity growth is key to containing wage/output increases
Exhibit 21: Our economists see labors contribution to growth falling off
China services industry wage and productivity analysis
China economy growth factor contribution

Percent
12
Avgservicesurbanwagegrowth
40%
Servicesproductivitygrowth
35%
Wage/output
10
30%
Percent
12
Labor
Capital
Totalfactorproductivity
10
25%
20%
15%
10%
5%
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
5%
1999
0%
10%
Note: services productivity=total service output value/total service employees.
2
198089 199099 200004 200509 201014 201519E 202024E
Source: Wind, UN population data, Goldman Sachs Global Investment Research.

Source: Wind.
13
September 25, 2015
Exhibit 22: According to the Pew Research Center, many Chinese are turning their attention to quality of life concerns; taxes are
rising too
% of Chinese who view these issues as a very big problem; effective tax rate for listed non-financial companies
50
Product safety & quality
Labor benefits
Environment
Taxes
45
40
2008
2012
35
30
25
20
15
10
5
0
Food safety
Quality of
manuf. goods
Safety of
medicine
Old age
insurance
Health care Conditions for Air pollution

workers
Water
pollution
Effective tax
rate
Source: Pew Research Center.
Exhibit 23: China has large potential for cloud spending
Exhibit 24: China already has a number of public cloud service vendors
Public cloud services end-user spending relative to the US
Global and China cloud services vendors

IaaS
(USDmn)
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
35%
UnitedStates
China
30%
USyoy
25%
Chinayoy
Globalplayers
AmazonAWS
IBMSoftLayer
MicrosoftAzure
GoogleComputeEngine
OracleIaaS
HPCloud
VMwarevCloudAir
Chineseplayers
AlibabaAliyun
TencentQcloud
21vianetViaCloud
Grandcloud
ChinaCacheCloud
ChinaMobileEcloud
YonyouCloud
20%
15%
10%
5%
0%
2013
2014
2015E
Source: Gartner.
2016E
2017E
2018E
2019E
PaaS
Salesforce1
MicrosoftAzure
AmazonAWSElasticBeanstalkand
more
GoogleAppEngine
IBMBluemix
RedHatOpenShift
HP
OraclePaaS
AlibabaACE
SinaSAE
BaiduBAE
JAE
ChinaMobileAppEngine
YonyouAppEngine
SaaS
SAP,Infor,Oracle,
Salesforce
Yonyou,Kingdee,
800App
Source: Company data, Gao Hua Securities Research.
14
September 25, 2015
Assessing Chinas software/IT services market relative to the US and India

By comparing the structure of the market in China relative to developments in the US and India, we can make judgements about the
potential structural changes amid rapid industry growth in China. We look at vertical sector distributions, product mix, and client
base mix, to understand where China stands relative to global peers.
China spending is still weighted towards Industry, as of 2014

We divide software/IT services into four verticals.
Manufacturing, utilities and transportation: China spends 33% on these sectors which are more resource intensive and
labor intensive, vs. 21% in India and 19% in the US. This is in line with Chinas larger GDP weighting to industry. We see the
higher the GDP contribution is from Service sector, the smaller software/IT service spending weighting is on Industry sector.
Communications, media and services: Spending on this vertical is also over-indexed in China compared to in the US (18%
vs. 13% respectively). We believe as an economy matures, spending on this sector will shrink.
Financials: Spending on this vertical at 21% is lower than the 27% in the US
Consumption & government: This vertical is also still under-indexed in China (49%) vs. 64% in the US.
The financials and consumption/government verticals are generally considered as service sectors and are underdeveloped in China
relative to the US in line with finding in the previous section.
China is spending more on infrastructure and basic enterprise application software

We divide software products into two general categories enterprise application and infrastructure. Enterprise application also
breaks down to three levels, by: (a) function and end-user, individual productivity and efficiency, (b) corporate productivity and
efficiency (c), and scale and flexibility.
China is spending more on infrastructure software, 62% vs. 56% in the US, indicating China is still building up its IT infrastructure.
For enterprise application software, China is spending more on basic enterprise application software, like productivity improving
software, including ERP (enterprise resource planning), supply chain management, etc. The US is moving on to scale and flexibility
improving software, like CRM (client relationship management) (8% of total), while China only spends 3% on CRM.
For IT services, China is spending more on consulting, implementation and product support, but less on outsourcing services.
Outsourcing services spending in China in 2014 only accounts for 21% of total IT services spending, vs. 40% in India and 52% in the
US. We believe Chinese enterprises still prefer in-house IT systems and operations due to low relative cost of building an IT team
internally.
15
September 25, 2015
Government, SOE and multinationals are still key customers, but demand from private companies to catch up
We divide end-users into three general categories enterprises, government, and individual business. For enterprises, we subdivide into private, SOE and foreign. We estimate government spending accounts for 16% of total Software and IT services spending,
and SOE 34%. Although individual business and private enterprises are the major entities in the market (68mn in all and 94% of
total), they make up on 42% of spending. We believe this leaves significant room for growth as demand from private companies
should catch up as the imperative to improve productivity and efficiency become clearer.
Exhibit 25: Government, SOE and MNC are still the key customers
Software and IT services spending by customer, 2014
Private,28%
Individual
business,14%
Enterprise,70%
Government,
16%
SOE,34%
Foreign,8%
Source: SAIC, Gartner, Gao Hua Securities Research.
16
September 25, 2015
Exhibit 26: China spending is still weighted towards industrials

Software+ IT services spending by vertical sectors, 2014
China
India
US
Manufacturing&natural
resources
resources
0%
Manufacturing,
utilities,
10%
transportation
resources
20%
Utilities
30%
Communications,
media&services40%
Utilities
Transportation
Communications,media
&services
Transportation
&services
Utilities
Transportation
&services
Banking&securities
50%
Financials
60%
Banking&securities
70%
Insurance
80%
Consumption,
government
Banking&securities
Insurance
Insurance
Government
Government
Government
90%
100%
Education
Healthcareproviders
Retail
Wholesaletrade
Education
Healthcareproviders
Retail
Wholesaletrade
Education
Healthcareproviders
Retail
Wholesaletrade
Source: Gartner.
17
September 25, 2015
Exhibit 27: Chinese enterprises are still building up their IT infrastructure and productivity, but spend less on application software
and scale expansion tools (like CRM)
Software spending breakdown by product, 2014
China
0%
Individual
productivity
andefficiency
Corporate
productivity
andefficiency
10%
Scaleand
flexibility
US
Officesuites
Officesuites
Officesuites
Webcollaborationsuites
Enterpriseresourceplanning
(ERP)
(ERP)
Projectandportfoliomanagement
(ERP)
Businessintelligenceandanalytics
Supplychainmanagement
Customerrelationshipmgmt.(CRM)
Digitalcontentcreation
Enterprisecontentmanagement
20%
India
30%
Otherapplicationsoftware
40%
Virtualizationinfrastructuresoftware
Dataintegration/qualitytools
Databasemanagementsystems
Fastgrowing 50%
infrastructure
software
Applicationinfrastructureand
middleware
middleware
IToperations
IToperations
60%
middleware
IToperations
70%
Security
Security
Security
Storagemanagement
80%
Slowly
growing
infrastructure
90%
software
100%
Storagemanagement
Storagemanagement
Applicationdevelopment
Operatingsystems
Otherinfrastructuresoftware
Operatingsystems
Operatingsystems
Source: Gartner
18
September 25, 2015
Exhibit 28: Chinese companies are spending more on building in-house IT, and rely less on outsourcing
IT services spending by product, 2014
China
India
US
0%
Consulting
Consulting
Consulting
10%
Consulting
20%
Implementation
Implementation
30%
Implementation
40%
Implementation
IToutsourcing
50%
IToutsourcing
Outsourcing 60%
services
IToutsourcing
70%
Businessprocessoutsourcing
80%
Softwaresupport
Softwaresupport
Product
support
90%
Softwaresupport
Hardwaresupport
Hardwaresupport
Hardwaresupport
100%
Source: Gartner.
19
September 25, 2015
Identifying local leaders youll find them in niche and high-growth markets
Gartner forecasts c.10% CAGR in China software/IT service market over the next five years. We believe some players are better
positioned and should therefore be able to capture a high growth rate than the overall market. We think the market is already
crowded, with global leaders dominating in key subsectors. According to MIIT, there are 38,695 software/IT services vendors in
China, and Gartner estimates software/IT services spending of US$25bn in 2014. This implies only US$0.65mn average TAM for
each player. Of the larger firms, most are foreign. The top 30 software vendors in China account for c. 65% market share, with
Chinese players only accounting for 13%. The top 30 IT services vendors in China account for c. 63% market share, with Chinese
companies accounting for only 12%. We believe there are three reasons for overseas firms dominance in many parts of the market.
Early mover advantage: Global players entered the China market in the early 1990s, when domestic players were still at an
early stage of development stage and not as competitive as global firms. Their early penetration into China helped global
leader to gain some large customers with complex demands, such as SOEs and multinationals. The high stickiness for
software applications subsequently helped those early movers to strengthen their franchise in China.
Capital & talent/engineer advantage: There are high barriers to entry for high-end and complex systems/services for
multiple verticals. Global firms have strong consulting capability and comprehensive products in multiple vertical, which
are difficult for small companies to match.
Piracy: Protection of intellectual property rights has been challenging in China. The high cost to protect intellectual property
rights can be prohibitive for small-scale companies and put their operations in jeopardy if their IP is copied.
Exhibit 29: Chinese software vendors account for only 13% market share
Exhibit 30: Chinese IT services vendors account for only 12% market share
Market share for Top 30 software vendors in China, 2014
Market share for Top 30 IT services vendors in China, 2014
Domestic
Domestic
Otheroversea
vendors,13.8%
Kingsoft,1.1%
IBM,8.1%
Microsoft,
19.9%
Otheroversea
vendors,21%
Neusoft,1.4%
Kingdee,1.6%
SamsungSDS,
4.5%
HP,4.4%
Huawei,0.9%
Inspur
Genersoft, EMC,2.2%
1.9%
Founder,3.0%
SAP,3.6%
IBM,8.9%
Oracle,
6.1%
Changjiang,
1.0% TsingHua
TongFang,
1.0%
Lenovo,2.0%
Accenture,
2.2% Neusoft,2.3%
Yonyou,4.0%
Source: Gartner
Digitalchina,
4.3%
Deloitte,4.3%
KPMG
International,
PwC,3.2% 3.5%
Source: Gartner
20
September 25, 2015
Identifying local winners in eight segments

Despite the challenges and intense competition, we see opportunities in some niches with higher entry barriers and stronger growth.
We identify eight verticals that meet our two key selection criteria:
(a) Stronger growth than the overall software/IT system in the next five years; and
(b) Highly local characteristics and a fragmented customer bases that set higher barriers to entry for global firms and new
entrants. These segments have a higher concentration of top 3 players, which imply a higher entry barrier for small firms.
ERP for SMEs: While current ERP revenue mainly comes from SOEs, large multinationals, and large to midsize private companies,
we believe ERP for small and medium-sized enterprises is still at an early stage, with low penetration. The market is also very
fragmented and highly local due to the large user base all over China. We forecast the market to grow at 15% CAGR over the next 5
years on the back of greater penetration, facilitated by cloud computing, as well as by new value-add businesses such as credit
investigation for SME.
Healthcare: IT systems for the healthcare sector are underdeveloped in China and many hospitals and clinics in tier-3 and tier-4
cities do not have comprehensive HIS/CIS (hospital information system/clinic information system) nor an electronic medical record
(EMR) system for patients. There is also much room for improvement in the social medical insurance system, where IT systems can
help with PBM (pharmacy benefit management) and chronic disease treatment. We expect the market to grow at 15% CAGR in the
next 5 years.
Security software: Security software has strong local characteristic. The government intends to reduce reliance on non-Chinese
vendors in government institutions and critical SOEs in the interests of national security. We expect local security software players
to benefit from this. We expect the market to grow at 10% CAGR in the next 5 years.
Tax control: As China government rolls out tax reform replacing business tax with value-added tax for service sectors in more
sectors (property, finance and insurance industries), and as the requirement to install a VAT invoice system is expanded to all smallscale taxpayers, we forecast VAT invoice system users to increase fivefold over 2014-2020E. We expect tax control related business
to grow at 25% CAGR in the next 5 years.
Mapping & navigation: We forecast the mapping and navigation market to grow at 22% CAGR in the next 5 years on the back of
higher penetration of navigation in autos and increasing new applications in telematics such as traffic information, location-based
services, etc. The broader Internet of Things (IoT) will further increase application of location-based services, and therefore of
demand for mapping & navigation.
Intelligent speech: Intelligent speech technology is likely to be increasingly employed when inputting information into computers
by writing is impossible or inconvenient. We expect greater application of this technology in smartphones and autos, as well as in
education, and expect a 37% CAGR in the next 5 years.
Financials - securities: With accelerating reform in the financial space and increasing innovation in equity markets, we believe
Fintech will experience fast growth over the next 5 years. Although the recent market correction has added concerns around the
21
September 25, 2015
pace of financial, and CSRC has turned more cautious on financial innovation, such as margin trading, we believe the trend remains
intact in the mid-to-long term. We expect software/IT services for the securities sector to grow at 20% CAGR in the next 5 years.
Restaurants & hotels: Although IT systems are commonly used in high-end restaurants and hotels, mid-to-low end restaurants,
hotels and merchants are not well covered yet. We expect software/IT services for restaurants & hotels to grow at 15% CAGR in the
next 5 years, with improving coverage in mid-to-low end via SaaS product offering, and new demand from O2O business upgrading.
Concentration ratios: In these subsectors, tax control, mapping & navigation, intelligent speech, financial - securities, and
restaurants & hotels have higher market concentration. We initiate coverage on Aisino (CL-Buy), Hundsun, Shiji Info and Yonyou
(Sell), which are the leaders in their subsector. NavInfo and iFLYTek (Buy) are also leaders in their own subsectors.
Exhibit 31: Our framework for identifying niche leaders
Verticalsector
Highlylocal
Opportunityexposure
Fragment
Highgrowth
Marketsize Marketgrowth
2014($mn) (201420ECAGR)
GM
(%)
OPM
(%)
ERPforSME
Creditinvestigation,
2,242
cloudcomputing
15.0%
6085%
615%
Healthcare
HIS,CIS,EMR,PBM,
chronicdisease
1,150
treatment
15.0%
7075%
2030%
Securitysoftware
AdvancedPersistent
624
Threats,BYOD
10.0%
7080%
1025%
Taxcontrol
Einvoiceandcredit
581
investigation
25.0%
4046%
1013%
Mapping&navigation
IoT,telematics,O2O 565
22.0%
6580%
510%
Intelligentspeech
IoT,telematics
494
37.0%
5060%
020%
Financialssecurities
Fintech
356
20.0%
8090%
1020%
Restaurants&hotels
InternetO2Orequires
323
moreITsystem
15.0%
70%
34%
Banking
Manufacturing
Utility
Others
Total
13.4%
10.3%
10.9%
0.6%
10%
7080%
5070%
3050%
510%
010%
1525%
4,342
5,606
1,647
7,542
25,148
Top3players
inChina
Yonyou
Kingdee
Grasp
NeuSoft
Wonders
Winning
Venustech
NsFocus
VRV
Aisino
BeijingWatertek
Hengbao
NavInfo
AutoNavi
eMapgo
iFLYTEK
Baidu
Apple
Hundsun
KingdomScitech
Apexsoft
ShijiInfo
JointWinsdon
Armitage
SinoData
Baosight
YGSoft
Marketshare
inChina(2014)
11%
8%
c.5%
9%
7%
5%
27%
16%
6%
90%
4%
4%
41%
35%
22%
58%
13%
12%
51%
34%
8%
49%
5%
5%
c.1%
4%
3%
Globalpeers
Oracle,SAP,Intuit,
Salesforce
McKessen,Cerner,
Siemens,Epic,Allscript,
ExpressScripts,
Symantec,Intel
(McAfee),IBM
N.A.
Google,Nokia,TomTom,
CoherentNavigation
Nuance
Fiserv,FIS,EXLS
Oracle,Sabre,Amadeus
Fiserv,FIS,EXLS
Oracle,SAP
Oracle,SAP
Oracle,SAP
Note: Total market size and growth for ERP in SME, restaurants & hotels, tax control, mapping & navigation, the growth for healthcare and financials are all GS forecasts; market size for healthcare and financials, plus
market size and growth for security software are from Gartner; market size and growth for intelligent speech are from ETIRI. Ultrapower does not operate in a niche market. ERP stands for Enterprise resource planning;
BYOD stands from bring-your-own-device. Gross margin (GM) and operating margin (OPM) range represents the business-as-usual margin range of top players during the past three years.
Source: Company data, Gartner, ETIRI, Gao Hua Securities Research.
22
September 25, 2015
Valuation: Long-term discounted P/E: We favor leaders in faster growing subsectors

We base our valuation methodology around three attributes of the sector:
Compared with other technology names (hardware or electronics), software names tend to be less cyclical. They have high
client retention rates due to significant switching costs, enabling them to generate stable and recurring revenue.
While Chinese companies in some sectors are closing the gap or even surpassing global peers, we see domestic software
names still lagging global peers in both scale and market cap.
Software development often requires long-term R&D, and this creates a substantial barrier to entry. As such, we believe it
is appropriate to look at longer-term growth. We see China software names are often given high P/E multiples in the Ashare market (2016E P/E averaged 48X for our coverage), as the market prices in sustainable high growth.
Valuation methodology step by step
We project our company estimates to 2020. For each company, we conduct a qualitative and quantitative assessment to
underpin our assessment of longer-term earnings.
We apply an exit P/E multiple to 2020 earnings for each company based on where global peers are trading at now on
2016 estimates. We apply 21x for lower growth companies and 25x for higher growth ones (see below for detail).
Using the resulting valuation 2020E EPS times exit P/E we discount back to 2016 using each companys cost of equity.
In our view, this methodology: 1) capture each companys long-term growth potential; 2) differentiates between stocks on multiple
based on their growth projection; 3) evaluates China software in a global context with consideration for its current relative lack of
development.
Exhibit 32: Aisino (CL-Buy) is our top pick for its greatest upside; we like iFLYTek (Buy) for its high growth, but have a Sell on Yonyou due to its expensive
valuation and only modest growth
Valuation summary table, 12-month target prices
Ticker
600271.SS
002230.SZ
002153.SZ
600570.SS
300002.SZ
002405.SZ
600588.SS
Company
Aisino
iFLYTEK
Shiji
Hundsun
Ultrapower
NavInfo
Yonyou
Current
price
50.68
28.10
88.49
45.74
10.96
25.62
25.76
12m
TP
78.60
38.60
96.30
47.90
10.00
21.70
14.10
Potential
up/downside
55%
37%
9%
5%
9%
15%
45%
Ratings
New
Old
Buy*
n.a.
Buy
Neutral
Neutral
n.a.
Neutral
n.a.
Neutral
Buy
Neutral
Neutral
Sell
n.a.
EPS
2.37
0.68
2.02
0.70
0.37
0.34
0.45
2016E
CurrentPE
21.4
41.4
43.9
65.6
29.8
75.1
57.2
TPimpledPE
33.2
56.8
47.7
68.7
27.2
63.6
31.3
EPS
5.10
2.09
5.44
2.76
0.68
1.25
0.93
2020E
EPSCAGR
21%
33%
28%
41%
16%
39%
20%
ExitP/E
21.00
25.00
25.00
25.00
21.00
25.00
21.00
Scoring
4.6
3.9
4.1
3.8
2.5
3.8
2.9
Beta
0.8
0.8
1.0
1.1
1.0
1.1
0.9
COE
8.0%
7.9%
9.0%
9.6%
9.0%
9.6%
8.4%
*on our regional Conviction List. Pricing currency is Rmb; EPS CAGR is for the period of 2016E-2020E.
23
September 25, 2015
Exhibit 33: We revise our EPS estimates on three stocks already under coverage
iFLYTek, Ultrapower and NavInfo revision summary
Company
12-m TP revision
EPS revision
Reasons
New
Old
%Change
2015E
2016E
2017E
iFLYTek
38.60
20.80
86%
-3%
9%
26%
Ultrapower
10.00
15.18
-34%
0%
-31%
-29%
NavInfo
21.70
18.70
16%
-19%
-23%
-23%
We turn more optimistic about the industry outlook and expect iFLYTek to
benefit from wider industry application opportunities
We see its major ITSM business to slow down and lack of other earnings
catalysts
We remain positive on telematics market development but revise down
earnings due to unclear monetization opportunity
Source: Gao Hua Securities Research.
Assessing the long-term growth potential and competitiveness

In assessing a companys long-term growth potential and competitiveness, we have developed a framework assessing 5 key criteria.
For four of the criteria, we use a quantitative scale to assign a score. For competitiveness, however, we apply a qualitative-based
score reflecting our overall assessment of each companys technology leadership and the barriers to entry in its industry segment.
Exhibit 34: We give equal weighting to our 5 key criteria in assessing the companies relative positioning
Our rationale table
Measure
Revenueopportunity
Industrygrowth
Incrementalmargin
Profitopportunity
Potentialforadditional
monetization
Marketshare
Abilitytocapture
Marketconcentration
Rationale
Calculation
Industrygrowthisessentialtothecompany'sfuturegrowthpotential
Calculatedthrough5yearindustrygrowth.Scoring:CAGR>=25%=5,
2024%=4,1519%=3,1014%=2,lessthan10%=1
Incrementalmarginstorevenueexpansion:Scoring:Over70%=5,50
Asameasureofoperatingleverage,wetakeinconsiderationtwofactors:(1)required 70%=4,3050%=3,1030%=2,lessthan10%=1.
costlevelofexpandingcurrentbusiness,and(2)howmuchtheexistingbusinesscanbe Levelofrevenuecontributionfromnewbusinessesin5years.
leveragedtocreateanewbusiness.
Scoring:over20%ofrevenue=5,1520%=4,1015%=3,510%=2,less
than5%=1
Marketsharewithintheindustry:Scoring:over40%=5,3040%=4,20
Acompany'scurrentmarketshareandthemarketstructuredictatesthecompany's
30%=3,1020%=2,lessthan10%=1
abilitytocapturethegrowthinindustry
Top3playersmarketshare:Scoring:over70%=5,5069%=4,30%
49%=3,1029%=2,lessthan10%=1
Competitiveness
Competitivestrength
Acompany'scompetitivenessdetermineswhetheritcansustainitsbusinessandcope
withthechangingenvironment,tosurviveandsucceedinthelongrun.
Qualitativejudgementoncompetitiveness
Accesstocapital
Cashreserveandfreecashflow
Accesstocapitalindicateswhetherthecompanyhassufficientresourcestoinvestinto
newbusiness/technologywhilekeepingitsfinancialpositionsolid.
Rankingofnetcash+FCFovernext3years:No.1=5,No.23=4,No.4
5=3,No.67=2,No.8=1.
24
September 25, 2015
Each criterion is given equal weighting. iFlytek (speech recognition) and Aisino (Tax control) score highest on industry growth.
Navinfo and Hundsun score highest on profit opportunity given they operate in high-margin businesses, with potential for a
broadening in application. Most companies (bar Ultrapower and Yonyou) have strong/dominant market positioning to fully capture
industry growth. Shiji and Aisino are clear leaders in their niches, where we see little chance of any challengers, and therefore score
highly on competitiveness. On access to capital, Shiji and Aisino are relatively strong as they require less-intensive R&D spending to
maintain their leading positions.
Exhibit 35: Aisino and Shiji score highest among our coverage for their relative positioning
Revenueexposure
Subsector
Software+ITservices
ERPforSME
Restaurants&hotelsIT
Taxcontrolsystem
Mapping&navigation
Speechrecognition
FinancialsIT
Others
2016E2020Esubsectorgrowth
15%
15%
25%
22%
37%
20%
10%
NavInfo
002405.SZ
IFLYTek
002230.SZ
Ultrapower
300002.SZ
Software
Shiji
002153.SZ
Yonyou
600588.SS
Aisino
600271.SS
Hundsun
600570.SS
100%
100%
50%
100%
100%
100%
100%
50%
Growthevaluation
Companylevel
Revenueopportunity
Profitopportunity
Abilitytocapture
Competitiveness
Accesstocapital
Totalaveragescore
Influencingfactors
Industrygrowth
Incrementalmargin
Potentialforadditionalmonetization
Average
Marketshare
Marketconcentration
Average
Competitivestrength
Cashreserveandfreecashflow
NavInfo
002405.SZ
4
5
5
5.0
5
5
5.0
3
2
3.8
IFLYTek
002230.SZ
5
4
5
4.5
5
5
5.0
4
1
3.9
Ultrapower
300002.SZ
2
5
3
4.0
2
1
1.5
2
3
2.5
Shiji
002153.SZ
3
5
3
4.0
5
4
4.5
5
4
4.1
Yonyou
600588.SS
3
4
5
4.5
2
2
2.0
3
2
2.9
Aisino
600271.SS
5
3
5
4.0
5
5
5.0
5
4
4.6
Hundsun
600570.SS
4
5
5
5.0
5
5
5.0
4
1
3.8
Evaluating China A-share software names in a global perspective

In determining our exit multiple in 2020 for our coverage, we use where global peers are trading at on 2016 on the assumption
that Chinese software companies will more closely resemble global companies after a few years of development.
For lower-growth Aisino, Ultrapower and Yonyou, we apply the global median 2016 P/E of 21X.
For high-growth names, with earnings over 25% EPS/net income CAGR in 2015E-2020E NavInfo, iFLYTek, Shiji and
Hundsun we apply an exit multiple of 25x, which we derive from the median of current high-growth global names: Sabre,
Orbitz, Priceline, Ctrip, Salesforce, SAP, Intuit, SS&C, Temenos, and TomTom
25
September 25, 2015
Exhibit 36: Global software peers are trading at c. 21X at the median on 2016E P/E, while select high-growth names trade at a
median of 25X
Global comp sheet
Companyname
Software
BeijingShijiInformation
Aisino
YonyouNetworkTechnology
HundsunTechnologiesInc.
BeijingUltrapowerSoftware
NavInfoCo.
AnhuiUSTCiFLYTEK
Hospitalitysolution
SabreCorp.
AmadeusITHoldingSA
Globalmedian
OTA
ExpediaInc.
Priceline.comInc.
Ctrip.comInternational
Globalmedian
Transactionprocess
AutomaticDataProcessingInc.
PaychexInc.
FidelityNationalInformationServices
FiservInc.
EquifaxInc.
Globalmedian
Creditagency
EquifaxInc.
Experian
Globalmedian
ERP&CRM
OracleCorp.
Salesforce.comInc.
SAP
IntuitInc
Globalmedian
Financialssolutions
FidelityNationalInformationServices
FiservInc.
SS&CTechnologiesHoldingsInc
Temenos
ExlServiceHoldings
SilverlakeAxisLtd
OracleFinancialServicesSoft
JackHenry&AssociatesInc
Globalmedian
Navigation
GarminLtd.
TomTomNV
Globalmedian
Speechrecognition
NuanceCommunicationsInc
Globalmedian
Globalaverage
Globalmedian
15E
P/B(X)
16E
17E
15E
ROE
16E
17E
25.9
8.4
48.3
41.6
24.1
17.7
20.4
12.1
6.2
6.4
13.2
4.0
6.9
5.8
9.9
5.4
6.1
11.6
3.6
6.5
5.3
7.9
4.7
5.7
9.6
3.3
5.9
4.7
20%
24%
11%
17%
17%
7%
11%
25%
27%
11%
19%
13%
9%
13%
29%
31%
12%
28%
14%
12%
18%
45%
31%
18%
48%
23%
53%
53%
45%
30%
22%
48%
1%
41%
51%
9.0
10.2
9.6
7.7
9.0
8.4
19.3
8.4
13.9
12.7
6.9
9.8
7.4
5.8
6.6
129%
42%
85%
77%
43%
60%
59%
39%
49%
14%
11%
13%
26%
12%
19%
14.1
18.9
37.2
18.9
12.0
14.5
17.2
14.5
9.7
11.5
10.9
10.3
6.4
6.5
6.3
6.4
6.1
4.9
5.7
5.3
5.1
3.9
4.7
4.3
36%
26%
9%
26%
14%
26%
17%
17%
15%
24%
21%
21%
13%
23%
79%
23%
(25%)
26%
81%
26%
19.6
19.2
17.7
18.2
21.9
18.0
15.1
13.1
11.8
13.4
13.9
13.2
13.3
12.0
11.0
12.1
12.4
12.1
11.4
10.8
10.2
11.1
11.3
10.9
7.1
9.1
3.0
6.5
5.4
6.1
6.0
8.4
2.9
6.4
5.4
5.5
5.2
7.8
2.7
6.3
5.5
4.9
26%
39%
12%
22%
19%
26%
29%
41%
12%
27%
23%
27%
29%
42%
13%
29%
26%
27%
12%
10%
5%
6%
8%
7%
13%
11%
6%
7%
11%
10%
24.5
16.0
21.3
21.9
14.9
19.0
13.9
11.0
13.9
12.4
10.1
12.3
11.3
9.1
11.2
5.4
5.6
5.6
5.4
4.9
5.4
5.5
4.3
5.5
19%
32%
19%
23%
33%
23%
26%
31%
26%
8%
6%
8%
11%
7%
11%
17.1
NA
29.6
34.3
29.6
16.5
476.8
21.0
25.4
23.2
14.6
176.2
18.6
20.2
19.4
8.2
29.3
16.1
17.6
16.9
7.8
21.7
12.6
13.9
13.2
6.9
16.5
11.3
11.5
11.4
3.2
10.1
3.0
11.4
6.7
3.0
9.0
2.7
9.2
6.0
2.8
7.8
2.5
7.9
5.3
24%
11%
16%
22%
19%
23%
13%
18%
34%
20%
23%
15%
17%
42%
20%
2%
28%
16%
24%
20%
1%
39%
24%
30%
27%
68.21
86.28
72.62
39.80
38.36
0.58
3752.60
69.56
20.6
22.4
28.4
44.9
19.9
16.3
24.9
26.9
23.8
19.2
20.1
23.6
22.4
17.2
14.9
22.6
25.0
22.4
17.7
18.2
20.1
18.8
14.6
14.1
19.9
22.4
18.5
11.8
13.4
15.9
17.0
9.9
42.3
18.8
12.4
13.4
11.0
12.1
11.5
13.0
7.8
42.4
15.3
11.7
11.7
10.2
11.1
10.0
11.2
6.3
40.1
13.6
10.8
10.8
3.0
6.5
2.9
8.2
2.8
7.5
5.8
NA
4.8
2.9
6.4
2.8
6.5
2.6
7.3
7.0
NA
4.7
2.7
6.3
2.4
5.7
2.3
7.0
6.0
NA
5.7
12%
22%
11%
18%
11%
46%
19%
19%
18%
12%
27%
12%
32%
12%
45%
36%
20%
20%
13%
29%
12%
32%
13%
46%
34%
22%
25%
5%
6%
26%
17%
16%
3%
17%
7%
10%
6%
7%
19%
51%
15%
8%
12%
10%
11%
6,878
2,503
35.90
10.91
14.9
46.4
30.6
12.4
29.0
20.7
11.1
21.2
16.2
6.7
15.5
11.1
6.0
11.8
8.9
5.3
9.6
7.4
2.1
2.4
2.3
2.1
2.3
2.2
2.0
2.1
2.0
14%
3%
9%
17%
7%
12%
18%
10%
14%
8%
27%
18%
13%
48%
31%
5,288
17.07
13.9
13.9
24.6
22.8
12.4
12.4
32.7
21.3
11.7
11.7
24.8
18.4
9.5
9.5
15.3
13.4
8.8
8.8
12.8
12.1
NA
NA
11.0
10.8
2.3
2.3
5.5
5.8
2.3
2.3
5.1
5.4
2.1
2.1
4.6
4.8
15%
15%
26%
19%
16%
16%
27%
23%
19%
19%
27%
25%
NA
NA
14%
10%
9%
9%
16%
11%
P/E(X)
16E
EV/EBITDA(X)
15E
16E
17E
Rating
Marketcap
($mn)
Current
price
15E
002153.SZ
600271.SS
600588.SS
600570.SS
300002.SZ
002405.SZ
002230.SZ
Neutral
Buy*
Sell
Neutral
Neutral
Neutral
Buy
4,290
7,340
5,895
4,432
3,420
2,779
5,657
88.49
50.68
25.76
45.74
10.96
25.62
28.10
65.1
27.8
71.2
82.1
25.2
104.9
61.8
43.9
21.4
57.2
65.6
29.8
75.1
41.4
30.8
16.4
48.3
37.6
24.4
52.6
27.8
56.2
14.9
63.7
91.7
37.4
39.8
45.0
37.2
11.3
55.8
65.0
30.0
26.0
30.9
SABR
AMA.MC
Buy*
Buy*
7,792
17,684
27.92
36.46
23.2
20.4
21.8
23.0
17.7
20.4
17.7
16.1
16.9
10.9
11.7
11.3
EXPE
PCLN
CTRP
Neutral
Buy
Neutral
16,563
67,835
10,180
124.88
1288.95
66.61
20.9
27.9
73.6
24.4
45.4
21.8
37.4
29.6
37.1
18.2
24.6
30.8
ADP
PAYX
FIS
FISV
EFX
Neutral
Neutral
NotRated
Neutral
Neutral
37,124
16,778
19,399
20,742
11,591
79.19
46.03
68.21
86.28
97.73
25.8
23.5
20.6
22.4
28.6
22.2
22.7
21.3
19.2
20.1
24.5
19.6
EFX
EXPN.L
Neutral
Neutral
11,591
15,459
97.73
1031.00
28.6
17.2
26.2
ORCL
CRM
SAP
INTU.US
Buy
Buy*
Buy
C.S.
159,670
48,676
75,700
24,084
36.19
71.65
63.40
86.85
FIS
FISV
SSNC.US
TEMN.S
EXLS
SILV.SP
OFSS.IN
JKHY.US
NotRated
Neutral
Notcovered
Neutral
Neutral
Notcovered
Notcovered
Notcovered
19,399
20,742
7,219
2,679
1,307
1,083
4,817
5,580
GRMN
TMOAF.US
Neutral
Notcovered
NUAN.US
C.S.
Ticker
17E
EBITDACAGR EPSCAGR
2015E17E
2015E17E
*on our regional Conviction List. Priced as of Sep 22, 2015, market close; C.S. stands for Coverage Suspended.
Source: Bloomberg, Datastream, Gao Hua Securities Research, Goldman Sachs Global Investment Research.
26
September 25, 2015
Target price sensitivity analysis favors Aisino and iFLYTek

Exhibit 37: Aisinos valuation skewed towards the upside
Exhibit 38: Shijis valuation is evenly distributed
Aisino TP sensitivity table
Shiji TP sensitivity table
Shiji
Aisino
Implied valuation
Rmb/sh
78.60
12.0X
15.0X
2020E
18.0X
target PE
21.0X
24.0X
Cost of equity
7.0%
46.6
58.2
69.9
81.5
93.2
7.5%
45.7
57.2
68.6
80.0
91.5
7.0%
-8%
15%
38%
61%
84%
7.5%
-10%
13%
35%
58%
81%
2020E
target PE
8.5%
44.1
55.1
66.1
77.1
88.1
9.0%
43.3
54.1
64.9
75.7
86.5
8.5%
-13%
9%
30%
52%
74%
9.0%
-15%
7%
28%
49%
71%
Cost of equity
Upside/downside
12.0X
15.0X
18.0X
21.0X
24.0X
8.0%
44.9
56.1
67.3
78.6
89.8
8.0%
-11%
11%
33%
55%
77%
Implied valuation
Rmb/sh
96.30
16.0X
19.0X
2020E
22.0X
target PE
25.0X
28.0X
Cost of equity
8.0%
63.9
75.9
87.9
99.9
111.9
8.5%
62.8
74.5
86.3
98.1
109.9
8.0%
-28%
-14%
-1%
13%
26%
8.5%
-29%
-16%
-2%
11%
24%
2020E
target PE
9.5%
60.5
71.9
83.2
94.5
105.9
10.0%
59.4
70.6
81.7
92.8
104.0
9.5%
-32%
-19%
-6%
7%
20%
10.0%
-33%
-20%
-8%
5%
18%
Cost of equity
Upside/downside
16.0X
19.0X
22.0X
25.0X
28.0X
9.0%
61.6
73.2
84.7
96.3
107.8
9.0%
-30%
-17%
-4%
9%
22%
Exhibit 39: iFLYTeks valuation skewed towards the upside
Exhibit 40: Ultrapowers valuation skewed towards the downside
iFLYTek TP sensitivity table
Ultrapower TP sensitivity table
iFLYTek
Implied valuation
Rmb/sh
38.60
16.0X
19.0X
2020E
22.0X
target PE
25.0X
28.0X
Implied valuation
Rmb/sh
16.0X
19.0X
2020E
22.0X
target PE
25.0X
28.0X
Ultrapower
Cost of equity
6.9%
25.6
30.4
35.2
7.4%
25.2
29.9
34.6
7.9%
24.7
29.3
34.0
8.4%
24.2
28.8
33.3
8.9%
23.8
28.3
32.7
40.1
44.9
39.3
44.0
38.6
43.2
37.9
42.4
37.2
41.7
Implied valuation
Rmb/sh
10.00
12.0X
15.0X
2020E
18.0X
target PE
21.0X
24.0X
6.9%
-9%
8%
25%
43%
60%
7.4%
-10%
6%
23%
40%
57%
8.4%
-14%
2%
19%
35%
51%
8.9%
-15%
1%
16%
32%
48%
Implied valuation
Rmb/sh
12.0X
15.0X
2020E
18.0X
target PE
21.0X
24.0X
Cost of equity
7.9%
-12%
4%
21%
37%
54%
Cost of equity
8.0%
6.0
7.4
8.9
8.5%
5.8
7.3
8.8
9.0%
5.7
7.2
8.6
9.5%
5.6
7.0
8.5
10.0%
5.5
6.9
8.3
10.4
11.9
10.2
11.7
10.0
11.5
9.9
11.3
9.7
11.1
8.0%
-45%
-32%
-19%
-5%
9%
8.5%
-47%
-33%
-20%
-7%
7%
9.5%
-49%
-36%
-22%
-10%
3%
10.0%
-50%
-37%
-24%
-11%
1%
Cost of equity
9.0%
-48%
-34%
-22%
-9%
5%
27
September 25, 2015
Exhibit 41: Hundsuns valuation skewed towards the downside
Exhibit 42: Yonyous valuation skewed towards the downside
Hundsun TP sensitivity table
Yonyou TP sensitivity table
Hundsun
Yonyou
Implied valuation
Rmb/sh
47.90
16.0X
19.0X
2020E
22.0X
target PE
25.0X
28.0X
Cost of equity
8.6%
31.8
37.8
43.7
49.7
55.6
9.1%
31.2
37.1
42.9
48.8
54.6
8.6%
-30%
-17%
-4%
9%
22%
9.1%
-32%
-19%
-6%
7%
19%
2020E
target PE
10.1%
30.1
35.7
41.4
47.0
52.7
10.6%
29.6
35.1
40.6
46.2
51.7
10.1%
-34%
-22%
-9%
3%
15%
10.6%
-35%
-23%
-11%
1%
13%
Cost of equity
Upside/downside
16.0X
19.0X
22.0X
25.0X
28.0X
9.6%
30.6
36.4
42.1
47.9
53.6
9.6%
-33%
-20%
-8%
5%
17%
Implied valuation
Rmb/sh
14.10
12.0X
15.0X
2020E
18.0X
target PE
21.0X
24.0X
Cost of equity
7.4%
8.4
10.5
12.6
14.7
16.8
7.9%
8.2
10.3
12.3
14.4
16.4
7.4%
-67%
-59%
-51%
-43%
-35%
7.9%
-68%
-60%
-52%
-44%
-36%
2020E
target PE
8.9%
7.9
9.9
11.9
13.9
15.8
9.4%
7.8
9.7
11.7
13.6
15.6
8.9%
-69%
-62%
-54%
-46%
-39%
9.4%
-70%
-62%
-55%
-47%
-39%
Cost of equity
Upside/downside
12.0X
15.0X
18.0X
21.0X
24.0X
8.4%
8.1
10.1
12.1
14.1
16.1
8.4%
-69%
-61%
-53%
-45%
-38%
Exhibit 43: NavInfos valuation skewed towards the downside

NavInfo TP sensitivity table
NavInfo
Implied valuation
Rmb/sh
21.70
16.0X
19.0X
2020E
22.0X
target PE
25.0X
28.0X
Cost of equity
8.6%
14.4
17.1
19.8
22.5
25.3
9.1%
14.2
16.8
19.5
22.1
24.8
8.6%
-44%
-33%
-23%
-12%
-1%
9.1%
-45%
-34%
-24%
-14%
-3%
2020E
target PE
10.1%
13.7
16.2
18.8
21.3
23.9
10.6%
13.4
15.9
18.4
21.0
23.5
10.1%
-47%
-37%
-27%
-17%
-7%
10.6%
-48%
-38%
-28%
-18%
-8%
Cost of equity
Upside/downside
16.0X
19.0X
22.0X
25.0X
28.0X
9.6%
13.9
16.5
19.1
21.7
24.3
9.6%
-46%
-36%
-25%
-15%
-5%
28
September 25, 2015
Key returns analysis

Exhibit 44: Aisino and Hundsun to generate 1st tier adjusted CROCI in 2015E-17E
Adjusted CROCI
Navinfo
iFLYTek
Ultrapower
Aisino
Shiji
Hundsun
Yonyou
2007
32%
43%
88%
15%
31%
31%
12%
2008
41%
24%
65%
21%
27%
25%
15%
2009
44%
20%
26%
21%
21%
24%
24%
2010
27%
16%
17%
28%
30%
10%
21%
2011
21%
22%
15%
19%
28%
23%
38%
2012
12%
20%
17%
22%
26%
33%
19%
2013
14%
15%
16%
19%
32%
32%
22%
2014
15%
21%
15%
27%
20%
26%
19%
2015E
20%
19%
17%
27%
23%
31%
14%
2016E
23%
21%
14%
29%
25%
26%
15%
2017E
26%
26%
15%
30%
28%
30%
16%
2018E
28%
27%
16%
28%
28%
30%
17%
2019E
28%
27%
16%
29%
28%
30%
18%
2020E
28%
26%
16%
26%
26%
31%
19%
Note: Adjusted CROCI is calculated by adding back R&D expenses to debt-adjusted cash flow (DACF), the numerator, and includes net cash and 5-yrs rolling R&D in Gross Capital Invested (GCI), the denominator. Shading:
1st quartile (dark blue); 2nd quartile (medium blue); 3rd quartile (light blue); 4th quartile (grey).
Exhibit 45: Aisino and Shiji to generate 1st tier ROE in 2015-17E
ROE
2008
2009
2010
2011
Navinfo
33%
31%
18%
13%
iFLYTek
20%
14%
16%
14%
Ultrapower
66%
22%
14%
13%
Aisino
19%
19%
24%
22%
Shiji
24%
19%
27%
27%
Hundsun
22%
29%
24%
23%
Yonyou
18%
25%
13%
20%
2012
6%
14%
14%
20%
25%
16%
13%
2013
4%
12%
15%
19%
25%
22%
18%
2014
5%
11%
15%
18%
22%
20%
15%
2015E
7%
11%
17%
24%
20%
17%
11%
2016E
9%
13%
13%
27%
25%
19%
11%
2017E
12%
18%
14%
31%
29%
28%
12%
2018E
16%
21%
15%
32%
30%
31%
14%
2019E
19%
24%
15%
34%
29%
32%
16%
2020E
21%
24%
15%
31%
27%
34%
17%
Exhibit 46: EPS progression and CAGRs 2015E-2020E
Ticker
002230.SZ
300002.SZ
002405.SZ
002153.SZ
600271.SS
600588.SS
600570.SS
Company
iFLYTek
Ultrapower
NavInfo
Shiji
Aisino
Yonyou
Hundsun
2015E
0.45
0.43
0.24
1.36
1.82
0.36
0.56
2016E
0.68
0.37
0.34
2.02
2.37
0.45
0.70
2017E
1.01
0.45
0.49
2.88
3.10
0.53
1.22
2018E
1.37
0.53
0.75
3.81
3.76
0.64
1.62
2019E
1.76
0.60
0.97
4.69
4.65
0.78
2.10
2020E
2.09
0.68
1.25
5.44
5.10
0.93
2.76
2015E-2020E CAGR
36%
17%
39%
32%
23%
21%
38%
Note: Ultrapower CAGR calculation is based on EPS of Rmb0.3 in 2015E, excluding Rmb0.13/share one-off investment gain
29
September 25, 2015
Exhibit 47: Pure software companies have a tax rate close to 10%
Exhibit 48: iFLYTek and NavInfo spends and capitalize more R&D than others
Effective tax rate in 2014
R&D spending as a % of revenue in 2014
30%
25%
20%
R&Dexpense(%)
CapitalizedR&D(%)
60%
50%
40%
15%
10%
5%
0%
30%
20%
10%
0%
Source: Company data.
Exhibit 49: More government, telcos, and large enterprises in the client mix
lead to higher receivable days
Exhibit 50: NavInfos mapping product has a short shelf live while Yonyou
has a substantial landbank
Receivable days in 2014
Amortization year in 2014
250
200
150
100
50
0
20
18
16
14
12
10
8
6
4
2
0
30
September 25, 2015
Industry Risks
Chinas macro economy is slowing and any hard landing could pose downside risk to demand for software and IT services. We
believe software and IT services spending will in future be driven by the Services sector and this should make it more defensive to
any slowdown in the industrial sector. However, demand for productivity improvement may be impacted by deterioration in
profitability in both the industrial and services sectors.
There are new entrants into the software and IT services sector, such as startups and internet firms. Although internet companies
are now generally seeking collaborative arrangements with traditional software and IT services vendors, it is possible the balance of
bargaining power will move towards internet players in future. We expect those verticals with higher entry barriers to have a more
stable position in any collaboration.
Company profiles
31
September 25, 2015
Aisino (600271.SS): Tax control system leader to benefit from VAT reform; initiate CL-Buy
Source of opportunity
Investment Profile
We initiate on Aisino with CL-Buy as we expect its near-monopoly position in tax control systems will allow it to
capture the revenue opportunity of VAT/BT reform, which broadens the requirement to install electronic tax
software to many millions of small business across many service sectors. Although we expect this business to
make up 21% to 2015E revenues, we expect it to contribute 46% to overall gross profit. We forecast Aisinos other
main businesses, channel sales and network software, to grow steadily in line with the overall software/IT market
at 10-15% CAGR in 2016-2020E. We expect Aisino revenue/net income to grow at 15%/20% CAGR in these years
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
Percentile
20th
40th
60th
80th
100th
Aisino (600271.SS)
Asia Pacific Technology Peer Group Average
Catalyst
(1) The government is due to roll out VAT in property, finance and insurance industries, which it estimates will
add 10mn new VAT payers in 2015-2016E. On the back of this, We expect Aisino to gain 1.2mn/1.8mn/2.4mn
additional tax control clients in 2015E/16E/17E.
(2) We expect its nascent credit rating service to ramp up in 2016. Although the credit rating service will not
contribute significant revenue in the short term, we think a successful larger scale test of this business innovation
will help catalyze the stock. We expect segment revenue of Rmb302mn in 2016.
For full details, please see the standalone report Aisino: Tax control system leader to benefit from VAT reform;
initiate CL-Buy, September 25, 2015.
Valuation
Our 12-month target price is Rmb78.6, representing 55% potential upside. It is based on 21X 2020E EPS of
Rmb5.10, discounted back to 2016 at an 8% cost of equity, and implies 33x 2016E P/E. We think Aisino current
valuation looks inexpensive at 21X 2016E PE. We believe the market is undervaluing the long-term benefit from
tax reform and its monopoly market position to build up synergy from a large client base.
* Returns = Return on Capital
For a complete description of the investment

profile measures please refer to the
disclosure section of this document.
Key data
Current
Price (Rmb)
12 month price target (Rmb)
Market cap (Rmb mn / US$ mn)
Foreign ownership (%)
EPS (Rmb)
EPS growth (%)
EPS (diluted) (Rmb)
EPS (basic pre-ex) (Rmb)
P/E (X)
P/B (X)
EV/EBITDA (X)
Dividend yield (%)
ROE (%)
CROCI (%)
50.68
78.60
46,797.9 / 7,339.7
--
12/14
1.24
5.0
1.24
1.24
18.0
3.1
7.9
2.8
17.9
75.0
12/15E
1.82
46.8
1.82
1.82
27.8
6.2
14.9
1.8
23.6
72.2
12/16E
2.37
29.9
2.37
2.37
21.4
5.4
11.3
2.4
27.1
77.2
12/17E
3.10
30.6
3.10
3.10
16.4
4.7
8.4
3.1
30.6
83.5
Price performance chart
Key risks
Slower-than-expected VAT/BT reform execution nationally; smaller-than-expected market share due to strongthan-expected competition; lower-than-expected gross margins due to competition.
110
6,500
100
6,000
90
5,500
80
5,000
70
4,500
60
4,000
50
3,500
40
3,000
30
2,500
20
Sep-14
2,000
Dec-14
Aisino (L)
Apr-15
Jul-15
Shanghai SE A Share Index (R)
Share price performance (%)

Absolute
Rel. to Shanghai SE A Share Index
3 month
(36.8)
(11.2)
6 month
2.2
16.1
12 month
124.0
60.9
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 9/22/2015 close.
32
September 25, 2015
Aisino: Summary financials

Profit model (Rmb mn)
12/14
12/15E
12/16E
12/17E
19,959.2
(16,530.3)
(1,188.4)
(289.4)
0.0
2,083.2
(132.1)
1,951.1
65.0
0.0
0.0
45.8
2,061.9
(390.1)
(524.2)
24,688.5
(20,059.7)
(1,593.9)
(375.8)
0.0
2,833.5
(174.5)
2,659.0
44.2
0.0
0.0
177.0
2,880.3
(500.7)
(695.0)
30,972.6
(25,205.5)
(1,846.4)
(466.8)
0.0
3,690.5
(236.6)
3,453.9
81.1
0.0
0.0
208.2
3,743.3
(651.5)
(903.0)
36,392.5
(29,149.0)
(2,123.8)
(542.9)
0.0
4,875.9
(299.1)
4,576.8
88.2
0.0
0.0
222.8
4,887.7
(850.6)
(1,179.1)
1,147.6
0.0
1,147.6
0.0
1,147.6
1,684.6
0.0
1,684.6
0.0
1,684.6
2,188.8
0.0
2,188.8
0.0
2,188.8
2,858.1
0.0
2,858.1
0.0
2,858.1
1.24
1.24
1.24
0.63
50.7
6.2
1.82
1.82
1.82
0.92
50.7
3.5
2.37
2.37
2.37
1.20
50.7
4.3
3.10
3.10
3.10
1.57
50.7
6.2
12/14
20.4
21.0
20.3
5.0
5.0
17.2
10.4
9.8
12/15E
23.7
36.0
36.3
46.8
46.8
18.7
11.5
10.8
12/16E
25.5
30.2
29.9
29.9
29.9
18.6
11.9
11.2
12/17E
17.5
32.1
32.5
30.6
30.6
19.9
13.4
12.6
Cash flow statement (Rmb mn)

Net income pre-preferred dividends
D&A add-back
Minorities interests add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
12/14
1,147.6
132.1
524.2
(356.7)
310.6
1,757.8
12/15E
1,684.6
174.5
695.0
(87.5)
0.0
2,466.5
12/16E
2,188.8
236.6
903.0
(84.9)
0.0
3,243.5
12/17E
2,858.1
299.1
1,179.1
(107.3)
0.0
4,228.9
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investments
(392.8)
0.0
2.9
(180.9)
(570.8)
(740.7)
0.0
0.0
0.0
(740.7)
(1,084.0)
0.0
0.0
0.0
(1,084.0)
(1,091.8)
0.0
0.0
0.0
(1,091.8)
Dividends paid (common & pref)

Inc/(dec) in debt
Common stock issuance (repurchase)
Other financing cash flows
Cash flow from financing
Total cash flow
(554.0)
42.0
46.5
(374.9)
(840.4)
346.6
(581.7)
2,387.8
0.0
0.0
1,806.1
3,531.9
(853.9)
0.0
0.0
0.0
(853.9)
1,305.5
(1,109.5)
0.0
0.0
0.0
(1,109.5)
2,027.6
Total revenue
Cost of goods sold
SG&A
R&D
Other operating profit/(expense)
EBITDA
Depreciation & amortization
EBIT
Interest income
Interest expense
Income/(loss) from uncons. subs.
Others
Pretax profits
Income tax
Minorities
Preferred dividends
Net income (pre-exceptionals)
Post-tax exceptionals
Net income
EPS (basic, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
EPS (diluted, post-except) (Rmb)
DPS (Rmb)
Dividend payout ratio (%)
Free cash flow yield (%)
Growth & margins (%)
Sales growth
EBITDA growth
EBIT growth
Net income growth
EPS growth
Gross margin
EBITDA margin
EBIT margin
Balance sheet (Rmb mn)
12/14
12/15E
12/16E
12/17E
5,488.0
1,394.2
970.0
851.5
8,703.7
1,089.3
568.5
193.9
82.7
10,638.0
9,019.9
1,724.6
1,177.1
851.5
12,773.1
1,698.2
525.7
193.9
82.7
15,273.6
10,325.4
2,163.6
1,479.0
851.5
14,819.5
2,588.5
482.9
193.9
82.7
18,167.5
12,353.0
2,542.2
1,710.4
851.5
17,457.1
3,424.0
440.1
193.9
82.7
21,597.8
Accounts payable
Short-term debt
Other current liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total long-term liabilities
Total liabilities
2,107.4
0.0
322.1
2,429.5
42.0
117.2
159.2
2,588.7
2,557.4
0.0
594.3
3,151.7
2,429.8
117.2
2,547.0
5,698.6
3,213.4
0.0
849.9
4,063.3
2,429.8
117.2
2,547.0
6,610.3
3,716.1
0.0
1,189.1
4,905.3
2,429.8
117.2
2,547.0
7,452.2
Preferred shares
Total common equity
Minority interest
0.0
6,712.6
1,336.7
0.0
7,543.3
2,031.7
0.0
8,622.6
2,934.7
0.0
10,031.9
4,113.7
10,638.0
15,273.6
18,167.5
21,597.8
7.27
8.17
9.34
10.86
Ratios
CROCI (%)
ROE (%)
ROA (%)
ROACE (%)
Inventory days
Receivables days
Payable days
Net debt/equity (%)
Interest cover - EBIT (X)
12/14
75.0
17.9
11.5
71.9
19.1
22.1
44.1
(67.7)
NM
12/15E
72.2
23.6
13.0
83.9
19.5
23.1
42.4
(68.8)
NM
12/16E
77.2
27.1
13.1
91.0
19.2
22.9
41.8
(68.3)
NM
12/17E
83.5
30.6
14.4
100.6
20.0
23.6
43.4
(70.2)
NM
Valuation
12/14
12/15E
12/16E
12/17E
18.0
3.1
7.9
5.1
2.8
27.8
6.2
14.9
11.2
1.8
21.4
5.4
11.3
8.9
2.4
16.4
4.7
8.4
7.4
3.1
Cash & equivalents

Accounts receivable
Inventory
Other current assets
Total current assets
Net PP&E
Net intangibles
Total investments
Other long-term assets
Total assets
Total liabilities & equity

BVPS (Rmb)
P/E (analyst) (X)

P/B (X)
EV/EBITDA (X)
EV/GCI (X)
Dividend yield (%)
Note: Last actual year may include reported and estimated data.
Source: Company data, Goldman Sachs Research estimates.
33
September 25, 2015
iFLYTek (002230.SZ): Upgrade to Buy; clear leader in China intelligent speech

Investment Profile
We upgrade iFLYTek to Buy from Neutral, with a revised 12-month target price of Rmb38.6. In the China intelligent
speech market, we think 2013 was the inflection point, with 96% yoy growth (vs. 38% in 2012). We think this has
opened up a longer-term growth window, and we forecast 37% CAGR for 2014-2020E. Our Buy rating is based on:
1) We believe iFLYTek is in a favorable position to fully capture the growth trend; 2) iFLYTek, with dominant
domestic market share, has an established technology leadership and Chinese language specialty which
should protect against new entrants or global players; 3) We expect the company to benefit from an increasingly
wide spectrum of language applications in industry.
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
Percentile
20th
Catalyst
Valuation
We update our EPS by -3%/9%/26% to Rmb0.45/0.68/1.01 for 2015E-17E on faster revenue growth in its key
businesses. Our revised 12-month target price is Rmb38.6, representing 37% potential upside. It is based on 25X
2020E EPS of Rmb2.09, discounted back to 2016 at a 7.9% cost of equity. We upgrade to Buy on its favorable
market trend and good positioning. Our previous 12-month target price was Rmb20.80, based on 2015E EV/GCI
vs. CROCI/WACC. We revise the methodology to be in line with the rest of our software/IT services coverage.
Key risks
Weaker demand from end users and lower-than-expected technology innovation would slow revenue growth;
higher-than-expected R&D input for speech recognition and smart HMI projects would curb margins.
60th
80th
100th

In recent years, we have seen natural speech recognition take center stage in next-gen human-machine
interaction, with global technology giants Apple (Siri), Google (Google Now) and Microsoft (Cortana) all taking a
lead. As well as developing underlying algorithms, we have also seen more language-related applications in
different verticals. We forecast strong revenue growth at iFLYTek 52%/62%/49% yoy for 2015-17E mainly
driven by increasing intelligent speech application demand from telcos, government and the education sector.
For example, iFLYTek-C3 (up 269% yoy in 1H15), is an IT system for public security and public management. It
has been widely adopted by the Anhui government and we expect it to expand into other provinces. On the
expense side, we continue to expect a high ratio of expenses to revenue, mainly due to R&D and application
expansion. Overall, we expect revenue growth to drive net income growth at 50%/54%/49% for 2015E-17E.
40th
Anhui USTC iFLYTEK (002230.SZ)

Key data
Current
Price (Rmb)
EPS (Rmb)
EPS growth (%)
EPS (diluted) (Rmb)
P/E (X)
P/B (X)
EV/EBITDA (X)
Dividend yield (%)
ROE (%)
CROCI (%)
28.10
38.60
36,069.8 / 5,657.1
--
12/14
0.32
28.6
0.32
0.32
58.4
6.0
20.9
0.7
10.8
24.6
12/15E
0.45
44.1
0.45
0.45
61.8
5.8
45.0
0.5
11.5
22.4
12/16E
0.68
49.5
0.68
0.68
41.4
5.3
30.9
0.8
13.4
24.6
12/17E
1.01
48.7
1.01
1.01
27.8
4.7
20.4
1.2
18.0
27.2

60
3,700
55
3,400
50
3,100
45
2,800
40
2,500
35
2,200
30
1,900
25
1,600
20
1,300
15
Sep-14
1,000
Dec-14
Apr-15
Anhui USTC iFLYTEK (L)

Absolute
Rel. to Shenzhen A Index
Jul-15
Shenzhen A Index (R)
3 month
(30.5)
8.8
6 month
(9.5)
(4.2)
12 month
57.6
14.6
34
September 25, 2015
Anhui USTC iFLYTEK: Summary financials

Total revenue
Cost of goods sold
SG&A
R&D
EBITDA
EBIT
Interest income
Interest expense
Others
Pretax profits
Income tax
Minorities
Preferred dividends
Net income
DPS (Rmb)
Sales growth
EBITDA growth
EBIT growth
Net income growth
EPS growth
Gross margin
EBITDA margin
EBIT margin

D&A add-back
Acquisitions
Divestitures
Others
Inc/(dec) in debt
Total cash flow
12/14
12/15E
12/16E
12/17E
1,775.2
(787.6)
151.4
(315.2)
0.0
1,018.3
(194.5)
823.8
41.8
0.0
0.0
(431.8)
433.7
(45.3)
(9.1)
2,683.3
(1,198.5)
(588.8)
(433.6)
0.0
720.6
(258.1)
462.4
20.2
0.0
0.0
161.2
643.8
(70.3)
(6.2)
4,339.6
(1,950.4)
(933.5)
(715.2)
0.0
1,094.7
(354.2)
740.5
68.5
0.0
0.0
184.9
993.9
(105.8)
(16.3)
6,465.6
(2,800.0)
(1,378.8)
(1,086.9)
0.0
1,687.2
(487.3)
1,199.9
58.3
0.0
0.0
213.7
1,471.8
(159.3)
(16.3)
379.4
0.0
379.4
0.0
379.4
567.3
0.0
567.3
0.0
567.3
871.9
0.0
871.9
0.0
871.9
1,296.3
0.0
1,296.3
0.0
1,296.3
0.32
0.32
0.32
0.14
43.0
(0.7)
0.45
0.45
0.45
0.15
32.1
(0.4)
0.68
0.68
0.68
0.22
33.0
(0.7)
1.01
1.01
1.01
0.33
33.0
(0.6)
12/14
41.6
200.7
297.6
36.0
28.6
55.6
57.4
46.4
12/15E
51.2
(29.2)
(43.9)
49.5
44.1
55.3
26.9
17.2
12/16E
61.7
51.9
60.1
53.7
49.5
55.1
25.2
17.1
12/17E
49.0
54.1
62.0
48.7
48.7
56.7
26.1
18.6
12/14
379.4
194.5
9.1
(265.3)
478.8
420.1
12/15E
567.3
258.1
6.2
(268.1)
562.4
563.5
12/16E
871.9
354.2
16.3
(447.1)
866.6
795.3
12/17E
1,296.3
487.3
16.3
(635.9)
1,290.3
1,163.9
(580.2)
0.0
0.1
(538.0)
(1,118.1)
(715.3)
0.0
0.0
0.0
(715.3)
(1,036.7)
0.0
0.0
0.0
(1,036.7)
(1,399.9)
0.0
0.0
0.0
(1,399.9)
(70.3)
(18.9)
124.1
(24.5)
10.3
(687.7)
(163.5)
0.0
2,104.0
0.0
1,940.5
1,788.7
(187.2)
0.0
0.0
0.0
(187.2)
(428.6)
(287.7)
0.0
0.0
0.0
(287.7)
(523.7)
12/14
12/15E
12/16E
12/17E
Cash & equivalents

Accounts receivable
Inventory
Net PP&E
Net intangibles
Total investments
Total assets
1,067.0
1,288.9
180.6
28.0
2,564.5
766.8
1,292.2
166.7
379.6
5,169.9
2,855.7
1,911.4
295.5
28.0
5,090.7
1,084.2
1,432.0
166.7
379.6
8,153.2
2,427.1
3,031.8
480.9
28.0
5,967.8
1,487.3
1,711.4
166.7
379.6
9,712.8
1,903.4
4,428.5
690.4
28.0
7,050.4
1,975.9
2,135.4
166.7
379.6
11,707.9
Accounts payable
Short-term debt
Long-term debt
Total liabilities
899.5
9.0
167.4
1,075.9
0.0
192.6
192.6
1,268.5
1,368.8
9.0
191.1
1,569.0
0.0
192.6
192.6
1,761.5
2,227.5
9.0
291.7
2,528.2
0.0
192.6
192.6
2,720.7
3,197.8
9.0
431.7
3,638.5
0.0
192.6
192.6
3,831.1
Preferred shares
Total common equity
Minority interest
0.0
3,706.6
194.8
0.0
6,190.7
201.0
0.0
6,774.8
217.2
0.0
7,643.3
233.5
5,169.9
8,153.2
9,712.8
11,707.9
3.08
4.82
5.28
5.95
Ratios
CROCI (%)
ROE (%)
ROA (%)
ROACE (%)
Inventory days
Receivables days
Payable days
Net debt/equity (%)
12/14
24.6
10.8
8.0
15.4
70.1
213.5
348.7
(27.1)
NM
12/15E
22.4
11.5
8.5
17.4
72.5
217.7
345.4
(44.5)
NM
12/16E
24.6
13.4
9.8
20.4
72.7
207.9
336.5
(34.6)
NM
12/17E
27.2
18.0
12.1
23.9
76.3
210.6
353.6
(24.1)
NM
Valuation
12/14
12/15E
12/16E
12/17E
58.4
6.0
20.9
6.8
0.7
61.8
5.8
45.0
7.9
0.5
41.4
5.3
30.9
6.2
0.8
27.8
4.7
20.4
4.7
1.2
BVPS (Rmb)
P/E (analyst) (X)

P/B (X)
EV/EBITDA (X)
EV/GCI (X)
Dividend yield (%)
35
September 25, 2015
Exhibit 51: We forecast the China intelligent speech market to grow at 37%
CAGR in 2014-2020E
Exhibit 52: China intelligent speech as a share of the global market to

increase to 17% in 2017E from 11%
China intelligent speech market size
Intelligent speech market size in China and globe
Chinaintelligentspeechmarketsize
3,000
(USDmn)
2,500
Chinaintelligentspeech
markettogrowat37%
CAGRin20142020E
China
Chinaas%ofglobal
17%
10,000
"Inflectionyear" with
96%yoygrowth
1,000
10%
6,000
8%
6%
4,000
4%
2%
0%
2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E
Source: ETIRI, Gao Hua Securities Research.
16%
12%
11%
2,000
500
18%
14%
8,000
2,000
1,500
Global
12,000
(USDmn)
3,500
2014
2017E
Source: ETIRI, Gao Hua Securities Research
We expect the intelligent speech market to enter a high-growth period with increasing demand for ever better human-machine
interaction. In 2013, the market inflected with 96% yoy growth, which we believe implies a strong signal for long-term growth. We
estimate the market will grow at 37% CAGR in 2014-2020E, based on robust demand from broad application in telematics, telcos,
government, and the education sector. The China intelligent speech market accounted for 11% of the global market in 2014 and the
growth in China to outpace the global market in the next 5 years and expand its share to 17%.
iFLYTek, as a leader in domestic intelligent speech market, with 54% market share (2014), has strong technology leadership and
Chinese language specialty, which we think will protect it against any new entrants and global players. It has registered strong sales
momentum in its government-related and education business in 1H15, with 269%/81% yoy growth, respectively. We expect the two
segments to grow at 38% CAGR in 2016E-20E on the back of increasing application of intelligent speech in those areas. For voice
supporting software, although we see weak 1H15 revenue growth of -11% due to late delivery on telematics and other verticals
we expect the segment to pick up in 2H15 and 2016 as current contracts are delivered on specific auto models entering mass
production.
The stock is trading at 41X 2016E P/E, below its historical average forward P/E of 56.4X. We think this valuation is attractive given its
strong long-term growth and upgrade it to Buy from Neutral.
36
September 25, 2015
Exhibit 53: iFLYTek is a leader in the domestic intelligent speech space, with
54% market share
Exhibit 54: We expect iFLYTek revenue to grow at 33% CAGR in 2016E-2020E

iFLYTek revenue growth estimates
Market share of intelligent speech in China, 2014

Zhongke
Zhongke Moshi,2% Others,5%
Xinli,3%
16000
70%
14000
Jietong
Huasheng,5%
62%
60%
12000
51%
Rmb mn
10000
Nuance,5%
Apple,12%
iFLYTek,54%
Baidu,13%
60%
50%
49%
42%
40%
39%
8000
30%
27%
6000
4000
18%20%
2000
10%
0%
0
2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E
Revenue
yoy growth
Source: ETIRI.
Exhibit 55: iFLYTek is trading below its historical average P/E of 56.4X
Exhibit 56: iFLYTek is trading at its historical average P/B of 6.9X
1yrfwdP/E(X)
1yrforwardP/B(X)
18.0
1yearfwdP/B
1yearforwardrollingP/E
120.0
Average
+1stdev
1stdev
Average
+1stdev
1stdev
ROE(%)
ROE(%)
16%
16.0
100.0
14.0
80.0
12.0
60.0
40.0
14%
12%
70.4X
10.0
9.5X
56.4X
8.0
6.9X
42.4X
6.0
8%
6%
4.4X
4.0
Source: Datastream, Company data, Gao Hua Securities Research.
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
0%
Jan12
Sep11
2%
May11
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
Sep11
May11
Jan11
4%
2.0
Jan11
20.0
10%
37
September 25, 2015
Yonyou (600588.SS): A challenge to gain share in ERP market; new business unclear; Sell
Investment Profile
We initiate coverage on Youyou with a Sell rating and a 12-month target price of Rmb14.10. Yonyou is the largest
corporate management, ERP, human resource, and CRM software/system vendor in China, with 39% market
share in ERP (2014). Its clients come from a broad spectrum of sectors. Our Sell rating is based on: (1) modest
China ERP market growth (13% CAGR for 2014-2019E); (2) limited potential to further gain market share; (3) its
innovative businesses are still at early stage and have poor earnings visibility; (4) demanding valuation.
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
Percentile
20th
40th
60th
80th
100th
Yonyou Network Technology (600588.SS)
Catalyst
In the near term, we expect the companys revenue to grow at only 11% with net income to fall 6% in 2015E, on
the back of higher expenses related to developing new business. In the medium term, we expect Yonyous
market share to stagnate (having remained 40% for the past a few years), in light of the large number of
competitors that offer similar products (for example, local peers Inspur and Kingdee, and global peers SAP and
Oracle).
Associate Chanjet (1588.HK, Not Covered, Yonyou holds a 69% stake) offers cloud-based ERP solutions for SMEs
and provides third-party payment. It contributed 8%/13% to Yonyous 2014 revenue/net income (exclude minority
interest). We believe it remains the key swing factor for Yonyou as we expect increasing competition in ERP for
SMEs due to entry by existing software/IT services companies as well as by startups which we think will raise
pricing pressure and make monetization a challenge.
Lastly, without clear visibility in its new businesses (credit ratings, P2P loan, and big data platform), we forecast
the companys revenue/net income to grow at only 15%/12% CAGR over 2014-2017E, the lowest among our
software coverage. With the stock trading at 2017E P/E of 45X, the second highest after NavInfo, we believe
valuation is demanding.
Valuation


Key data
Current
Price (Rmb)
EPS (Rmb)
EPS growth (%)
EPS (diluted) (Rmb)
P/E (X)
P/B (X)
EV/EBITDA (X)
Dividend yield (%)
ROE (%)
CROCI (%)
25.76
14.10
37,588.7 / 5,895.3
--
12/14
0.39
(0.6)
0.39
0.39
35.8
5.0
33.8
1.8
15.3
23.4
12/15E
0.36
(7.9)
0.36
0.36
71.2
6.4
63.7
0.7
10.5
16.6
12/16E
0.45
24.4
0.45
0.45
57.2
6.1
55.8
0.9
10.9
16.2
12/17E
0.53
18.4
0.53
0.53
48.3
5.7
48.3
1.0
12.2
15.9

80
5,500
70
5,000
60
4,500
50
4,000
Key risks
40
3,500
Faster-than-expected revenue/net income growth at Chanjet; successful new business development such as in
credit ratings and internet finance; stronger-than-expected ERP market growth in China; lower-than-expected
SG&A.
30
3,000
20
2,500
Our 12-month target price is Rmb14.1, representing 45% potential downside. It is based on 21X 2020E EPS of
Rmb0.93, discounted back to 2016 at an 8.4% cost of equity.
10
Sep-14
2,000
Dec-14
Apr-15
Yonyou Network Technology (L)

Absolute
Jul-15
3 month
(52.8)
(33.6)
6 month
(25.4)
(15.2)
12 month
96.9
41.4
38
September 25, 2015
Yonyou Network Technology: Summary financials

12/14
12/15E
12/16E
12/17E
4,374.2
(1,420.7)
(1,903.5)
(603.0)
0.0
560.7
(113.7)
447.0
0.0
(84.1)
0.0
248.9
611.8
(42.3)
(19.3)
4,859.3
(1,565.2)
(2,200.8)
(683.3)
0.0
551.0
(140.9)
410.1
0.0
(86.9)
0.0
323.2
646.3
(80.8)
(47.2)
5,715.3
(1,879.4)
(2,539.2)
(819.7)
0.0
653.2
(176.3)
476.9
0.0
(47.3)
0.0
366.4
795.9
(79.6)
(59.8)
6,725.0
(2,251.3)
(2,930.1)
(983.8)
0.0
762.3
(202.5)
559.8
0.0
(42.6)
0.0
425.4
942.6
(94.3)
(70.8)
550.3
0.0
550.3
0.0
550.3
518.3
0.0
518.3
0.0
518.3
656.6
0.0
656.6
0.0
656.6
777.5
0.0
777.5
0.0
777.5
0.39
0.39
0.39
0.25
63.6
2.1
0.36
0.36
0.36
0.18
49.1
(0.4)
0.45
0.45
0.45
0.22
50.0
(0.9)
0.53
0.53
0.53
0.27
50.0
0.1

Sales growth
EBITDA growth
EBIT growth
Net income growth
EPS growth
Gross margin
EBITDA margin
EBIT margin
12/14
0.3
10.4
13.1
0.4
(0.6)
67.5
12.8
10.2
12/15E
11.1
(1.7)
(8.3)
(5.8)
(7.9)
67.8
11.3
8.4
12/16E
17.6
18.5
16.3
26.7
24.4
67.1
11.4
8.3
12/17E
17.7
16.7
17.4
18.4
18.4
66.5
11.3
8.3

D&A add-back
12/14
550.3
113.7
19.3
(38.9)
159.9
804.3
12/15E
518.3
140.9
47.2
(57.6)
0.0
648.9
12/16E
656.6
176.3
59.8
(48.7)
0.0
844.0
12/17E
777.5
202.5
70.8
(56.3)
0.0
994.5
Acquisitions
Divestitures
Others
(386.6)
0.0
5.9
(234.4)
(615.2)
(780.2)
0.0
0.0
0.0
(780.2)
(1,203.4)
0.0
0.0
0.0
(1,203.4)
(945.3)
0.0
0.0
0.0
(945.3)

Inc/(dec) in debt
Total cash flow
(291.4)
335.6
763.8
(160.2)
647.9
837.1
(351.4)
(300.0)
1,616.1
0.0
964.7
833.4
(259.2)
0.0
0.0
0.0
(259.2)
(618.6)
(328.3)
0.0
0.0
0.0
(328.3)
(279.0)
Total revenue
Cost of goods sold
SG&A
R&D
EBITDA
EBIT
Interest income
Interest expense
Others
Pretax profits
Income tax
Minorities
Preferred dividends
Net income
DPS (Rmb)
12/14
12/15E
12/16E
12/17E
Cash & equivalents

Accounts receivable
Inventory
Net PP&E
Net intangibles
Total investments
Total assets
2,963.4
1,683.1
22.5
273.8
4,942.8
1,810.0
1,483.0
505.1
69.7
8,810.6
3,796.8
1,869.8
24.8
273.8
5,965.1
2,396.9
1,535.5
505.1
69.7
10,472.3
3,178.1
2,199.1
29.7
273.8
5,680.8
3,354.1
1,605.5
505.1
69.7
11,215.1
2,899.1
2,587.7
35.6
273.8
5,796.2
4,006.1
1,696.3
505.1
69.7
12,073.2
Accounts payable
Short-term debt
Long-term debt
Total liabilities
1,291.7
1,452.4
785.9
3,530.0
326.3
511.8
838.1
4,368.1
1,423.1
1,152.4
693.7
3,269.1
326.3
511.8
838.1
4,107.2
1,708.7
1,152.4
762.8
3,623.9
326.3
511.8
838.1
4,462.0
2,046.8
1,152.4
823.3
4,022.5
326.3
511.8
838.1
4,860.6
Preferred shares
Total common equity
Minority interest
0.0
3,986.2
456.4
0.0
5,861.5
503.5
0.0
6,189.8
563.3
0.0
6,578.5
634.1
8,810.6
10,472.3
11,215.1
12,073.2
2.84
4.02
4.24
4.51
Ratios
CROCI (%)
ROE (%)
ROA (%)
ROACE (%)
Inventory days
Receivables days
Payable days
Net debt/equity (%)
12/14
23.4
15.3
6.9
21.8
5.7
133.6
315.6
(26.7)
5.3
12/15E
16.6
10.5
5.4
17.6
5.5
133.4
316.5
(36.4)
4.7
12/16E
16.2
10.9
6.1
16.7
5.3
129.9
304.1
(25.2)
10.1
12/17E
15.9
12.2
6.7
16.3
5.3
129.9
304.4
(19.7)
13.1
Valuation
12/14
12/15E
12/16E
12/17E
35.8
5.0
33.8
4.5
1.8
71.2
6.4
63.7
6.8
0.7
57.2
6.1
55.8
5.7
0.9
48.3
5.7
48.3
5.0
1.0
BVPS (Rmb)
P/E (analyst) (X)

P/B (X)
EV/EBITDA (X)
EV/GCI (X)
Dividend yield (%)
39
September 25, 2015
Exhibit 57: We expect the China ERP market to grow stably at 13% in next 5
years
Exhibit 58: We expect Yonyous revenue to grow in line with the industry due
to fierce competition
China ERP market size
Yonyou revenue growth estimates
2,000
(Rmb mn)
12,000
1,800
1,600
18%
10,000
18%
20142019ECAGR:13%
1,400
(USDmn)
20%
18%
18%
16%
15%
14%
8,000
1,200
1,000
12%
11%10%
11%
6,000
800
8%
4,000
600
400
6%
2,000
200
0
2011
2012
2013
2014
2015E 2016E 2017E 2018E 2019E
4%
3%
2013
2%
0%
2014 2015E 2016E 2017E 2018E 2019E 2020E
0%
Source: Gartner, Gao Hua Securities Research.
Exhibit 59: The domestic ERP market is crowded with both local and global
players
Exhibit 60: Yonyous market share has been stable at around 40% for several
years
ERP market share in China, 2014
Yonyous market share in China
Infor
2%
Oracle
4%
45%
Microsoft
1%
Others
9%
40%
Yonyou
39%
Kingdee
13%
35%
30%
SAP
15%
Inspur
Genersoft
17%
25%
20%
2012
Source: Gartner.
2013
2014
Source: Gartner.
40
September 25, 2015
Exhibit 61: Yonyou is trading at +1 stdev above its historical average P/E, at
69.2X
Exhibit 62: Yonyou is trading at +1 stdev above its historical average P/B, at
7.5X
Yonyou 12-m forward P/E band
Yonyou 12-m forward P/B band
200.0
1yrforwardP/B(X)
20.0
1yearfwdP/B
18.0
180.0
Average
+1stdev
1stdev
160.0
ROE(%)
25%
Average
+1stdev
1stdev
ROE(%)
20%
16.0
140.0
14.0
120.0
15%
12.0
100.0
10.0
80.0
60.0
40.0
20.0
69.2X
8.0
7.5X 10%
41.4X
6.0
5.1X
4.0
2.8X 5%
13.6X
2.0
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
Sep11
0%
May11
Jan11
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
Sep11
May11
Jan11
41
September 25, 2015
Ultrapower (300002.SZ): ITSM slowdown, and no near-term catalysts; down to Neutral

What happened
Investment Profile
We remove Ultrapower from our Buy list as we have a cautious outlook on its business and earnings growth
potential in near-to-medium term. Overall, we see 1) its major ITSM business is facing slowing growth and
declining margins from an increasing proportion of hardware in the mix; 2) its mobile gaming ramp-up is slower
than our expectations, but will remain the main profit driver for the company in the next two years; 3) it
diversifying into a number of new businesses, such as e-commerce (raw food procurement), education (online
professional training), and smart wire (network infrastructure at mining sites). We see limited synergies among
its existing and new business lines, and remain cautious on their success until there is better visibility.
Low
High
Growth
Growth
Returns *
Returns *
Since we added Ultrapower to the Buy (we also added it to the CL at that time) list on Aug 25, 2013, it is up 55%
vs for the Shenzhen A-share index up 75%. Since we removed it from the CL list (retaining Buy) on July 11, 2014,
the stock is up 12%, vs. Shenzhen A index up by 58%. We attribute the underperformance to a lack of earnings
catalysts.
Current view
1) The ITSM (IT system management) business continues to be the major revenue and profit contributor
(73%/57% of total revenue/gross profit in 2015E). However, within this, we expect growth of the high-gross
margin IT solution (78% gross margin in 2015E) to slow to 10% in 2015E. On the other hand, we expect growth of
the low-gross margin IT system integration (2% gross margin in 2015E) to grow faster at 40% in 2015E.
2) In its internet operations (mainly Fetion with China Mobile), we expect only 10% CAGR for 2016E-2020E due to
competing the market dominance of competitor WeChat;
3) We expect mobile gaming revenue to be the main profit driver, reaching 20% gross profit contribution in 2017E
vs. 9% in 2015E;
4) On expenses, we see limited operating leverage in the near future due to expenses increases driven by
multiple new business development.
Valuation: we update our EPS 0%/-31%/-29% to Rmb0.43/0.37/0.45 for 2015E-17E on slower revenue growth (oneoff investment gain from the Zhongqing Longtu disposal contributes Rmb0.13 to EPS in 2015E). Our 12-month
target price is Rmb10.0, representing 9% potential downside. It is based on 21X 2020E EPS of Rmb0.68,
discounted back to 2016 at a 9% cost of equity. Our previous 12-month target price was Rmb15.18, based on
2015E EV/GCI vs. CROCI/WACC. We revise the methodology to be in line with the rest of our software/IT services
coverage.
Key risks: stronger/weaker-than-expected revenue growth from overseas market and mobile gaming;
higher/lower-than-expected revenue from telco operators; potential M&A; higher/lower-than-expected gross
margin at ITSM business.
Multiple
Multiple
Volatility
Volatility
Percentile
20th
40th
60th
80th
100th
Beijing Ultrapower Software (300002.SZ)

* Returns = Return on Capital For a complete description of the investment
Key data
Current
Price (Rmb)
EPS (Rmb)
EPS growth (%)
EPS (diluted) (Rmb)
P/E (X)
P/B (X)
EV/EBITDA (X)
Dividend yield (%)
ROE (%)
CROCI (%)
10.96
10.00
21,804.4 / 3,419.8
--
12/14
0.32
13.8
0.31
0.32
30.3
4.0
30.6
0.8
14.8
19.2
12/15E
0.43
36.1
0.43
0.43
25.2
4.0
37.4
1.0
16.7
22.0
12/16E
0.37
(15.4)
0.37
0.37
29.8
3.6
30.0
0.9
12.7
16.7
12/17E
0.45
21.9
0.45
0.45
24.4
3.3
24.1
1.0
14.0
18.3

28
4,000
26
3,700
24
3,400
22
3,100
20
2,800
18
2,500
16
2,200
14
1,900
12
1,600
10
8
Sep-14
1,300
1,000
Dec-14
Apr-15
Beijing Ultrapower Software (L)

Absolute
Jul-15
3 month
(45.2)
(14.1)
6 month
(35.0)
(31.3)
12 month
17.3
(14.7)
42
September 25, 2015
Beijing Ultrapower Software: Summary financials

12/14
12/15E
12/16E
12/17E
2,548.8
(1,350.8)
(492.9)
(167.9)
0.0
582.7
(45.5)
537.2
17.9
0.0
0.0
96.3
651.4
(47.3)
20.3
2,945.3
(1,708.8)
(568.0)
(186.3)
0.0
543.3
(61.1)
482.2
25.1
0.0
0.0
394.5
901.9
(76.3)
39.2
3,540.4
(2,103.4)
(633.6)
(212.7)
0.0
670.9
(80.2)
590.7
50.9
0.0
0.0
104.9
746.6
(59.7)
44.0
4,162.5
(2,486.9)
(719.8)
(237.6)
0.0
821.3
(103.0)
718.3
78.7
0.0
0.0
123.3
920.3
(73.6)
44.0
624.4
0.0
624.4
0.0
624.4
864.8
0.0
864.8
0.0
864.8
730.8
0.0
730.8
0.0
730.8
890.7
0.0
890.7
0.0
890.7
0.32
0.32
0.31
0.08
25.0
1.1
0.43
0.43
0.43
0.11
25.6
2.5
0.37
0.37
0.37
0.09
25.5
1.4
0.45
0.45
0.45
0.11
25.5
2.1
12/14
33.7
8.7
7.1
20.6
13.8
47.0
22.9
21.1
12/15E
15.6
(6.8)
(10.2)
38.5
36.1
42.0
18.4
16.4
12/16E
20.2
23.5
22.5
(15.5)
(15.4)
40.6
19.0
16.7
12/17E
17.6
22.4
21.6
21.9
21.9
40.3
19.7
17.3

D&A add-back
12/14
624.4
45.5
(20.3)
(249.1)
(50.9)
349.5
12/15E
864.8
61.1
(39.2)
(140.8)
0.0
745.9
12/16E
730.8
80.2
(44.0)
(220.9)
0.0
546.2
12/17E
890.7
103.0
(44.0)
(232.9)
0.0
716.8
Acquisitions
Divestitures
Others
(131.0)
0.0
0.6
(315.9)
(446.3)
(206.2)
0.0
0.0
0.0
(206.2)
(237.2)
0.0
0.0
0.0
(237.2)
(266.4)
0.0
0.0
0.0
(266.4)

Inc/(dec) in debt
Total cash flow
(153.8)
(89.0)
122.5
(33.4)
(153.7)
(250.5)
(159.3)
0.0
0.0
0.0
(159.3)
380.4
(220.7)
0.0
0.0
0.0
(220.7)
88.3
(186.5)
0.0
0.0
0.0
(186.5)
263.9
Total revenue
Cost of goods sold
SG&A
R&D
EBITDA
EBIT
Interest income
Interest expense
Others
Pretax profits
Income tax
Minorities
Preferred dividends
Net income
DPS (Rmb)
Sales growth
EBITDA growth
EBIT growth
Net income growth
EPS growth
Gross margin
EBITDA margin
EBIT margin
12/14
12/15E
12/16E
12/17E
1,234.6
1,059.5
215.8
89.9
2,599.8
381.7
1,662.9
856.2
36.4
5,537.0
1,615.0
1,224.3
273.0
89.9
3,202.2
544.8
1,644.8
856.2
36.4
6,284.4
1,703.3
1,471.6
336.0
89.9
3,600.9
719.9
1,626.7
856.2
36.4
6,840.1
1,967.3
1,730.2
397.3
89.9
4,184.7
901.4
1,608.6
856.2
36.4
7,587.3
306.5
66.1
196.8
569.4
0.0
35.8
35.8
605.2
387.8
66.1
258.2
712.0
0.0
35.8
35.8
747.8
477.3
66.1
224.0
767.4
0.0
35.8
35.8
803.1
564.3
66.1
264.8
895.2
0.0
35.8
35.8
930.9
Preferred shares
Total common equity
Minority interest
0.0
4,843.5
88.3
0.0
5,487.6
49.0
0.0
6,032.0
5.0
0.0
6,695.4
(39.0)
5,537.0
6,284.4
6,840.1
7,587.3
2.43
2.76
3.04
3.37
Ratios
CROCI (%)
ROE (%)
ROA (%)
ROACE (%)
Inventory days
Receivables days
Payable days
Net debt/equity (%)
12/14
19.2
14.8
12.9
19.4
45.3
138.9
79.3
(23.7)
NM
12/15E
22.0
16.7
14.6
20.7
52.2
141.5
74.1
(28.0)
NM
12/16E
16.7
12.7
11.1
15.3
52.8
139.0
75.1
(27.1)
NM
12/17E
18.3
14.0
12.3
16.9
53.8
140.4
76.4
(28.6)
NM
Valuation
12/14
12/15E
12/16E
12/17E
30.3
4.0
30.6
4.7
0.8
25.2
4.0
37.4
5.0
1.0
29.8
3.6
30.0
4.4
0.9
24.4
3.3
24.1
4.0
1.0
Cash & equivalents

Accounts receivable
Inventory
Net PP&E
Net intangibles
Total investments
Total assets
Accounts payable
Short-term debt
Long-term debt
Total liabilities
BVPS (Rmb)
P/E (analyst) (X)

P/B (X)
EV/EBITDA (X)
EV/GCI (X)
Dividend yield (%)
43
September 25, 2015
Exhibit 63: We expect Ultrapower revenue growth to slow after 2015 based
on slower ITSM growth
Exhibit 64: Gross margin to erode due to the lack of a strong profit driver
Ultrapower margin trend
Ultrapower revenue growth forecast

74%
80%
(Rmbmn)
7,000
35%
6,000
34%
Revenue growth slowing down
5,000
4,000
20%
3,000
16%
18%
40%
70%
35%
60%
30%
50%
25%
40%
20%
16%
2,000
15%
10%
1,000
10%
7%
67%
65%
58%
47%
31%
30%
30%
2014
27%
39%
20%
28%
27%
10%
41%
40%
21%
21%
26%
16%
17%
17%
2015E
2016E
2017E
29%
24%
21%
0%
5%
2010
2011
2012
0%
2013
42%
39%
2013
GM
2015E 2016E 2017E 2018E 2019E 2020E
2014
OPM
NPM
Exhibit 65: Lower-margin ITSM will remain the main revenue driver
Exhibit 66: Mobile games to drive gross profit through 2017
Ultrapower revenue breakdown and growth
Ultrapower gross profit breakdown and growth
(Rmbmn)
4,500
2014
2017E
2020E
20142020ECAGR
50%
(Rmbmn)
1,000
2014
2017E
20142017ECAGR
4,000
70%
63%
46%
3,500
3,000
2,500
40%
800
30%
600
20%
400
10%
200
60%
50%
40%
30%
2,000
1,500
20%
14%
1,000
7%
500
0%
ITSM
Internet
operation
Mobilegame
2%
5%
Others
10%
9%
2%
0%
10%
ITSM
Internet
operation
Mobilegame
Others
44
September 25, 2015
Exhibit 67: Ultrapower is trading close to +1 stdev above its historical

average P/E of 25.8X
Exhibit 68: Ultrapower is trading close to +1 stdev above its historical

average P/B of 3.7X
Ultrapower 12-m forward P/E band
Ultrapower 12-m forward P/B and ROE band

ROE(%)
1yrforwardP/B(X)
1yrfwdP/E(X)
Average
+1stdev
1stdev
1yearfwdP/B
70.0
60.0
Average
+1stdev
1stdev
ROE(%)
10.0
18%
9.0
16%
8.0
14%
7.0
12%
6.0
40.0
37.0X
30.0
25.8X
5.2X 10%
5.0
3.7X 8%
4.0
6%
3.0
Jan15
Sep14
May14
Jan14
Sep13
May13
0%
Jan13
Sep12
2%
May12
1.0
Jan12
4%
Sep11
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
Sep11
May11
Jan11
2.0
May11
14.7X
10.0
2.2X
Jan11
20.0
May15
50.0
45
Shiji (002153.SZ): Leader in high-end hotel & restaurant systems, stable growth: Neutral
Investment view
Investment Profile
We initiate coverage on Shiji with a Neutral rating and 12-month target price of Rmb96.3. Shiji is the No.1
payment and merchants system (PMS) and POS (point-of-sale) vendor to hotels & restaurants in China, with 49%
market share in 2014 by our estimates. Overall, the company (1) is dominant in providing IT systems to high-end
hotels in China, with over 30% market share; (2) stands to benefit from higher IT penetration and market share
expansion among economy hotel chains; (3) is creating new growth opportunities by extending its product
offerings, such as payment system and merchants POS/inventory management; (4) leverages M&As to create
business synergies, having expanded into entertainment/travel IT, hardware distribution, and data processing.
We see solid fundamentals for Shiji but are Neutral on valuation.
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
Percentile
20th
40th
60th
80th
100th
Beijing Shiji Information (002153.SZ)


Core drivers of growth

We expect its traditional hotel and restaurant IT business to remain stable, achieving 10-15% CAGR through 2020.
Its new revenue drivers are its (1) payment system and (2) merchants system segments. The company offers to its
hotel/restaurant clients to integrate their payment system with back-end IT infrastructure, either through customized
POS machine or third party online payment. We forecast 32% revenue CAGR off a low base in this segment though
2020. In 2013, The company acquired CNED (China National Electronic Devices), a 3C product distributor of 3000
resellers. Leveraging its strength in 3C product distribution channel, Shiji should be able to push its merchants IT
system product to retailers. We forecast 48% revenue CAGR (off a low base) for this segment, through 2020. We
estimate the two segments to make up 40% of the revenue mix in 2020, from 8% in 1H15. However, clarity around
the potential scale and success of these two new businesses remains unclear at this moment.
Risks to the investment case

(1) Higher/lower-than-expected hotel and restaurant market growth, and Shijis market share in China; 2) New
M&A deals, which may add/decrease profitability; 3) Faster/slower-than-expected ramp-up of payment/merchant
system businesses; 4) Higher/lower-than-expected SG&A expenses due to new businesses.
Valuation
Rmb5.44, discounted back to 2016 at a 9% cost of equity. Our target price implies 47.7X 2016E P/E. We initiate as
Neutral and await better visibility for its new businesses.
Key data
Current
Price (Rmb)
EPS (Rmb)
EPS growth (%)
EPS (diluted) (Rmb)
P/E (X)
P/B (X)
EV/EBITDA (X)
Dividend yield (%)
ROE (%)
CROCI (%)
88.49
96.30
27,354.0 / 4,290.2
--
12/14
1.24
6.2
1.24
1.24
46.0
9.3
39.3
0.2
21.9
24.5
12/15E
1.36
10.0
1.36
1.36
65.1
12.1
56.2
0.2
20.3
32.8
12/16E
2.02
48.4
2.02
2.02
43.9
9.9
37.2
0.5
24.8
41.3

220
3,700
200
3,400
180
3,100
160
2,800
140
2,500
120
2,200
100
1,900
80
1,600
1,300
60
Industry context
We estimate the hotels & restaurants IT market size amounted US$323mn in 2014, and expect it to grow at 15%
CAGR through 2020, primarily driven by a rising number of hotels (mainly economy chain brands) and increasing
IT penetration of restaurants as the increased popularity of online to offline (O2O) services incentivize restaurants
to upgrade their IT. Shiji is the dominant player with 49% market share, while competitors have 5% or less market
share.
12/17E
2.88
42.6
2.88
2.88
30.8
7.9
25.9
0.7
28.5
49.0
40
Sep-14
1,000
Dec-14
Apr-15
Beijing Shiji Information (L)

Absolute
Jul-15
3 month
(45.9)
(15.2)
6 month
(22.2)
(17.6)
12 month
52.6
11.0
September 25, 2015
Beijing Shiji Information: Summary financials

12/14
12/15E
12/16E
12/17E
2,186.1
(1,387.9)
(332.2)
(95.2)
0.0
431.3
(60.6)
370.7
3.5
0.0
0.0
70.1
444.3
(49.2)
(13.1)
2,096.2
(1,192.6)
(384.0)
(114.1)
0.0
471.1
(65.6)
405.5
6.3
0.0
0.0
78.7
490.5
(49.4)
(21.0)
2,459.1
(1,251.5)
(442.9)
(133.9)
0.0
702.4
(71.5)
630.8
8.7
0.0
0.0
92.7
732.2
(80.5)
(28.0)
2,882.8
(1,304.3)
(510.5)
(156.9)
0.0
989.7
(78.6)
911.1
9.8
0.0
0.0
109.4
1,030.4
(113.3)
(28.0)
382.0
0.0
382.0
0.0
382.0
420.2
0.0
420.2
0.0
420.2
623.6
0.0
623.6
0.0
623.6
889.0
0.0
889.0
0.0
889.0
1.24
1.24
1.24
0.12
9.7
2.7
1.36
1.36
1.36
0.14
10.0
1.4
2.02
2.02
2.02
0.40
20.0
2.3
2.88
2.88
2.88
0.58
20.0
3.2

Sales growth
EBITDA growth
EBIT growth
Net income growth
EPS growth
Gross margin
EBITDA margin
EBIT margin
12/14
99.7
40.1
36.2
6.2
6.2
36.5
19.7
17.0
12/15E
(4.1)
9.2
9.4
10.0
10.0
43.1
22.5
19.3
12/16E
17.3
49.1
55.6
48.4
48.4
49.1
28.6
25.7
12/17E
17.2
40.9
44.4
42.6
42.6
54.8
34.3
31.6

D&A add-back
12/14
382.0
60.6
13.1
101.2
(72.5)
484.5
12/15E
420.2
65.6
21.0
(78.5)
0.0
428.3
12/16E
623.6
71.5
28.0
(51.1)
0.0
672.1
12/17E
889.0
78.6
28.0
(60.9)
0.0
934.7
Acquisitions
Divestitures
Others
(13.5)
0.0
0.2
176.9
163.6
(32.4)
0.0
0.0
(100.0)
(132.4)
(38.0)
0.0
0.0
(200.0)
(238.0)
(44.5)
0.0
0.0
(300.0)
(344.5)
(37.1)
(1.7)
0.0
(317.2)
(356.1)
292.0
(37.1)
0.0
0.0
0.0
(37.1)
258.8
(42.0)
0.0
0.0
0.0
(42.0)
392.1
(124.7)
0.0
0.0
0.0
(124.7)
465.5
Total revenue
Cost of goods sold
SG&A
R&D
EBITDA
EBIT
Interest income
Interest expense
Others
Pretax profits
Income tax
Minorities
Preferred dividends
Net income
DPS (Rmb)

Inc/(dec) in debt
Total cash flow
12/14
12/15E
12/16E
12/17E
695.1
309.9
256.7
145.2
1,407.0
330.3
425.3
235.6
75.6
2,473.7
953.9
321.6
220.6
145.2
1,641.3
316.7
405.7
335.6
75.6
2,774.8
1,346.0
377.3
231.5
145.2
2,100.0
304.3
384.6
535.6
75.6
3,400.0
1,811.4
442.3
241.3
145.2
2,640.2
293.1
361.6
835.6
75.6
4,206.1
416.6
6.7
72.0
495.2
0.0
64.3
64.3
559.5
313.7
6.7
76.9
397.2
0.0
64.3
64.3
461.5
329.2
6.7
159.6
495.4
0.0
64.3
64.3
559.7
343.1
6.7
212.7
562.4
0.0
64.3
64.3
626.7
Preferred shares
Total common equity
Minority interest
0.0
1,884.3
29.9
0.0
2,262.4
50.9
0.0
2,761.4
78.9
0.0
3,472.6
106.9
2,473.7
2,774.8
3,400.0
4,206.1
6.10
7.32
8.93
11.23
Ratios
CROCI (%)
ROE (%)
ROA (%)
ROACE (%)
Inventory days
Receivables days
Payable days
Net debt/equity (%)
12/14
24.5
21.9
15.7
29.2
70.5
55.5
105.1
(36.0)
NM
12/15E
32.8
20.3
16.0
33.6
73.0
55.0
111.8
(40.9)
NM
12/16E
41.3
24.8
20.2
44.9
65.9
51.9
93.7
(47.2)
NM
12/17E
49.0
28.5
23.4
55.5
66.2
51.9
94.1
(50.4)
NM
Valuation
12/14
12/15E
12/16E
12/17E
46.0
9.3
39.3
11.9
0.2
65.1
12.1
56.2
16.2
0.2
43.9
9.9
37.2
14.2
0.5
30.8
7.9
25.9
11.7
0.7
Cash & equivalents

Accounts receivable
Inventory
Net PP&E
Net intangibles
Total investments
Total assets
Accounts payable
Short-term debt
Long-term debt
Total liabilities
BVPS (Rmb)
P/E (analyst) (X)

P/B (X)
EV/EBITDA (X)
EV/GCI (X)
Dividend yield (%)
47
September 25, 2015
Exhibit 69: China hotels will grow stably at 10% CAGR in 2014-2020E
Exhibit 70: We expect Shijis revenue to grow at 15% CAGR through 2020
The number of hotels in China by type
Shiji revenue and growth rate
(unit)
60,000
Highendhotel
(Rmbmn)
4,500
13starhotel&economyhotel
4,000
High-end hotel: 6% 14-20E CAGR

1-3 star hotel & economy hotel:
10% 14-20E CAGR
50,000
120%
100%
100%
3,500
Acquisition of CNED
80%
3,000
40,000
60%
2,500
30,000
2,000
20,000
1,500
40%
39%
17%
1,000
10,000
500
17%
17%
13%
4%
20%
10%
0%
20%
0
2012
2013
2014
2013
2015E 2016E 2017E 2018E 2019E 2020E
2014
2015E 2016E 2017E 2018E 2019E 2020E
Source: CEIC, Inntie, Gao Hua Securities Research.
Exhibit 71: Payment and merchants system are the fastest growing segment
Exhibit 72: Shijis gross margin to improve as software business growth

outpaces low-margin channel sales
Shiji revenue breakdown by segment
Shiji margin trend

(Rmb,mn)
1,800
2014
2020E
20142020ECAGR
55%
1,600
1,400
36%
1,200
1,000
800
80%
50%
70%
40%
60%
30%
50%
20%
16%
10%
9%
600
60%
0%
400
8%
200
PMS
Systemfor
Restaurant
Payment
Systemfor
Mechants
Sales &
Others
10%
20%
Grossmargin
Operatingmargin
Acquisition of CNED
67%
55%
55%
60%
63%
65%
40%
42%
49%
43%
40%
37%
34%
30%
32%
26%
25%
20%
36%
17%
19%
10%
0%
2012
2013
2014
2015E 2016E 2017E 2018E 2019E 2020E
48
September 25, 2015
Exhibit 73: Shiji is establishing a comprehensive product line for its clients
Exhibit 74: Chairman Li Zhongchu controls the company
Shijis business model
Shiji shareholder structure by 2014

Shareholdingstructure
Mr.LiZhongchu,Chairman
POS
PMS
63%
Chairman'sfamily
Third
party
payment
Bigdata
Clients
analysis
Hotels
Restaurants
Merchants
Theme parks
...
Distributi
Payment
on
gateway
channel
4%
BeijingYeqinInvestment
4%
Institutionalinvestors
6%
Individualinvestors
1%
Total
78%
Exhibit 75: Shiji has been conducting M&A to grow its businesses and achieve synergies
Shiji M&A deal timeline
2006
Acquired60%of
HangzhouXiruan
2006
200
Nov 2007
Acquired70%of
Infrasys(HK)
2009
Jul2014
Acquired45%of
CNED
Mar2011
May2013
Mar2015
Acquired18%of
Acquired30%of
Acquired26%of
HangzhouXiruan
Infrasys(HK)
SnapShot
Jun2012
Jul2015
Jul2010
Acquired8%ofIPS
Acquired100%of
AcquiredNanjing
Armitage
SilverStone
2010
Apr 2009
Acquired22%of
HangzhouXiruan
2011
Nov2010
Acquired15%
ofIPS
2012
2013
2014
2015
Mar2014
Acquired13%of
Oct2013
SnapShot
Apr2015
Acquired55%
Acquired20%of
ofCNED
May2015
Dec2013
Galasys
Acquired30%of
Acquired75%
TechTrans
ofSiSS
49
September 25, 2015
Exhibit 76: Shiji has acquired both domestic and overseas companies, providing horizontal integration and new business expansion
Shiji acquired company list
Date
Targetcompany
Stake
traded
Postdeal
stake
Dealvalue
(Rmbmn)
12mtrailing
P/S(X)
12mtrailing
P/E(X)
Business
7/15/2015
GuangzhouArmitageTechnologiesLtd.
100%
100%
75
3.1
n.a.
PMS
4/14/2015
GalasysPLC
20%
20%
43
3.2
13.1
Systemforthemeparks
andscenicspots
3/11/2015
SnapShotGmbH
26%
39%
49
176.3
n.a.
Bigdataanalysisin
hospitality
5/14/2015
TechTransCo.,Ltd.
30%
30%
82
4.0
13.7
POS
7/15/2014
ChinaNationalElectronicDevicesCorp.
45%
100%
315
0.6
20.6
Distributionofelectronic
devices
3/21/2014
SnapShotGmbH
13%
13%
42.4
n.a.
Bigdataanalysisin
hospitality
12/11/2013
ShenzhenInternationalSoluSoftSoftwareCo.,Ltd.
75%
75%
205
6.5
15.4
POS
10/16/2013
ChinaNationalElectronicDevicesCorp.
55%
55%
238
0.3
9.8
Distributionofelectronic
devices
5/29/2013
InfrasysInternationalLimited
30%
100%
43
n.a.
n.a.
POS
6/9/2012
IPSTechnologyCo.,Ltd.
8%
23%
37
4.9
20.7
Thirdpartypayment
8/20/2011
ShanghaiBestechSoftwareCo.,Ltd.
70%
70%
31
n.a.
n.a.
POS
3/31/2011
HangzhouXiruanTechnologyCo.,Ltd.
18%
100%
30
5.4
PMS
11/24/2010
IPSTechnologyCo.,Ltd.
15%
15%
16
n.a.
n.a.
Thirdpartypayment
7/30/2010
NanjingSilverStoneComputerSystemCo.,Ltd.
100%
100%
60
2.6
104.9
PGS
4/24/2009
22%
82%
28
3.6
10.4
PMS
11/14/2007
Infrasys(HK)Ltd.
70%
70%
28
0.9
15.3
POS
2006
60%
60%
60
n.a.
n.a.
PMS
2.3
Note: POS=Point of sale; PMS=Property management system; PGS=Payment gateway system;

50
September 25, 2015
Exhibit 77: Shiji has been trading at +1 stdev of its historical average P/E of
38.0X
Exhibit 78: Shiji has been trading above +1 stdev of its historical average P/B
of 8.0X.
Shiji 12-m forward P/E band
Shiji 12-m forward P/B and ROE band
1yrforwardP/B(X)
140.0
Average
+1stdev
ROE(%)
1stdev
1yearfwdP/B
30.0
Average
+1stdev
1stdev
ROE(%)
30%
120.0
100.0
80.0
60.0
25.0
25%
20.0
20%
57.3X
15.0
40.0
38.0X
10.0
20.0
18.8X
15%
11.8X
8.0X 10%
4.3X
5.0
5%
Source: Company Data, Datastream,Gao Hua Securities Research
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
Sep11
0%
May11
Jan11
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
Sep11
May11
Jan11
51
September 25, 2015
Hundsun (600570.SS): financial software leader forays into cloud-based solution; Neutral
Investment view
Investment Profile
We initiate coverage of Hundsun at Neutral, with a 12-month target price of Rmb47.9. Hundsun is currently the
market leading vendor of IT infrastructure in Chinas financial sector in terms of value, and we estimate it has
51% share at securities companies in 2014. In our view, Hundsun: (1) has solid market positioning at its
traditional 1.0 business (install-based financial software), with a diversified client portfolio, across securities
brokerage houses, banks, funds/asset management, insurance companies, and exchanges; (2) has restructured
its shareholding in 2014, aiming for better decision-making and execution; (3) has been accelerating its
innovative business development, through the company-employee JV scheme and equity investment.
Low
High
Growth
Growth
Returns *
Returns *
However, we see considerable regulation headwinds ahead in financial innovation in China, and therefore rate
the stock Neutral.
Multiple
Multiple
Volatility
Volatility
Percentile
20th
40th
60th
80th
100th
Hundsun Technologies Inc. (600570.SS)

Key data
Core drivers of growth

In April 2014, Jack Ma of Alibaba invested in Hundsun and took a controlling 21% stake. Since then, Hundsun has
moved more rapidly into cloud-based solutions (called 2.0 businesses) for hedge funds, brokers, asset
management, and small banks. HOMS (a cloud-based IT solution for hedge funds) had been its most successful
product until 1H15 when the company closed the product to new accounts or funds after the service was
investigated by CSRC for being employed as an illegal margin financing tool. While HOMS future remains
uncertain, Hundsun has other 2.0 businesses, such as iTN (brokerage tool), Yunrong (banking tool and P2P IT),
and Gildata. These cloud-based products allow for rapid adoption by clients. Overall, we expect revenue in this
segment (25% of 2015E revenue; disclosed as internet business by the company) to grow at 57% CAGR for 2016E2020E.
Risks to the investment case

1) Uncertainty around HOMS; 2) higher/lower-than-expected financial industry growth; 3) faster/slower-thanexpected financial innovation in China; 4) higher/lower-than-expected R&D expenses linked to new businesses.
Valuation
Rmb2.76, discounted back to 2016 at a 9.6% cost of equity. Our target price implies 69X 2016E P/E. We initiate as
Neutral due to uncertainty around HOMS and other innovative business development.
Current
Price (Rmb)
EPS (Rmb)
EPS growth (%)
EPS (diluted) (Rmb)
P/E (X)
P/B (X)
EV/EBITDA (X)
Dividend yield (%)
ROE (%)
CROCI (%)
45.74
47.90
28,258.4 / 4,432.0
--
12/14
0.58
11.8
0.58
0.58
54.9
10.3
108.0
0.6
20.2
17.1
12/15E
0.56
(4.5)
0.56
0.56
82.1
13.2
91.7
0.4
17.0
24.3
12/16E
0.70
25.0
0.70
0.70
65.6
11.6
65.0
0.5
18.8
26.4
12/17E
1.22
74.4
1.22
1.22
37.6
9.6
41.6
0.9
27.9
38.4

180
6,000
160
5,500
140
5,000
120
4,500
100
4,000
80
3,500
60
3,000
40
2,500
20
Sep-14
2,000
Dec-14
Apr-15
Hundsun Technologies Inc. (L)
Jul-15
Industry context
Gartner estimates that software/IT services spending in securities/banking sectors in China was US$4342/356mn
respectively in 2014, and will grow at 13%/20% CAGR through 2020. While bank sector spending is much larger, it
remains inaccessible to third-party IT vendors, as large-scale banks mostly have self-developed in-house IT. At
securities companies, the market is highly concentrated, with Hundsun taking 51% market share in 2014, followed
by Kingdom with 34%.

Absolute
3 month
(69.3)
(56.9)
6 month
(54.7)
(48.5)
12 month
31.5
(5.5)
52
September 25, 2015
Hundsun Technologies Inc.: Summary financials

12/14
12/15E
12/16E
12/17E
1,421.8
(89.8)
(588.1)
(590.5)
0.0
179.8
(26.3)
153.4
9.0
0.0
0.0
223.7
386.1
(31.1)
5.5
2,326.6
(165.7)
(955.8)
(947.0)
0.0
304.4
(46.2)
258.1
7.1
0.0
0.0
154.8
420.1
(31.5)
(44.2)
2,560.7
(193.0)
(1,013.5)
(990.1)
0.0
430.1
(65.9)
364.2
8.9
0.0
0.0
168.0
541.1
(43.1)
(67.3)
3,318.4
(274.3)
(1,239.0)
(1,231.8)
0.0
667.0
(93.6)
573.4
9.6
0.0
0.0
361.7
944.7
(76.5)
(117.4)
360.5
0.0
360.5
0.0
360.5
344.4
0.0
344.4
0.0
344.4
430.7
0.0
430.7
0.0
430.7
750.8
0.0
750.8
0.0
750.8
0.58
0.58
0.58
0.18
30.8
2.6
0.56
0.56
0.56
0.18
33.0
0.5
0.70
0.70
0.70
0.23
33.0
0.5
1.22
1.22
1.22
0.40
33.0
1.7
12/14
17.5
(9.7)
(11.6)
11.5
11.8
93.7
12.6
10.8
12/15E
63.6
69.3
68.3
(4.5)
(4.5)
92.9
13.1
11.1
12/16E
10.1
41.3
41.1
25.0
25.0
92.5
16.8
14.2
12/17E
29.6
55.1
57.5
74.4
74.4
91.7
20.1
17.3
Ratios
CROCI (%)
ROE (%)
ROA (%)
ROACE (%)
Inventory days
Receivables days
Payable days
Net debt/equity (%)

D&A add-back
12/14
360.5
26.3
(5.5)
334.8
(102.6)
613.5
12/15E
344.4
46.2
44.2
(102.0)
0.0
332.8
12/16E
430.7
65.9
67.3
(108.5)
0.0
455.4
12/17E
750.8
93.6
117.4
(58.0)
0.0
903.9
Acquisitions
Divestitures
Others
(96.6)
0.0
0.0
(266.1)
(362.7)
(204.6)
0.0
0.0
0.0
(204.6)
(302.0)
0.0
0.0
0.0
(302.0)
(424.6)
0.0
0.0
0.0
(424.6)
(98.8)
13.9
26.7
(12.7)
(71.0)
179.8
(111.2)
0.0
0.0
0.0
(111.2)
17.0
(113.7)
0.0
0.0
0.0
(113.7)
39.7
(142.1)
0.0
0.0
0.0
(142.1)
337.2
Total revenue
Cost of goods sold
SG&A
R&D
EBITDA
EBIT
Interest income
Interest expense
Others
Pretax profits
Income tax
Minorities
Preferred dividends
Net income
DPS (Rmb)
Sales growth
EBITDA growth
EBIT growth
Net income growth
EPS growth
Gross margin
EBITDA margin
EBIT margin

Inc/(dec) in debt
Total cash flow
12/14
12/15E
12/16E
12/17E
522.3
209.7
57.4
1,071.6
1,861.0
245.2
47.7
763.1
113.7
3,030.8
539.3
343.1
105.8
1,071.6
2,059.9
414.4
36.9
763.1
113.7
3,388.1
579.1
377.7
123.2
1,071.6
2,151.6
661.3
26.1
763.1
113.7
3,715.8
916.3
489.4
175.1
1,071.6
2,652.5
1,003.1
15.3
763.1
113.7
4,547.6
747.9
0.0
172.5
920.4
30.2
44.4
74.6
995.0
827.7
0.0
175.0
1,002.7
30.2
44.4
74.6
1,077.3
771.1
0.0
203.5
974.6
30.2
44.4
74.6
1,049.2
876.8
0.0
309.1
1,185.9
30.2
44.4
74.6
1,260.5
Preferred shares
Total common equity
Minority interest
0.0
1,916.0
119.8
0.0
2,146.8
164.0
0.0
2,435.3
231.3
0.0
2,938.4
348.7
3,030.8
3,388.1
3,715.8
4,547.6
3.10
3.47
3.94
4.76
12/14
17.1
20.2
13.4
23.3
254.2
50.2
2,322.0
(24.2)
NM
12/15E
24.3
17.0
10.7
22.8
179.7
43.4
1,735.4
(22.0)
NM
12/16E
26.4
18.8
12.1
25.0
216.6
51.4
1,512.2
(20.6)
NM
12/17E
38.4
27.9
18.2
38.0
198.5
47.7
1,096.6
(27.0)
NM
Valuation
12/14
12/15E
12/16E
12/17E
P/E (analyst) (X)

P/B (X)
EV/EBITDA (X)
EV/GCI (X)
Dividend yield (%)
54.9
10.3
108.0
12.1
0.6
82.1
13.2
91.7
14.6
0.4
65.6
11.6
65.0
12.2
0.5
37.6
9.6
41.6
10.4
0.9
Cash & equivalents

Accounts receivable
Inventory
Net PP&E
Net intangibles
Total investments
Total assets
Accounts payable
Short-term debt
Long-term debt
Total liabilities
BVPS (Rmb)
53
September 25, 2015
Exhibit 79: Hundsun continues to gain shares in banking & securities IT
Exhibit 80: China mutual fund and hedge fund AUM have seen rapid growth
China banking and securities IT market size and Hundsun market share
China mutual and hedge fund AUM.
40%
Rmb,bn
8,000
35%
7,000
30%
6,000
US$,mn
8,000
7,000
6,000
24%
35%
33%
31%
36%
26%
25%
5,000
4,000
20%
4,000
3,000
15%
3,000
2,000
10%
2,000
1,000
5%
1,000
5,000
20%
0%
2012
2013
2014 2015E
Banking&securities
36% CAGR
81% CAGR
2012
2016E 2017E 2018E

Hundsunmktshare
2013
MutualfundAUM
2014
2015H1
HedgefundAUM
Source: Gartner, Company data, Gao Hua Securities Research.
Source: AMAC, simuwang.com.
Exhibit 81: We expect Internet (2.0 business) to be the second largest

revenue stream
Exhibit 82: We expect its OPM to rebound in 2016 thanks to operating

leverage
Hundsun revenue breakdown
Hundsun margin trend
Rmb,mn
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
2013
Capitalmarket
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2014
Banking
2015E
Ineternet
2016E
2017E
Nonfinancialsandothers
94%
79%
20%
27%
92%
15%
17%
25%
92%
23%
14%
11%
11%
14%
17%
2013
2014
2015E
2016E
2017E
6%
2012
93%
82%
GPM
OPM
NPM
54
September 25, 2015
Exhibit 83: Hundsun has been developing its 2.0 businesses (internet-based) through fully/partially owned subsidiaries (as of 1H2015)
Hundsun major 2.0 business list
Product
HOMS
iTN
Gildata
Yunrong
Wangjinsociety
Shumi
Description
Hedgefundmanagementtool
Cloudbasedbrokerage,PWM,assetmanagementITsolution
Financialdataservices
InternetP2PITsolution,BankingIT
Investmentproductretailer
Onlinefundproductretailer
Subsidiary
HundsunNetworks
HundsunNetworks
HundsunJuyuan
HundsunYunrong
SantanFinance
ShumiFundSales
Listedcompanystake
60%
60%
100%
60%
22%
24%
Exhibit 84: HOMS (its cloud-based hedge fund management tool) was used
as a margin financing tool.
Exhibit 85: In our base case, we expect HOMS business to recover in 2017
Our sensitivity analysis on HOMS
A 1:4 margin financing example through HOMS
Broker
Place trading order
Revenue(Rmb,mn)
Asa%oftotalrevenue
Parent account:
Financing company
(Rmb25mn)
Sub-account 1:
individual investor
(Rmb1mn)
Sub-account 2:
individual investor
(Rmb1mn)
Basecase
Bullcase
117.1
133.6
381.7
5%
5%
14%
HOMS
A 1:4 margin
financing model
Sub-account 3:
individual investor
(Rmb1mn)
EPScontribution(Rmb)
0.03 0.03 0.09
TotalEPS(Rmb)
0.69 0.70 0.76
%EPScontribution
Sub-account 5:
individual investor
(Rmb1mn)
4%
5%
12%
HOMS2017E
Revenue(Rmb,mn)
Asa%oftotalrevenue
Sub-account 4:
individual investor
(Rmb1mn)
Bearcase
HOMS2016E
144.3 268.7 466.6

5%
8%
13%
EPScontribution(Rmb)
0.04 0.07 0.12
TotalEPS(Rmb)
1.18 1.22 1.27
%EPScontribution
3%
6%
10%
Bear case: no meaningful business ramp-up through 2017; Base case: meaningful
ramp-up in 2017; Bull case: meaningful ramp-up in 2016;
55
September 25, 2015
Exhibit 86: Hundsun has been leveraging company-employee JVs and equity investment to accelerate its innovative businesses
Hundsun major event list
Time
6/11/2009
Events
Hundsunacquired100%ofLiming(softwarecompanyspecialisedinnotesservicing)
1/29/2010
Hundsunacquired100%ofShanghaiGlidataInc.(Financialdataservicescompany)
11/21/2011
Hundsunreduceditsshareholdingfrom80%to39%asFund123"Shumi"andothershareholdersincreasedtheirshareholding
10/30/2013
4/1/2014
HundsunincreaseditsshareholdinginFund123"Shumi"from25%to64%
Hundsunterminateditsstockoptionincentiveplanandannouncedanewplanthatallowsthecompanyanditscoreemployeestosetupandco
investsubsidiariesundertakinginnovativebusinesses
JackMaindirectlyacquired21%ofHundsunthroughZhejiangRongxinNetworkTechnologyCo.Ltd.
11/10/2014
InitiatedthefoundingofZhejiangSantanFinancialInformationServicewhichHundsunwouldhold21.75%
1/28/2014
11/21/2014
CBNandAntFinancialinjectedinGlidataasHundsuncontroled41%ofthecompany
12/30/2014
HundsunSmartSystemincreaseditsshareholdingto18%ofFund123"Shumi"asHundsunreduceditsshareholdingto61%
2/12/2015
HundsunincreaseditsshareholdinginShenzhenTradeblazer(FuturesTradingPlatform)to29%inarelatedtransaction
2/12/2015
HundsunincreaseditsshareholdinginHundsunNetworks(AssetManagementServices)to60%
2/12/2015
HundsonincreaseditsshareholdinginHundsunHongKong(ShangHKconnectbusiness)to76%inarelatedtransaction
3/4/2015
HundsunincreaseditsshareholdinginECapitalTransfer(interconnectionplatformsetupbybrokersinShanghaiFreeTradeZone)to1.25%
4/10/2015
HundsonincreaseditsshareholdinginRongduScienceandTechnology(P2Ponlinelendingsystemandinternetfinanceservices)to30%inarelated
transaction
4/25/2015
AntFinancialincreaseditsshareholdinginFund123to61%asHundsunTechnologiesLtd.reduceditsshareholdingto24%from61%
6/18/2015
YuntaiNetworkTechnology(HealthcareITservices)receivedinvestmentfromYunfengCapitalasHundsunTechnologiesInc.reducedits
shareholdingfrom40%to34%.
HundsundestablishedZhejiangInternetFinancialAssetTradingCentre('Santan')andhold22%ofthecompany
6/8/2015
AntFinancialacquired100%ofRongxin
5/20/2015
56
September 25, 2015
Exhibit 87: Hundsun has been trading at +1 stdev of its historical average P/E
of 55.8X.
Exhibit 88: Hundsun has been trading at +1 stdev of its historical average P/B
of 9.6X.
Hundsun 12-m forward P/E band
Hundsun 12-m forward P/B and ROE band

1yrforwardP/B(X)
Average
+1stdev
1stdev
ROE(%)
25%
50.0
300.0
1yearfwdP/B
45.0
Average
+1stdev
1stdev
ROE(%)
20%
40.0
250.0
35.0
200.0
15%
30.0
25.0
150.0
17.6X 10%
20.0
100.0
104.6X
50.0
55.8X
7.0X
15.0
9.6X
10.0
Source: Company data, Datastream, Gao Hua Securities Research
1.6X
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
Sep11
0%
May11
Jan11
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
Sep11
May11
Jan11
5.0
5%
Source: Company data, Datastream, Gao Hua Securities Research
57
September 25, 2015
NavInfo (002405.SZ): Telematics to fuel growth; Neutral on fair valuation

What's changed
Investment Profile
We maintain our Neutral rating on NavInfo and update our 12-month target price to Rmb21.7. Overall, we believe
the company is well positioned in the fast growing telematics industry (driving-related services, such as mapping
& navigation, fleet management, and location-based services). We estimate that the most mature of these,
mapping & navigation, was worth US$565mn in 2014 and we expect it to post 22% CAGR through 2020, with
NavInfo taking 41% market share in 2014. With its excellent positioning, we believe the company is developing an
ecosystem that aims to provide telematics solutions (hardware + software) to its clients, with revenue in
telematics up 69% yoy in 1H15. It will enable the company to capture more services revenue opportunities as
telematics evolves. However, we see its valuation as full, having priced in high growth in the near-to-medium
term.
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
Percentile
20th
40th
60th
80th
100th
NavInfo Co. (002405.SZ)

Key data
Implications
We expect its revenue to grow at 28% CAGR for 2016E-2020E, benefit from increasing penetration of IT content in
cars, and the car servicing market. In the near-to-medium term, we expect its R&D spending to remain high (1314% of total revenue), thanks to continuing map upgrades and development of new functions and applications.
We also expect its gross margin to decline, from 81% in 2014 (76% in 1H15) to 72% in 2017E, as the company
increases the mix of hardware in providing solutions. Overall, we expect the companys operating margin to
rebound from 0%/4% in 2013/14 (6% in 1H15) to 8% in 2017E, driving 41% net income CAGR in 2015-17E,
benefiting from revenue growth and operating leverage from other expenses (ie, non-R&D).
Valuation
We lower our EPS -19%/-23%/-23% for 2015E-17E to Rmb0.24/0.34/0.49 on lower margins. Our 12-month target
price is Rmb21.7 (up from Rmb18.7), representing 15% potential downside. It is based on 25X 2020E EPS of
Rmb1.25, discounted back to 2016 at a 9.6% cost of equity. Our previous 12-month target price was Rmb18.70,
based on 2015E EV/GCI vs. CROCI/WACC. We revise the methodology to be in line with the rest of our software/IT
services coverage.
Key risks
Higher/lower-than-expected telematics growth in China; higher/lower-than-expected R&D spending;
higher/lower-than-expected gross margin due to change in hardware sale mix.
Current
Price (Rmb)
EPS (Rmb)
EPS growth (%)
EPS (diluted) (Rmb)
P/E (X)
P/B (X)
EV/EBITDA (X)
Dividend yield (%)
ROE (%)
CROCI (%)
25.62
21.70
17,718.7 / 2,779.0
--
12/14
0.17
11.6
0.17
0.17
107.5
5.1
42.6
0.3
4.8
29.4
12/15E
0.24
43.8
0.24
0.24
104.9
6.9
39.8
0.3
6.7
34.8
12/16E
0.34
39.5
0.34
0.34
75.1
6.5
26.0
0.4
8.9
33.1
12/17E
0.49
42.7
0.49
0.49
52.6
5.9
17.7
0.6
11.8
32.3

70
4,000
60
3,500
50
3,000
40
2,500
30
2,000
20
1,500
10
Sep-14
1,000
Dec-14
NavInfo Co. (L)

Absolute
Apr-15
Jul-15
3 month
(63.4)
(42.7)
6 month
(26.5)
(22.2)
12 month
19.7
(12.9)
58
September 25, 2015
NavInfo Co.: Summary financials

12/14
12/15E
12/16E
12/17E
1,059.0
(197.0)
(461.6)
(361.3)
0.0
262.2
(223.1)
39.1
35.9
0.0
0.0
98.5
173.4
(44.0)
(11.9)
1,477.2
(354.2)
(623.1)
(439.7)
0.0
413.7
(353.6)
60.2
13.6
0.0
0.0
125.2
199.0
(26.0)
(4.0)
2,050.3
(552.0)
(856.9)
(524.5)
0.0
644.9
(528.0)
116.9
14.7
0.0
0.0
145.6
277.2
(27.7)
(13.7)
2,765.8
(778.5)
(1,162.2)
(616.8)
0.0
962.7
(754.4)
208.3
11.1
0.0
0.0
176.3
395.6
(39.6)
(19.5)
117.5
0.0
117.5
0.0
117.5
169.0
0.0
169.0
0.0
169.0
235.8
0.0
235.8
0.0
235.8
336.6
0.0
336.6
0.0
336.6
0.17
0.17
0.17
0.05
30.0
(0.6)
0.24
0.24
0.24
0.07
30.0
(1.1)
0.34
0.34
0.34
0.10
30.0
(1.1)
0.49
0.49
0.49
0.15
30.0
(0.9)

Sales growth
EBITDA growth
EBIT growth
Net income growth
EPS growth
Gross margin
EBITDA margin
EBIT margin
12/14
20.2
51.7
NM
11.6
11.6
81.4
24.8
3.7
12/15E
39.5
57.8
54.0
43.8
43.8
76.0
28.0
4.1
12/16E
38.8
55.9
94.2
39.5
39.5
73.1
31.5
5.7
12/17E
34.9
49.3
78.2
42.7
42.7
71.9
34.8
7.5

D&A add-back
12/14
117.5
223.1
11.9
(2.6)
(25.1)
324.8
12/15E
169.0
353.6
4.0
9.9
0.0
536.4
12/16E
235.8
528.0
13.7
0.0
0.0
777.5
12/17E
336.6
754.4
19.5
(15.8)
0.0
1,094.8
(399.2)
0.0
0.4
319.0
(79.9)
(735.2)
0.0
0.0
0.0
(735.2)
(973.7)
0.0
0.0
0.0
(973.7)
(1,250.5)
0.0
0.0
0.0
(1,250.5)
(31.8)
58.7
13.8
(10.0)
30.7
275.6
(35.3)
0.0
0.0
0.0
(35.3)
(234.1)
(50.7)
0.0
0.0
0.0
(50.7)
(246.9)
(70.7)
0.0
0.0
0.0
(70.7)
(226.5)
Total revenue
Cost of goods sold
SG&A
R&D
EBITDA
EBIT
Interest income
Interest expense
Others
Pretax profits
Income tax
Minorities
Preferred dividends
Net income
DPS (Rmb)
Acquisitions
Divestitures
Others
Inc/(dec) in debt
Total cash flow
12/14
12/15E
12/16E
12/17E
1,731.9
281.4
51.4
75.6
2,140.3
205.5
524.1
33.7
207.6
3,111.3
1,497.8
392.6
92.4
75.6
2,058.4
628.6
482.7
33.7
207.6
3,411.0
1,250.9
544.8
143.9
75.6
2,015.3
1,136.1
420.8
33.7
207.6
3,813.6
1,024.4
735.0
203.0
75.6
2,038.0
1,729.1
324.0
33.7
207.6
4,332.4
203.1
92.4
178.1
473.6
0.0
7.6
7.6
481.2
365.1
92.4
193.5
651.1
0.0
7.6
7.6
658.7
569.0
92.4
213.6
875.0
0.0
7.6
7.6
882.5
802.4
92.4
243.8
1,138.6
0.0
7.6
7.6
1,146.2
Preferred shares
Total common equity
Minority interest
0.0
2,460.7
169.4
0.0
2,578.9
173.4
0.0
2,744.0
187.0
0.0
2,979.6
206.6
3,111.3
3,411.0
3,813.6
4,332.4
3.56
3.73
3.97
4.31
Ratios
CROCI (%)
ROE (%)
ROA (%)
ROACE (%)
Inventory days
Receivables days
Payable days
Net debt/equity (%)
12/14
29.4
4.8
3.9
11.5
76.8
97.1
360.9
(62.3)
NM
12/15E
34.8
6.7
5.2
13.8
74.1
83.3
292.7
(51.1)
NM
12/16E
33.1
8.9
6.5
15.1
78.1
83.4
308.8
(39.5)
NM
12/17E
32.3
11.8
8.3
17.2
81.3
84.4
321.5
(29.3)
NM
Valuation
12/14
12/15E
12/16E
12/17E
P/E (analyst) (X)

P/B (X)
EV/EBITDA (X)
EV/GCI (X)
Dividend yield (%)
107.5
5.1
42.6
9.9
0.3
104.9
6.9
39.8
9.0
0.3
75.1
6.5
26.0
6.0
0.4
52.6
5.9
17.7
4.2
0.6
Cash & equivalents

Accounts receivable
Inventory
Net PP&E
Net intangibles
Total investments
Total assets
Accounts payable
Short-term debt
Long-term debt
Total liabilities
BVPS (Rmb)
59
September 25, 2015
Exhibit 89: China mapping & navigation market to grow at 22% CAGR in
2014-202E
Exhibit 90: Telematics will be the largest driver for the market growth
China mapping & navigation market breakdown
China mapping & navigation market size

(USDmn)
(USDmn)
1,800
1,600
1,400
600
500
800
400
600
300
400
200
200
100
2013
20142020ECAGR
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
43%
700
1,000
2012
2020E
800
1,200
2011
2014
900
Chinamapping&navigation
markettogrowat22%CAGR
in20142020E
2014 2015E 2016E 2017E 2018E 2019E 2020E
24%
9%
5%
1%
Indash
navigation
PConline Mobileonline
navigation
navigation
Traffic
Telematics
Source: iResearch, Gao Hua Securities Research.
Source: iResearch, Gao Hua Securities Research.
Exhibit 91: We expect NavInfo revenue to grow at 28% CAGR in 2016-2020E.
Exhibit 92: NavInfo spends c.80% of revenue into SG&A, of which R&D and
amortization is 51%
NavInfo revenue growth forecast
NavInfo expense structure

(Rmbmn)
12,000
39%
10,000
35%
40%
80%
35%
70%
30%
60%
25%
23%
20%
50%
15%
30%
10%
20%
5%
10%
0%
0%
32%
23%
20%
4,000
90%
39%
8,000
6,000
45%
14%
2,000
0
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
R&Dexpense%
Intangibleassetamortization%
Otheradministrationexpense%
Sellingexpense%
40%
2010
2011
2012
2013
2014
2015E
2016E
2017E
60
September 25, 2015
Exhibit 93: NavInfo has been trading above its historical average P/E of
83.9X.
Exhibit 94: NavInfo has been trading above its historical average P/B of 5.3X.
NavInfo 12-m forward P/B and ROE band
NavInfo 12-m forward P/E band

1yrforwardP/B(X)
1yrfwdP/E(X)
Average
+1stdev
1stdev
20.0
200.0
18.0
180.0
16.0
160.0
ROE(%)
1yearfwdP/B
Average
+1stdev
1stdev
ROE(%)
14%
12%
10%
14.0
140.0
12.0
120.0
115.6X
8%
10.0
100.0
8.1X
83.9X
80.0
8.0
5.3X
6.0
Source: Company data, Datastream, Gao Hua Securities Research.
2.6X
4%
2%
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
0%
Jan11
May15
Jan15
Sep14
May14
Jan14
Sep13
May13
Jan13
Sep12
May12
Jan12
Sep11
2.0
May11
20.0
Jan11
40.0
4.0
Sep11
52.2X
May11
60.0
6%
Source: Company data, Datastream, Gao Hua Securities Research.
61
September 25, 2015
Disclosure Appendix
Reg AC
I, Carol Jin, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part
of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
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returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage
universe.
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Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,
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Disclosures
Coverage group(s) of stocks by primary analyst(s)
Carol Jin: China Technology.
China Technology: Aisino, Anhui USTC iFLYTEK, Beijing Shiji Information, Beijing Ultrapower Software, Hangzhou Hikvision, Hermes Microvision Inc., Hua Hong Semiconductor Ltd., Hundsun
Technologies Inc., Mediatek, NavInfo Co., Ningbo Joyson Electronic, Parade Technologies Ltd., TSMC, TSMC (ADR), United Microelectronics Corp., United Microelectronics Corp. (ADR), Yonyou
Network Technology, Zhejiang Dahua Technology Co., ZTE Corp. (A), ZTE Corp. (H).
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Investment Banking Relationships
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32%
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46%
38%
33%
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September 25, 2015
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September 25, 2015
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September 25, 2015

China: Technology: Software

Stock picks in focus

RATING AND TARGET PRICE SUMMARY

*on Conviction List. Given the comparative

SOFTWARE + IT SERVICES SPEND/GDP, 2014

Identifying home-grown winners

The Goldman Sachs Group, Inc.

We initiate with Neutral on Shiji and Hundsun,

Source: CEIC, Gartner.

We downgrade Ultrapower to Neutral on sluggish

September 25, 2015

China: Technology: Software

China underspends on software and IT services ripe for growth

Change is on the way, leading to a fast-growing software/IT market

Valuation: Long-term discounted P/E: We favor leaders in faster growing subsectors

iFLYTek (002230.SZ): Upgrade to Buy; clear leader in China intelligent speech

Ultrapower (300002.SZ): ITSM slowdown, and no near-term catalysts; down to Neutral

NavInfo (002405.SZ): Telematics to fuel growth; Neutral on fair valuation

*Denotes stock is on our regional Conviction List.

Goldman Sachs Global Investment Research

September 25, 2015

China: Technology: Software

China software/IT services industry in six charts

Exhibit 3: and in terms of penetration

Software/IT services spending by region US$, 2014

Software/IT services spending penetration, 2014

Source: Gartner, CEIC.

Exhibit 4: One reason is the smaller share of Services in the economy

US, India and China GDP decomposition

Yearly wage comparison, 2014

Source: CEIC, Wind.

Goldman Sachs Global Investment Research

Source: CEIC, National Bureau of Statistics of China, Bureau of Labor Statistics

September 25, 2015

China: Technology: Software

Exhibit 6: China software+IT services is smaller than other IT segments but is

Exhibit 7: China software market is crowded and dominated by global giants

China IT spending, 2019 vs 2014

September 25, 2015

China: Technology: Software

Exhibit 8: Our framework for identifying niche leaders

Goldman Sachs Global Investment Research

September 25, 2015

China: Technology: Software

China underspends on software and IT services ripe for growth

Two main reasons for the current under-penetration

Goldman Sachs Global Investment Research

September 25, 2015

China: Technology: Software

Exhibit 9: China software/IT services spending is considerably smaller in

Exhibit 10: ... and in relative terms as a share of total IT spending

Software/IT services spending by region US$, 2014

Exhibit 12: and is a much smaller percentage as a share of GDP

Software/IT services spending market share by regions, 2014

Software/IT services spending penetration, 2014

Goldman Sachs Global Investment Research

Source: Gartner, CEIC.

September 25, 2015

China: Technology: Software

Exhibit 13: Although the services segment is growing, industry still

GDP decomposition of US, India and China, 2010 and 2014

Labor cost of countries/regions, 2014

Source: CEIC, Wind.