Investment highlights

The first coverage of Dameng data (688692) gave the industry a rating of outperforming, with a target price of 252.00 yuan and a target market value of 19.2 billion yuan (based on the DCF valuation method), corresponding to 58/48x 2024/2025e P/E. Dameng is a leading domestic centralized database company, leading the iterative upgrade of domestic databases from “usable” to “easy to use” with the joint promotion of “production, learning, and research”. The reasons are as follows:

Pattern: Achieving phased results on the government side, and continuing to penetrate the industry side in the future. Dameng Data was born out of the Dameng Database and Multimedia Research Institute of Huazhong University of Science and Technology. It started as a first-generation independent knowledge copyright database product in China. According to reports related to the CCID consultant database, the company ranked first in domestic database market share in 2022 during the peak period of government localization. We are optimistic that it will continue to increase the penetration of industry-side systems with DM8 and DMDSC's benchmark case experience. Since research and production started earlier, overseas manufacturers such as Oracle, IBM DB2, and Microsoft SQL Server quickly occupied key customer markets after entering China in the 1980s. There is a long way to go to replace domestic production, and the industry-side pattern is undecided. Dameng Data focuses on database production and research, and has achieved results in the government localization stage. We believe that Dameng is expected to continue to increase its share of industry-side localized deep-water regions with rich experience, centralized+distributed and localized+cloud-based product portfolios, domestic replacement of core codes, and ecological support.

Space: Localized databases are a sea of stars, and the 10 billion market still needs to be tapped. We divided downstream domestic database customers into two major directions, government affairs and industry, and measured the market space available to Dameng data on multiple key tracks. The total localization space for online transaction databases (including centralized and distributed) exceeded 50 billion yuan, and the annual space for the next 4-5 years was about 10-12 billion yuan. As the pace of the industry gradually progresses towards the industry side, we believe that the company's future market potential is still worth looking forward to.

Certainty: Introducing new ideas, the triple characteristic helps the market move upward. We believe that original innovation on the technology side, high compatibility on the product side, and benchmark customer leadership on the ecological side will help the company achieve the “dream” path. In 2023, the company's revenue ratio from government affairs and industry was about 3:7. The industry expanded into the fields of finance, energy, aviation, communications, etc., and has become a product company with comprehensive customer coverage. Facing the future, we believe that the company is expected to grow vigorously from the perspective of the entire life cycle of layout data into a data intelligence enterprise that accompanies the digital transformation and upgrading of enterprises, leveraging its growth curve to a wider market.

What is our biggest difference from the market? The market is concerned about the spatial and layout of domestic databases. We cut into the space related to quantitative measurement from the perspective of product, technology, and customer base characteristics, analyze the product elements required for localization on the industry side and match Dameng's reserves. We are optimistic about Dameng's future market development.

Potential catalysts: breakthroughs on the product development side; acceleration of industry-side localization.

Profit forecasting and valuation

We expect the company's 2024/25 EPS to be 4.32/5.30 yuan, respectively, and a CAGR of 17%. The first coverage gave the industry a rating of 252 yuan, a target market value of 19.2 billion yuan (based on the DCF valuation method), the target market value corresponds to 58/48x 2024/2025e P/E and 21/17x 2024/2025e P/S, and the current valuation corresponds to 51/42x 2024/2025e P/E and 19/16x 2024/2025e P/S, with 13% upward space.

risks

Market competition risk; risk of bad debts in accounts receivable; risk of concentrated channel sales revenue.