King's Financial News | Citi Research pointed out that inspur digi ent (00596)'s main products, Haiyue PaaS platform, Haiyue GS Cloud, intelligent ERP inSuite, etc., can serve enterprises of all sizes to solidify the digital technology foundation for customers, create intelligent manufacturing overall solutions for enterprises, and provide specialized services such as digital supply chain, intelligent factories, and industrial intelligence scenarios. Since 2017, the company has accelerated its transformation to cloud computing services, with rapid growth in cloud service revenue becoming the core driving force of the company.

The bank pointed out that the company's cloud service revenue compound growth rate from 2019 to 2023 was 50.7%; the cloud service revenue ratio in 2023 was 24.1%, and is expected to maintain a growth trend. The operating profit loss rate of the cloud business has been continuously improving in recent years, reaching -2.8% in 2023. It is expected that the cloud services will start turning losses into profits in 2024, gradually driving the overall profit improvement of the company.

The bank stated that the company's actual controlling shareholder is the Shandong Provincial State-owned Assets Supervision and Administration Commission, with the parent company being Inspur Group. We believe that in the trend of steady increase in market share of domestic enterprise software, Inspur Digi ent is expected to solidify its moat and achieve steady profit growth. It is forecasted that the company's FY24E/FY25E revenue will grow by 20.7%/20.1%; with gross margin expansion and profitability contribution from cloud services, FY24E/FY25E net income is expected to grow by 77.0%/45.0% to 0.36 billion/0.52 billion yuan. Giving a FY24E 1.0x p/s ratio (excluding IoT solution business) or FY25E 0.8x p/s ratio, corresponding to an FY25E 11x pe valuation, with a target price of 5.50 Hong Kong dollars. First coverage, "buy" rating assigned.