Key points of investment:

A leading SaaS vendor in marketing and sales. Established in 2009, Marketingforce is the largest marketing and sales SaaS company in China and the world's leading intelligent marketing cloud platform. The company ① provides marketing and sales software solutions to Chinese enterprise customers through software as a service (SaaS), and ② provides accurate marketing services to help advertisers advertise on leading media platforms and effectively reach target audiences.

In 2021-2023, the company's SaaS business revenue accounted for 50.0%/46.4%/57.0%, respectively, and precision marketing services accounted for 50.0%/53.6%/43.0%, respectively.

One-stop, full-link, full-scenario SaaS products to help digitalize marketing and sales. The company has built a multi-tiered Marketingforce platform that closely integrates technical infrastructure, data center and SaaS products with each other. By the end of 2023, the functional module platform included 237 functional modules, covering six key stages of the entire marketing and sales process, including content and experience, advertising and promotion, social and relationship, sales and pleasure, data and analytics, and strategy and management. The Marketingforce platform enables SaaS product development, iteration, and customization. Ready-to-use functional modules reduce the time and resources required for development, and new modules can be easily added to users' subscriptions without disrupting existing products. Based on the common needs of specific customer groups, the company designed and launched two iconic SaaS products, namely Marketing SaaS Product T Cloud and Selling SaaS Product Jeanker, which include pre-configured functional modules selected from a matrix of functional modules to form an appropriate marketing method. Additionally, users can flexibly customize their subscription versions by customizing combinations or adding other functional modules.

The SaaS business continues to grow rapidly, and Zhenke Professional Edition helps increase customer unit prices. The company's SaaS business grew rapidly from 0.15 billion yuan in revenue in 2019 to 0.702 billion yuan in 2023, with a compound growth rate of 47.13%, mainly due to ① the company continues to launch new functional modules and improve the effectiveness of existing functional modules to better meet the changing needs of customers; ② the sales network is growing rapidly; ③ the company provides high-quality services to help customers succeed. The number of users in the company's SaaS business increased to 25,495 in 2023, and the average contract value per user increased to RMB 51238, of which the number of customers contributing more than 0.2 million yuan increased from 376 in 2022 to 501 in 2023. High-value customers with a relatively large operating scale mainly buy the Professional Edition of Jeanke and require more user accounts and/or large-scale data usage for marketing content distribution, leading to higher consumption under the Professional Edition pricing model.

The quality and efficiency of operations improved, and net losses continued to narrow. The company's adjusted net loss for 2021-2023 (non-IFRS measurement) was $0.131/0.132/0.028 billion, respectively. The loss reduction in 2023 was clearly mainly due to an increase in gross profit due to increased revenue contributions to the SaaS business, as well as a reduction in R&D expenses due to improved efficiency and cost efficiency of R&D work. According to the company's prospectus, citing Frost & Sullivan, SaaS solution providers often lose money when expanding their business due to the time gap between revenue recognition and operating expenses. The company plans to continue to expand its customer base and optimize product capabilities to retain more users by implementing marketing strategies, promote continuous revenue growth to achieve profits, and control costs and expenses by improving operational efficiency.

The combined size of the marketing and sales SaaS market is growing at a compound rate of nearly 30%, and the prospects are broad. Compared with other solutions that mainly focus on improving the efficiency of back-end operations, such as human resources management and supply chain management, enterprises are more willing to pay for marketing and sales SaaS solutions, which can improve lead acquisition and promote revenue growth, with the most significant results. According to Frost & Sullivan's prospectus, the marketing and sales SaaS solutions market grew from RMB 7.3 billion in 2018 to RMB 20.6 billion in 2022, with a compound annual growth rate of 29.7%; the market size of marketing and sales of SaaS solutions is expected to reach 74.5 billion yuan in 2027, with a compound annual growth rate of 29.3% from 2022 to 2027.

Empower with AI to automate marketing and sales growth. The company earlier deployed AI-related products. For example, Zhenwen, Zhentu, and Zhenshi's three artificial intelligence content generation modules were the predecessor of AIGC. The intelligent cloud in the company's current six-cloud system combines analytical AI and generative AI technology. The intelligent cloud's capability deployment includes an industry model (Tforce big model), marketing automation, intelligent question count and data analysis, model application components, knowledge base and AI robots, and generative AI applications. Intelligent clouds not only use AI technology to provide enterprises with in-depth data analysis and predictive models, but also automatically generate efficient marketing content and strategies to help enterprises achieve accurate marketing and customer relationship management, optimize customer interaction experiences, and enhance conversion rates and market competitiveness. Based on the Tforce big model, Marketingforce is deeply integrating AI technology into the core services of various modules such as marketing and sales to create a next-generation marketing platform.

Profit forecasting and investment advice. We believe that as a leading SaaS marketing and sales enterprise, the company has a full-link product system and a strong sales and service network. It targets both small and medium-sized enterprise customers (SMB) and large customers (KA). Two-wheel drive opens up long-term market space. We expect that with the continuous optimization of the company's product system, the continuous improvement of AI application maturity, and the continuous expansion of major customers, the enterprise SaaS business will accelerate growth. We expect the corporate SaaS business growth rate to be 28%/40%/45% in 2024-2026, respectively; we expect precision marketing services to maintain steady growth as the economic environment recovers, and we expect the growth rate of precision marketing services to be 15%/20%/20% respectively in 2024-2026. As the share of SaaS business of enterprises with high gross margins increases, we expect the company's overall gross margin to increase to 58.8%/60.9%/63.1% in 2024-2026. We expect the company's revenue for 2024-2026 to be 1.508/1.99/2.702 billion yuan, up 22.4%/31.9%/35.8% year on year; net profit to mother will be -0.108/-0.058/0.018 billion yuan, respectively, up 36.1%/46.1%/130.6% year on year. Referring to comparable companies, considering that the company is in a stage of rapid growth, the company was given 17-18 times the 2024 dynamic PS. Based on 2024 operating income of 1.508 billion yuan, the reasonable market capitalization range was 25.64-27.148 billion yuan (27.869-29.509 billion HKD, converted to 1 HKD = 0.92 yuan), and the corresponding reasonable value range was RMB 109.03-115.44 (118.51- HK$125.48, based on HKD1 = RMB0.92) /share, covered for the first time, giving it a “superior to the market” rating.

Risk warning. Market demand falls short of expectations; business losses fall short of expectations; market competition intensifies.