Citigroup: AI monetization in China's IT services and software industry is starting to materialize, with CHINASOFT INT'L (00354) and KINGDEE INT'L (00268) as top picks.

Citigroup has released a research report stating that, after reviewing the performance of 11 rated Chinese IT service and software companies in the second quarter and the first half of this year, more than half performed better than or met expectations. The industry shows a clear divergence, with AI-driven companies like CHINASOFT INT'L (00354), KINGDEE INT'L (00268), and Thunder Software Technology (300496.SZ) experiencing strong growth, while traditional software and real estate-related enterprises such as Yonyou Network Technology (600588.SH), MING YUAN CLOUD (00909), and SeeWay.ai Co.,Ltd. (002405.SZ) continued to underperform in terms of revenue. Citigroup indicated that AI revenue is transitioning from being concept-driven to making actual financial contributions. The industry leaders' monetization of AI has begun to materialize, with Chinasoft International's full-stack AI business revenue reaching 1.53 billion RMB, up 134% year-on-year. Kingdee benefited from the momentum of the AI subscription model, successfully turning a profit. However, it emphasized that the industry shows significant divergence, with expectations that cyclic projects directed at the government, as well as those related to real estate or automotive industries, will still face prolonged recovery periods. The firm rates Chinasoft International, Kingdee, MING YUAN CLOUD, and TRAVELSKY TECH (00696) as "Buy," with its top picks being Chinasoft International, Kingdee, and Thunder Software Technology, while expressing less favorable recommendations for Yonyou and SeeWay.ai Co.,Ltd.