Incident reviews:

On August 29, 2023, Starlink Technology released its semi-annual report for 2023.

Key points of investment

23H1's revenue has increased dramatically, and R&D investment continues to grow. In terms of overall performance, it is expected to accumulate in the future (1):

23H1's revenue was 138 million, up 41.38% from 98 million in the same period last year. Net profit attributable to parent was 190 million, net profit after deducting non-return net profit of 210 million.

23Q2 revenue was 95 million, an increase of 29.74% over the same period last year. Net profit attributable to parent was 104 million, net profit after deducting non-return net profit of 112 million. Due to the current small revenue scale of the company, it has not yet formed a prominent scale effect. It is still not enough to support the expenses generated by the company in business development and technology research and development, causing the company's net profit to be in a state of loss.

(2) In terms of costs and expenses:

23H1's operating cost was 67.25 million, an increase of 33.11% over the same period last year, and 23Q2's operating cost was 46.44 million, an increase of 23.75% over the previous year;

23H1's sales expenses were 112 million, up 27.76% year on year compared to 88 million in the same period last year, and sales expenses of 23Q2 were 64.36 million, up 29.79% year on year compared to 49.59 million in the same period last year. The company adheres to the “independent research and development, leading the generation” technology development strategy. Currently, it is in a period of rapid growth, and continues to invest heavily in R&D, sales and management.

23H1's R&D expenses were 103 million, up 24.08% year-on-year from 83 million in the same period last year, and 23Q2 R&D expenses were 52.03 million, up 20.86% year-on-year from 43.05 million in the same period last year. The company continued to pay attention to investment in R&D and sales expenses in the second quarter. We believe that with the gradual arrival of the company's personnel, there is room for future revenue growth worth looking forward to.

The big model boom is democratizing AI applications and shortening the link from data to decision making. Under this major trend, the company launched Sophon LLMops's tool chain and a collection of best practices for managing the full life cycle of large models and corresponding applications to help enterprises build their own big models; launched the vector database Transwarp Hippo to store, index, and manage vector data sets to expand the time and spatial dimensions of the big model; and launched two domain models. The financial model “no end” and the big data analysis model “search” to promote the high-frequency use of financial and big data analysis.

Policies promote a wave of domestic substitution, and domestic databases have alternative space and technical capabilities to replace them. Document No. 79 of the State Assets Administration Commission clearly states that 2+8+N of party and government and 100% domestic substitution of eight key industries will be completed by 2027. Currently, the overall domestic product penetration rate is only about 10%, and a clear domestic substitution policy will open up the 60 billion domestic database blue ocean market. At the same time, domestic substitution has begun to bear fruit. The market share of the four major foreign investors has declined by 20.8% in three years, and the substitution path from 0 to 1 has begun. Star Ring lays out a distributed database, covering the entire industry chain, with a high focus on domestic alternatives to startup industries. Under the new policy, finance and government are the two most important segments for promoting the construction of domestic databases. The market size of the two is expected to reach 27 billion dollars by 2025. With the advantages of leading technology, channel support, and full industry chain coverage, Starlink is expected to achieve a breakthrough in the database from 0 to 1.

Technology leadership: With rich technology accumulation and no longer relying on overseas open source technology, Starlink was the first to implement self-research for distributed databases (code autonomy rate over 90%), obtained multiple international certifications, and effectively solved massive data processing problems; secondly, the company's artificial intelligence platform Sophon Discover V3.0.0 became the first product to pass the TPCX-AI benchmark test under 3 TB of data volume, and passed the review by the Transaction Processing Performance Committee (TPC). Sophon MLOps can be used for machine learning operation and maintenance. It supports unified management, unified operation and maintenance, unified iteration, unified testing, unified application, and unified monitoring of various machine learning models, reducing user model management costs. The future is expected to benefit from the gradual implementation of AI in various industries.

Channel support: Starlink's early core platform software products TDH and TDC have received high recognition and have more than 1,000 stable customers. They mainly cover the two major industries of finance and government, and are highly coincident with the domestic alternative startup industry. The company uses big data-based platform software as a channel entry point, and uses mature basic software sales channels to quickly drive sales of distributed databases and other industrial chain products, so as to achieve rapid growth, market opening up, and increase the market share of latecomer products.

Full industry chain coverage: The basic software for big data includes big data management platforms, data application middleware, intelligent data analysis tools, and databases. Among them, data management platforms and databases are the most critical. However, most competitors are only good at technology in a certain field, which will make it more difficult for users to accept it. In comparison, the coverage and substitution capabilities of Starlink's entire industry chain are more competitive.

Profit forecasting and valuation

We expect the company to achieve operating income of 506/700/978 million yuan in 2023-2025, a year-on-year increase of 35.69%/38.52%/39.70%, respectively; corresponding net profit of -2.87/-2.25/ -92 million yuan, corresponding ROE of -18.31%/-17.20%/-8.03%, maintaining a “buy” rating.

Risk warning

Domestic substitution progress does not meet expectations risks, management risks, etc.