Citi released a research report stating that despite continued weakness in IT spending, after three consecutive years of earnings estimate downgrades for China's intelligent transportation systems (ITS) and software industry, the bank began upgrading ratings on certain companies in the sector from the second quarter of 2026, citing AI-related business development, strengthened cost controls, and stabilizing revenues.

The bank is bullish on Chinasoft International (00354), Thunder Software Technology (300496.SZ), and Kingdee International (00268), while taking a relatively cautious view on Yonyou Network (600588.SH) and NavInfo (002405.SZ).

Among the 11 ITS and software companies covered by Citi, six delivered results that either exceeded or met expectations in the second quarter and first half of 2026. The industry is showing divergence: AI-driven companies including Chinasoft International, Kingdee International, Sangfor (300454.SZ), and Thunder Software Technology demonstrated strong momentum, while traditional software and real estate-related vertical players such as Yonyou Network, Glodon (002410.SZ), Mingyuan Cloud (00909), and NavInfo continued to post disappointing revenue performance.

Profitability generally improved as nearly all sub-sectors implemented structural control over operating expenses. The bank favors Chinasoft International, Thunder Software Technology, and Kingdee International, while holding a relatively cautious view on Yonyou Network and NavInfo, which received the lowest ratings.

Benefiting from the booming cloud and AI infrastructure market, Citi upgraded Sangfor's investment rating from "Sell" to "Neutral" and raised its target price by 42% from 104 yuan to 148 yuan. The bank upgraded Thunder Software Technology's investment rating from "Neutral" to "Buy" and lowered its target price by 6.4% from 78 yuan to 73 yuan.

Citi noted that although hardware product mix diluted gross margins in the short term, edge AI and smart IoT business growth momentum remains strong.

Given continued weakness in China's domestic construction demand, Citi lowered Glodon's target price by 16% from 9.4 yuan to 7.9 yuan and maintained its "Sell" rating. The bank lowered NavInfo's target price by 9.2% from 6.5 yuan to 5.9 yuan and maintained its "Sell" rating, mainly due to persistent pressure on profitability and declining average selling prices in automotive-related businesses.

The bank maintained Qi An Xin's (002439.SZ) target price at 11.5 yuan and kept its "Sell" rating, as gross margin pressure from rising storage raw material costs and competitive pricing offset positive factors from revenue recovery.

Previously, Citi had already upgraded Chinasoft International's investment rating from "Neutral" to "Buy" based on AI business commercialization and monetization, and upgraded Mingyuan Cloud's rating from "Neutral" to "Buy" based on valuation considerations following its first-half 2026 results.