The largest enterprise-level DLM (Device Lifecycle Management) provider in China. Little Bear U Rental, a brand owned by Lingxiong Technology, is the largest enterprise-level DLM supplier in China. It provides enterprises with full-stack services including IT equipment subscriptions, IT technical services, SaaS-based device management services, and IT equipment recycling. It solves pain points such as financial pressure, slow technical support response, poor IT equipment management flexibility, and low IT equipment utilization rate for enterprises to comprehensively solve the equipment lifecycle management problems faced by Chinese enterprises, and help enterprises reduce costs and increase efficiency and develop with high quality.
China's IT equipment subscription industry has huge potential. Compared to overseas markets, the penetration rate and acceptance of IT equipment leasing in China is very low. According to the relevant report published by DBI, in foreign countries, the penetration rate and acceptance of IT equipment leasing is far higher than in China, and the IT equipment leasing penetration rate in the US is 59%; in Europe, 63% of listed IT companies use the equipment leasing model, while in China, the market penetration rate of IT equipment leasing (including financial leasing) is only 4.9%, and the market potential is huge (Ling Xiong Technology's potential market growth space is 20 times).
The company has core industry barriers. The IT device subscription industry seems to have simple business logic, but the threshold is actually very high, especially to become an industry leader. The company's core competencies (industry barriers) include: (1) the closed-loop DLM ecosystem can generate strong synergies, IT equipment utilization is significantly improved, cross-selling reinforces its synergies, and customer stickiness is high; (2) a complete and strong recycling and refurbishment industry chain. Being able to collect everything, collect and rent, collect and sell is the core of recycling services. It is a strong service, and has strong support and synergies with device subscription services; (3) The intelligent risk control system is essential to the development of DLM business, and the company maintains a very low bad debt rate all year round; (4) strong support from strategic shareholders. The company has three strategic industrial shareholders, JD, Tencent, and Lenovo, as well as government industrial funds, which provide them with valuable resources. JD has completed deep integration with the company at the system platform level and has fully opened up the company's entrance traffic. Its 8 million enterprise customers can directly purchase IT equipment subscription services leased by Little Bear U on the JD platform.
Financial forecast: We expect the company to achieve total revenue of RMB 1,797/24.05/RMB 3.401 billion, with a CAGR of 36.7% from 2022-2024; adjusted EBITDA of RMB 289/424/697 million, and adjusted net profit of RMB 5 million/46 million/RMB 133 million. The company has already reached the break-even point and will enter a state of continuous profit for the next three years.
Valuation suggestion: The company's DLM model combines the characteristics of the IDC industry (cabinet leasing), IT operation and maintenance services, and SaaS industries. Therefore, we selected companies in these three industries to compare and evaluate using a weighted average method. We gave the company 12 times EV/EBITDA (IDC) and 2.5 times PS (IT Operation and SaaS). According to estimates, the company's valuation in 2023 was 5.54 billion yuan, and the target price was 15.68 yuan/share, corresponding to 17.51 HKD/share. For the first time, it covered the “superior to market” rating.
Risk warning: The growth rate of the company's monetization business (equipment subscription+IT service) fell short of expectations, which in turn affected the level of EBITDA; the growth rate of the company's total revenue fell short of expectations.