Yonyou Network (600588.SS): Another transition, with value capture to prove; assume coverage at Underweight

We assume coverage of Yonyou with an Underweight rating and a Dec-27 price target of Rmb6, based on 45x 2028E P/E. The 45x 2028E P/E primarily reflects Yonyou's position as one of the few scaled enterprise-software franchise companies in the A-share market. We believe Yonyou is a useful example of why opportunity and scarcity alone do not determine value creation in the AI value chain. Enterprise AI expands the addressable spending pool beyond traditional IT budgets, while Yonyou owns scarce enterprise state, permissions, workflows and transaction execution through its BIP (Business Innovation Platform). However, its historical conversion of these assets into revenue growth, profitability and cash returns has been relatively weak. We therefore will watch for the company to deliver at a higher level, reflecting value capture in the current AI transition. AI expands the opportunity, while competition for the incremental value pool is also widening. Reported AI revenue shows adoption, but