Goldman Sachs downgraded ChinaSoft International (00354.HK) to “Sell” from “Neutral” and lowered its price target by 54% to HKD3.1, reflecting concerns about the impact of artificial intelligence on the software industry.
The broker cited slower growth in China's end market, intensifying competition, and rising recruitment costs to shift talent from traditional software engineers to AI specialists as primary reasons for the downgrade. Goldman said it remains positive on the company's long-term transition to internet-based IT services but sees significant near-term headwinds.
Following the revision, Goldman slashed its 2026 and 2027 net profit forecasts for ChinaSoft by 37% and 42%, respectively. The bank now projects revenue to grow 9% in both 2026 and 2027 with a gross margin of 20.5%, resulting in estimated net profits of RMB574 million and RMB693 million.
The new HKD3.1 price target corresponds to a 2027 forecast P/E of 9.6x, in line with the company’s historical trough valuation. This reflects a broader sector de-rating for the software industry as investors grapple with the disruptive potential of generative AI on traditional business models and profitability.
Goldman noted it would turn more positive on the stock if clients' IT services spending recovers, deployments for key partner Huawei exceed expectations, or the company's investments in AI deliver faster-than-expected returns. The broker expects ChinaSoft's earnings to bottom in 2025 before a gradual recovery.
This article is for informational purposes only and does not constitute investment advice.
