Benefiting from cloud transformation and localization trends, cloud business losses are expected to narrow. Giving a “buy” rating Considering that the company benefits from both cloud transformation and domestic substitution, cloud service revenue is still expected to grow rapidly. We expect the company's total revenue from 2023-2025 to be 98.5/96.6/10.11 billion yuan, respectively, with a corresponding year-on-year growth rate of 41.4%/-2.0%/4.6%, respectively. Considering the release of the scale effect of the company's cloud business, the share of subscriptions is expected to continue to increase, the loss rate of the cloud business is expected to narrow, and the profit margin of the management software and IoT business is expected to remain stable, we expect the company's net profit to be 2.07/4.21/776 million yuan in 2023-2025, respectively, with a corresponding year-on-year growth rate of 74.5%/103.4%/84.3%, respectively. The company's latest stock price of HK$1.67 corresponds to 7.8/3.8/2.1 times the PE for 2023-2025, respectively. Considering that the company relies on the shareholder background of the Shandong Provincial State-owned Assets Administration Commission and Inspur Group's resource advantages, it is expected that the smooth progress of cloud transformation will release profits in the future, and the “buy” rating will be covered for the first time.
Accelerating cloud transformation, cloud services have become the core driving force of the company's revenue growth. After a long period of penetration and development, the overall market size of the ERP industry has grown steadily. China's 2016-2021 industry market size CAGR reached 13.0%, which is higher than the average growth rate of the global market. The industry concentration has continued to increase in recent years. The company's market share in 2021 reached 20%, and its market share increased significantly. Currently, cloud ERP has both efficiency and cost advantages. Driven by superimposed policies, it is expected to become the mainstream demand of enterprises in the future. After the company's cloud strategy was officially announced in 2017, the company released different cloud architecture products for large, medium, and micro enterprises. Customer migration to cloud products was further accelerated. In 2019-2022, cloud service revenue CAGR reached 53.5%, and cloud service revenue accounted for 35.7% of software revenue in 2022, becoming the core driving force for the company's revenue growth.
The customer base is stable and the competitiveness of its own products is strong. As a state-owned ERP manufacturer, the company is expected to take the lead in benefiting from the increased penetration rate of localization. The actual controller of Inspur Group, its controlling shareholder, Inspur Group, is the Shandong State-owned Assets Administration Commission. It owns four companies, Inspur Information, Inspur Software, Inspur International, and Huaguang Optoelectronics. It has strong comprehensive strength, and the company is expected to continue to benefit from domestic substitution. The company has developed corresponding SaaS products for groups, growth, and small and micro enterprises, with a rich and comprehensive matrix. Through continuous investment in research and development, the company has the advantage of being superior in terms of product power. According to the “2019-2020 China PaaS Market Research Report” published by Keishi Information, Inspur iGix ranked first in overall competitiveness in the APaaS market in 2019 and 2020.
Risk warning: Enterprise cloud migration progress falls short of expectations; market competition intensifies; major customer expansion falls short of expectations