Performance performance

On October 30, 2023, the company released its report for the third quarter of 2023. 23Q1-Q3 achieved revenue of 223 million, a year-on-year increase of 30.05%, of which Q3 achieved revenue of $85 million in '23, an increase of 15.04% over the previous year. Q1-Q3 in '23 achieved net profit of $269 million, of which Q3 in '23 achieved net profit of $79 million. In Q1-Q3 in '23, net profit deducted from net income of $297 million was realized, of which in Q3 of '23, net profit after deducting non-return of net profit was $87 million.

In Q1-Q3 in '23, the company achieved a gross profit margin of 59.06%, of which Q3 achieved a gross profit margin of 71.76%; in Q1-Q3 in '23, it achieved a net cash flow outflow from operating activities of -354 million, a year-on-year increase in net outflow of 29.52% year-on-year, of which the net outflow from operating activities in 23Q3 was -108 million, and the net outflow increased by 63.55%.

In Q1-Q3 in '23, the sales expense ratio of the company was 77.36%, down 0.14pct year on year; the management expense ratio was 47.92%, down 1.11pct year on year; and the R&D expense rate was 68.24%, down 7.31 pct year on year. The sales expense ratio for Q3 in '23 was 71.18%, up 9.98 pct year on year; the management expense ratio was 45.08%, up 9.42 pct year on year; and the R&D expense rate was 58.16%, down 5.12 pct year on year.

Key points of investment

The company's big model boom has popularized AI applications, shortening the link from data to decision. Under this major trend, the company launched Sophon LLMops's toolchain to manage 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 space dimensions of the big models; launch two field models, the big financial model “infinite” and the big model of data analysis” “Seek” to promote the high-frequency use of financial and big data analysis.

Starlink Technology was recommended by Gartner's guide. AI empowerment is expected to witness the steady growth of the Chinese analysis platform market. In the 2023 “Market Guide for AnalyticsPlatforms, China, August 2023” (China, August 2023) published by Gartner, Starlink Technology was selected as a representative manufacturer with its intelligent analysis tool Sophon Base. It is worth mentioning that since Gartner first published the “China Analysis Platform Market Guide” in 2022, Starlink Technology has been selected for this report for two consecutive years as a representative manufacturer.

Gartner stated in the guide, “As China attaches importance to the development of the digital economy, China's analytics platform market is receiving more attention than ever before.” According to Gartner's forecast, “China's analytics platform market grew by 19% in 2023 and will reach 23% by 2026. The overall growth rate and growth rate is largely above the global average and other economies.” And technologies such as analytical portals, enhanced functionality, and generative artificial intelligence driven by large language models (LLM) will bring new vitality to the entire market. According to Gartner's report data, “By 2024, Chinese suppliers are expected to have 79% of China's market share, which is equivalent to transferring $22 million from non-Chinese suppliers to Chinese suppliers.”

The policy is driving a wave of domestic substitution. Domestic production databases have alternative space and technical capacity to replace them.

State Assets Administration Commission Document No. 79 clearly states that the 2+8+N Party and Government will complete 100% domestic substitution in eight key industries by 2027. Currently, the overall domestic penetration rate is only about 10%, and a clear domestic production substitution policy will open up the blue ocean market with a 60 billion domestic production database. 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 path of replacement from 0 to 1 has already begun. Starlink lays out a distributed database, and the entire industry chain covers a highly focused domestic alternative to the startup industry. Under the new policy, finance and government are the two most important segments for promoting domestic database construction. It is estimated that the market size of the two will reach 27 billion in 2025. With leading technology, channel support, and full industry chain coverage, Starring is expected to achieve a breakthrough in the database from 0 to 1.

Profit forecasting and valuation

We expect the company to achieve operating income of 506/700/978 million yuan in 2023-2025, with a year-on-year growth rate of 35.69%/38.52%/39.70%; net profit from the mother in 2023-2025 is -2.85/-2.21/-89 million yuan, respectively, corresponding to 9.55 times P/S in 2024, maintaining the “buy” rating.

Risk warning

Competition in the industry intensifies, business expansion falls short of expectations, products and services provided cannot meet policy requirements in a timely manner, and the risk that progress in domestic substitution does not meet expectations, etc.