Company Profile

Beyondsoft Corporation （002649: SZ） is China’s leading software and IT service outsourcingcompany, covering businesses of R&D engineering, enterprise application and IT servicesEvent

Beyondsoft Corp’s wholly-owned subsidiary Beyondsoft Consulting North America announcedthat it plans to acquire a 70% stake in 1Strategy, a consulting firm focused on providingcustomers with design, implementation and services on the Amazon Web Services （AWS）Cloud, with a total of USD 1.845 million. The strategic partnership with 1Strategy strengthensBeyondsoft's business enterprise by further extending its delivery and developmentcapabilities to the AWS Cloud.

Comment

The acquisition of 1Strategy will enable the Beyondsoft to accelerate expanding into thecloud computing industry. According to the acquisition agreement, Beyondsoft would acquirea 70% stake in 1Strategy with USD 1.85 million. As a senior consulting partner with AWS,1Strategy focuses on providing customers with design, implementation and services on theAWS Cloud; its key team members all came from the world’s leading cloud computing serviceprovider. The company is able to provide migration, automatic operation and deploymentsolutions on AWS for clients of all industries. 1Strategy provides architecture and developmentservices for enterprises in Washington and Utah. The strategic partnership with 1Strategystrengthens Beyondsoft's business enterprise by further extending its delivery anddevelopment capabilities to the AWS Cloud. In addition, Beyondsoft will gain strengths inproviding various cloud services including cloud consulting, cloud migration and cloudarchitecture. AWS currently leads the world’ s cloud computing industry. Through acquiring1Strategy, Beyondsoft’s competency in the cloud computing area will be further strengthened.

Earnings of AWS was on explosive growth. The growth prospects of the cloud migrationbusiness merit high attention. On April 29, Amazon released its 16Q1 financial report, statinghast it has managed to turn loss into profit thanks to explosive growth of earnings from AWS.

Particularly, in 16Q1, AWS made USD 2.57 billion in operating revenue, up 64% YoY. Theoperating profit was USD 604 million, up 128% YoY. After releasing its 16Q1 financial report,the stock price of Amazon surged by 14% within two trading days. The explosive earningsgrowth recorded by AWS is indicative of growth potential of the cloud computing industry. Atpresent, the penetration rate of cloud computing business in US far exceeds that in China. Thissuggests that there is still wide room for growth in China’s cloud computing industry.

Through carrying out cloud migration businesses, the traditional IT service provider is able togradually expand its presence into the cloud computing industry. Cloud migration serviceproviders are able to access resources along the cloud computing industry chain andaccumulate experiences in providing cloud services. China’s cloud computing industry is still inits initial stage of development. The domestic cloud migration service providers are embracingvast development opportunities. Beyondsoft has started providing consulting services,engaged in system construction, data migration, disaster recovery backup and businessoperations. With distinctive strength, the company is expected to achieve fast growth in thenear term.

The introduction of the stock incentive scheme will provide impetus for the company’sfuture growth. The company launched a restrictive stock incentive scheme at the end of 2015,offering a total of 10 million restrictive shares to its 301 executive s and key staff member. Theincentive scheme has covered a large number of employees, with 40% shares unlocked in thefirst year, 30% shares unlocked in the second year and 30% shares unlocked in the third year.

To have these restrictive shares unfrozen, the company needs to achieve earnings increase of40% in 2015, 30% in 2016 and 30% in 2017, as compared with the figure for 2014. Theintroduction of the stock incentive scheme will provide impetus for the company’s futuregrowth.

Earnings Forecast and Investment Recommendations: We made our EPS forecast for thecompany at CNY 1.13 in 2016, CNY 1.40 in 2017 and CNY 1.63 in 2018. We have strongconfidence towards the company’s competency in the field of cloud migration. ReiterateOUTPERFORM.

Potential Risk: Intensifying market competency, foreign exchange fluctuation,slower-than-expected new business development