Citi: In the AI industry, bullish on Chinasoft International (00354), KINGDEE INT'L (00268), and Thunder Software Technology (300496.SZ)

Citi released a research report stating that despite continued weakness in IT spending, after three consecutive years of downward earnings revisions for China's ITS (Intelligent Transportation Systems)/software industry, the bank has begun upgrading ratings for some companies in the sector starting from Q2 2026, given the development of AI-related businesses, strengthened cost controls, and stabilizing revenue. The bank is bullish on Chinasoft International (00354), Thunder Software Technology (300496.SZ), and KINGDEE INT'L (00268), while taking a relatively cautious view on Yonyou Network Technology (600588.SH) and SeeWay.ai Co., Ltd. (002405.SZ). Among the 11 ITS/software companies covered by Citi, 6 delivered results that either exceeded or met expectations in Q2/H1 2026. The industry is showing divergence: AI-driven companies Chinasoft International, KINGDEE INT'L, Sangfor Technologies Inc. (300454.SZ), and Thunder Software Technology demonstrated strong momentum, while traditional software and real estate-related vertical players Yonyou Network Technology, Glodon (002410.SZ), MING YUAN CLOUD (00909), and SeeWay.ai Co., Ltd. continued to post disappointing revenue performance. As nearly all sub-sectors implemented structural controls on operating expenses (OPEX), profitability generally improved. The bank is bullish on Chinasoft International, Thunder Software Technology, and KINGDEE INT'L, while taking a relatively cautious view on Yonyou Network Technology and SeeWay.ai Co., Ltd., which have the lowest ratings. Benefiting from the boom in the cloud and AI infrastructure market, Citi upgraded Sangfor Technologies Inc.'s investment rating from "Sell" to "Neutral" and raised its target price by 42% from RMB 104 to RMB 148. The bank upgraded Thunder Software Technology's investment rating from "Neutral" to "Buy" and lowered its target price by 6.4% from RMB 78 to RMB 73. Citi noted that although the hardware product mix diluted gross margins in the short term, the edge AI and smart IoT businesses showed strong growth momentum. Given continued weakness in China's domestic construction demand, Citi lowered Glodon's target price by 16% from RMB 9.4 to RMB 7.9 and maintained its "Sell" rating. The bank lowered SeeWay.ai Co., Ltd.'s target price by 9.2% from RMB 6.5 to RMB 5.9 and maintained its "Sell" rating, mainly due to continued pressure on profitability and declining average selling prices (ASP) in its automotive-related business. The bank maintained Venustech Group Inc.'s (002439.SZ) target price at RMB 11.5 and kept its investment rating at "Sell," as gross margin pressure from rising storage raw material costs and competitive pricing offset the positive factors from revenue recovery. Previously, Citi had upgraded Chinasoft International's investment rating from "Neutral" to "Buy" based on the commercialization of its AI business, and upgraded MING YUAN CLOUD's rating from "Neutral" to "Buy" based on valuation considerations following its H1 2026 results.