Focusing on the enterprise service circuit, China has the largest market share in the field of machine learning. The fourth paradigm was founded in 2014. Its founder, Dai Wenyuan, pioneered the concept of a general framework for transfer learning and designed one of the earliest artificial intelligence systems in China. The company started with artificial intelligence technologies such as machine learning and transfer learning, focused on the enterprise service circuit, and grew into an absolute industry leader in the segment. Since 2018, the Prophet AI platform has been ranked number one in the market share of machine learning platforms in China for five consecutive years, and has also achieved the number one result in the evaluation ranking of machine learning operation platform (MLOps) manufacturers in China.

It focuses on platforms rather than point solutions, and has a solid customer base. The company has formed a complete product matrix covering computing power infrastructure, operating systems, development tools and applications, and has differentiated enterprise transformation platforms and services to help enterprises set up Polaris index systems and transformation plans that meet their core competitiveness, thereby deeply binding benchmark customers. Thanks to this, the company's benchmark customers have high stickiness: 1) Benchmark customers have a high retention rate, with a customer retention rate of 90.67% in 2022; 2) The average revenue of benchmark customers continued to rise. The average revenue of the company's benchmark customers in 2023 was 18.38 million, an increase of 371% over 2018.

Actively embrace generative AI and promote the upgrading of AIGS's strategy. Under the generative AI wave, the company released the big model in April 2023, and based on this, the company released the AIGS Strategy (AI-Generated Software), which uses generative AI to restructure enterprise software and finally achieve AIGS through the three stages of Copilot, Copilot+ knowledge base, and thought chain COT+Copilot. Currently, the company's big model has been implemented in various industries such as aviation manufacturing and retail to help customers improve operation and management efficiency.

Pointing to the enterprise-level AI agent market, the company has a significant first-mover advantage. We believe that the company's AIGS strategy essentially helps enterprises build AI agents, and in the evolutionary path pointing to AI agents, the company has an outstanding first-mover advantage: 1) the company is a leader in the AI enterprise software segment. This track is suitable for AI agents, and the company has established deep industry knowledge and stronger customer stickiness; 2) The company is based on a platform-level ecological card, which is expected to open up a complete multi-level product system of computing power infrastructure, operating systems, development tools, and application systems to help enterprises reduce marginal development costs. This first-mover advantage is expected to be transformed into a key competitiveness for rapid business implementation. While driving existing benchmark customers to increase paid revenue, it will also push the company to acquire new customers at lower sales expenses, thereby helping the company build a growth flywheel and drive continuous improvement in performance.

Investment advice: The company has grown into one of the leading companies in the field of AI enterprise services. As artificial intelligence enters a new round of development, the demand for new technology application development from enterprise customers will increase significantly, which is expected to drive the company's revenue to continue to increase. It is expected to achieve operating income of 5.255 billion, 6.306 billion, and 7.567 billion yuan in 2024; the reference comparable company average gave the company 6.77 times PS in 2024, corresponding to a six-month target price of HK$82.48, for the first time. grade.

Risk warning: the risk of technology iteration too fast, too high R&D investment, industry growth falling short of expectations, deteriorating industry competition