Tianrun Cloud is a domestic technology-driven customer contact SaaS company. Tianrun Cloud Co., Ltd. was established in 2021 (Tianrun Rongtong, its main domestic operator, was founded in 2006) and listed on the main board of the Hong Kong Stock Exchange in 2022 (2167.HK). According to the company's official website, its customer contact solutions are divided into six major segments: customer service cloud, marketing cloud, intelligent cloud, communication cloud, and competency platform. From a scenario perspective, the company's customer contact products mainly serve scenarios such as sales, marketing, customer service, shared service centers, and omni-channel intelligent customer service. In 2019-2021, the company's revenue increased from 334.81 million yuan to 401.90 million yuan, with an annual CAGR of 9.6%; in 2022, revenue was 383.24 million yuan, a year-on-year decrease of 4.8%. In 2019-2020, the company's main business achieved net profit of 59 million yuan (profit margin 18%) and 70 million yuan (profit margin 20%), respectively, indicating that the company has strong profitability; in 2021-2022, the company's net profit was 18 million and -7 million respectively. The decline in profitability was mainly due to the decline in domestic economic prosperity during the pandemic, the decline in customer contribution revenue in the education industry, and the increase in one-time expenses for sales and R&D expenses. We believe that the current domestic epidemic has subsided, the economy is gradually recovering, and the company's main business profit will return to a high level.

There is a lot of room for improvement in Tianrunyun's market share. According to the Insight Consulting report, China's customer contact market size (in terms of revenue) increased from 9.5 billion yuan in 2017 to 15 billion yuan in 2021, with a compound annual growth rate of 12.0%. It is expected to reach 32 billion yuan in 2026, and a compound annual growth rate of 16.3% from 2021 to 2026. Based on the public cloud market, Tianrun Cloud's revenue in 2021 was 400 million yuan. Tianrun Cloud is the largest provider of public cloud customer contact solutions in China, with a market share of about 10.3%. If you calculate the overall domestic customer contact market size, Tianrun Cloud's market share is only 2.7%. Compared to leading overseas companies, the company's revenue scale and market share are low, mainly because there are currently a large number of small and medium-sized technology service providers in the domestic customer contact industry, and there are opportunities for integration in the industry. According to Insight Consulting, the customer contact solutions industry in China had about 1,500 contenders in 2021. We believe that the company is a leader in the domestic industry and has leading technical solutions, so there is a lot of room for improvement in the company's market share.

Develop micro-tenge language models and achieve commercial value. Artificial intelligence technology represented by the large language model will drive customer communication from self-service to the intelligent era. In March 2023, the company launched the Weiteng language model; in August 2023, the company released the “Weiteng Language Model Platform 2.0”. As a vertical model for customer communication scenarios, the Weiteng Language Model Platform uses enterprise knowledge management as a breakthrough. By consolidating the enterprise knowledge base, it intelligently empowers various processes such as marketing, sales, and service. At present, the company's large language model vertical industry solutions have been verified by market customers in the Internet, automobile, retail, manufacturing and other industries. In the long run, large language model technology will empower the company's omni-channel customer service, call centers, text robots, voice robots, unified knowledge bases, conversation analysis, intelligent quality inspection, intelligent work orders, and seat assistance products.

Focus on serving large enterprises. Large enterprise customers are a breakthrough point for growth. For large enterprise customers, the company adopts a “grounding” strategy, first reaching a small deal with the big customer, and then expanding its products and business to other departments to provide more services to the same customer. Cooperation with industry-leading customers helps to internalize industry best practices into the company's products on the one hand, and on the other hand, proves that the company's products meet complex customer needs and have a benchmark role.

Currently, the company's achievements in serving large enterprise customers are outstanding: (1) Tianrun Cloud accounts for a relatively high share of revenue from major customers. In 2019-2021, the number of major customers was 62/61/57, and the contribution revenue was 247.6/271.7/299.6 million yuan respectively, accounting for 74.0%/76.8%/74.5% of corporate revenue, respectively. (2) The value of large enterprise customers is high. In 2021, the company's single SME customer was worth 33,300 yuan, and the value of a single major customer was 5.2561 million yuan. Tianrun Cloud's large customer payment capacity was 158 times that of the SME customer base.

Investment advice: The company has a mature business model and actively incorporates the big model into its customer contact solutions. We estimate that the company's revenue for 2023-2025 will be 448/5.45/640 million yuan respectively, giving the company 3X PS in 2024, corresponding to a market value of 1.64 billion yuan (HK$1.76 billion, exchange rate date 20231115), giving it a “highly recommended” rating.

Risk warning: SaaS customer retention rate is low, big customer expansion is difficult, big model enablement products are not widely recognized by customers, etc.