Based on Huawei's core root technology, we have comprehensively built domestic basic software. 1) With SwanLinkOS as the core product, we are fully deploying Hongmeng to enhance its future potential. The company relied on its subsidiary Honghu Wanlian to create SwanLinkOS, the industry's first operating system with a cross-instruction set. At present, Honghu Wanlian has reached strategic cooperation with leading companies such as Riyadh, Alliot, and Shimatai to be applied in various industries such as electricity. 2) “Pure Blood Hongmeng” + PC side layout to continuously improve the Hongmeng ecosystem. “Pure Blood Hongmeng” has entered a new stage of development, and the rapid growth of native Hongmeng applications has promoted the continued prosperity of the Hongmeng ecosystem. At the same time, the important potential of the PC market is compounded by major trends in the development of the innovation industry. Hongmeng is expected to open up new space for development. Honghu Wanlian, a subsidiary of Softcom Power, took the lead in completing the application of the OpenHarmony operating system to the PC side, and the demonstration effect is outstanding.
The strategic acquisition of Tongfang Computer will create a “software and hardware integration” full-stack capability. 1) The company acquired Tongfang Computer to create a “software and hardware integration” full-stack capability. Tongfang Computer focuses on R&D and production, solution design and implementation services for computer-related hardware products and peripherals, and is expected to launch more and better overall domestic IT infrastructure solutions and products; Tongfang International targets the consumer market and actively promotes smart electronic product-related business development. 2) Tongfang Computer and Tongfang International achieved good revenue growth in 2023. Tongfang Computer's revenue in 2022 was 4.02 billion yuan, reaching 4.41 billion yuan in 2023; Tongfang International's revenue reached 5.45 billion yuan in 2022 and 9.59 billion yuan in 2023. Adding up the revenue of Tongfang Computer and Tongfang International, the total revenue in 2023 reached about 14 billion yuan, an increase of about 50% over the previous year. 3) “Mechanical Revolution”, an important brand under Tongfang Computer, has a high market position. According to the “2023 Annual Top Ten Popular Game Book Brands Sales Volume (Sales) List” published on the official account of Whale Counselor E-Commerce Big Data, Machine Revolution ranked second in the 2023 Top 10 best-selling brands in the game book market. In fact, in November 2023, the sales volume of the mechanical revolution reached a new high. The sales volume of the mechanical revolution from the beginning of 2023 to “Double Eleven” in 2023 has already exceeded 1 million units.
Moving forward to AI PCs, the full stack layout of software and hardware plus AI has important potential. The company relies on the combined end-side computing power advantages of CPU+GPU+NPU formed by the high-performance terminal of the Mechanical Revolution, combined the cloud computing power of the Intelligent Computing Center and the cloud-side ecosystem formed by the Softcom Tianxuan 2.0 MaaS end-side AI model, deeply lays out AIPC infrastructure and ecological development, develops products such as AI smart body assistants, and further creates high-performance mobile terminals covering many scenarios for the AI PC segment, which has important development potential.
Investment advice: The company's Tongfang brand hardware+ “Hongmeng+Eula+Gauss” three basic software+AI platforms have been formally formed. As a company with both underlying hardware capabilities and core software capabilities and a platform-based layout in the AI field, its scarcity is prominent. With the rapid development of AI hardware terminals, 2024 is expected to be the first year of AI PCs. The company seizes the tide of industrial transformation to develop AI PCs, and is expected to create a new growth point for itself in the future. The company's net profit for 2024-2026 is estimated to be 770, 10.58, and 1,417 billion yuan respectively. The PE corresponding to the current stock price is 48X, 35X, and 26X, respectively, maintaining the “recommended” rating.
Risk warning: the risk of increased competition in the industry; the risk of technological change; the risk of policy implementation falling short of expectations.