Chinasoft Intl (0354.HK): China AI to drive growth ahead; Sell

We are positive on Chinasoft Intl.'s migration from traditional IT outsourcing to internet-based IT services and believe earnings bottomed in 2025 (2021-25A net income CAGR of -27%), expecting net income to grow at a 43% CAGR over 2025-28E and revenue at roughly 9% CAGR, driven by a refocus on AI-related services such as deploying Huawei's Harmony OS, Ascend AI chips and Pangu foundation models, developing industry-specific foundation models and enterprise AI agents/application software, and using generative AI to improve operating efficiency. We raise 2026-28E net income by 19%/11%/13% on lower opex ratios (down 1.0/0.7/0.7ppts). Our new target price is HK$3.0 (vs. HK$3.1 previously), based on an 8.6x target P/E derived from low-end peers' average ratio, reflecting sector de-rating amid modest China IT services spending and concerns over generative AI disruption. We maintain our Sell rating.