We use P/E multiple to value Asiainfo considering their ongoing business transformation. Our target price of HK$11.0 is based on 13.1x FY25 P/E, which is around 1.5SD above its 5-year historical average on an up-cycle multiple to factor in earnings bottom-out, latest investor sentiment and LLM-related rev growth prospect. Our 13.1x P/E is largely in-line with H-share ITS company average, which was derived from 9.7x historical average P/E on traditional business and 2.0x emerging business revenue.

Key downside risks that could prevent the shares from reaching our target price include: 1) high customer concentration with China's telecom operators, which generate most of the company's revenue; 2) any slowdown in China's telecom sector; 3) potential regulatory changes; 4) rapidly evolving technology with R&D costs and risks; 5) intensifying competition; and 6) negative operating cash flow and working capital. Key upside risks that could prevent the shares from reaching our target price include:1) faster-than-expected revenue recovery and order growth; 2) better-than-expected margin expansion.