Large enterprises ERP market leader, traditional management software business to maintain rapid growth
Benefiting from the trend of software localization and cloud transformation, Chinese-made ERP suppliers in the domestic ERP market have gradually squeezed the share of overseas enterprises. Tide International is the fourth largest ERP supplier in China, second only to users, SAP and Kingdee. It has benefited from the informationization trend of state-owned enterprise reform and enhanced the competitiveness of its own products. Its market share in domestic ERP has expanded from 8% in 2009 to 11% in 2018. Different product systems and customer coverage are different. Wave International covers a customer group that is relatively close to users, maintaining a leading position in the group's ERP field, with a market share of 18.1% in 2018, but relatively weak in the small and medium-sized enterprise market. The gradual consolidation of traditional ERP products and customer base is expected to continue steady growth, operator OSS business benefits from the 5G era demand release is expected to accelerate growth, while software outsourcing business relies on existing customer demand to maintain steady growth, we expect traditional management software business to maintain double-digit healthy growth, 18-21E revenue CAGR about 11%.
Open the space for medium-and long-term performance growth and valuation at the start of cloud transformation
The domestic cloud ERP market is still in the early stage of development, and there is much room for improvement in penetration. At present, only the international giants SAP and ORACLE, as well as domestic leaders Kingdee, user, and Chaochao have launched cloud ERP solutions in the Chinese market, while other companies are mostly focused on segments such as OA. Although the pace of cloud transformation lags behind that of Kingdee and users, thanks to the overall rapid growth dividend of the domestic cloud ERP industry and the completion of its own products and client capabilities, cloud business is expected to achieve high-speed growth in the future. The company has established a cloud product system covering large, medium and small enterprises, extending the advantages of large customer coverage and product applications to a certain extent; cooperation with Odoo will help it accelerate the development of the SME market. We estimate that 18-21E's cloud business revenue CAGR will reach 85%, and its revenue share will increase from 8% in 18 years to 28% in 21 years.
Valuation and rating
The company's traditional management software business and Internet of things solution business are expected to continue to grow steadily, while the rapid growth of cloud services business opens room for medium-and long-term development. With the expansion of the scale of cloud business and the expansion of revenue share, the market has increased recognition of its cloud business prospects, and is expected to gradually switch to the segment valuation method, using PS valuation method for cloud business to open up the company's valuation space. Based on the segment valuation method, the target price is given a target price of HK $5.00, corresponding to 20x PE in 2019, and the valuation level is within a reasonable range of the absolute valuation, giving a "buy" rating for the first time.
Risk hint: cloud business scale expansion is not as expected; cloud business profit improvement is not as expected; traditional ERP business growth is slowing down.