Although affected by macro factors such as economic operation facing new difficulties and challenges, Lingxiong Technology still showed strong development resilience in the first half of the year. On September 26, 2023, Lingxiong Technology (02436.HK), the first stock in China's DaaS (equipment as a service) industry, released the 2023 interim report. According to the report, Lingxiong's revenue in the first half reached 822 million yuan (RMB, the same below), while adjusted EBITDA (profit before tax, interest, depreciation and amortization) increased by about 5.2% to 134 million yuan compared with the same period last year. It is reported that in terms of revenue in the first half of 2023, Lingxiong's revenue will continue to be number one in the industry.

Some institutions pointed out that in 2022, Lingxiong's revenue increased by 25.1% against the trend, reaching a record high of 1.664 billion yuan, while realizing a profit of nearly 100 million yuan. In the first half of 2023, the core main business of Lingxiong Technology continues to show good growth or steady development. This has fully proved its ability to pass through the cycle, and the root of this ability is that its solid excellent fundamentals are playing a more and more important role.

The core barrier is deep，Sustained high-quality growth in performance

In the eyes of the outside world, Lingxiong technology team ploughed the DaaS industry for nearly 20 years, which has been tested deeply by the market and time. DaaS industry is a comprehensive industry based on IT equipment, engaged in IT equipment subscription, IT technology subscription service, SaaS-based equipment management and IT equipment recycling, which integrates a variety of economic activities. It is a new industry with basic, driving and environmental protection. DaaS service focuses on helping enterprises solve the pain points of IT equipment lifecycle management, so as to help enterprises reduce costs and increase efficiency. Compared with traditional practices, the DaaS service model can help companies reduce down-front investment by 97.4 per cent and reduce operating costs by about 10 to 30 per cent within three years, according to institutional data.

In the stage of rapid economic growth, the major enterprises that have been enjoying DaaS services do not pay attention to the value it creates. When China's economy has entered a stage of high-quality growth, especially in the past few years, enterprises attach great importance to cash flow control and pay great attention to reducing costs and increasing efficiency. In this context, the value of DaaS services has been widely recognized and concerned. " The relevant person in charge of Lingxiong Research Institute said that it can be said that the three years of the epidemic helped the DaaS industry educate the market and enhance market awareness.

Benefiting from comprehensive positive factors, the scale of China's DaaS market increased by leaps and bounds from 19.7 billion yuan to 34.5 billion yuan from 2019 to 2021, with a compound annual growth rate of about 32.3%. Lingxiong Technology resonates with the industry on the same frequency, and its income during the corresponding period also rose from 500 million yuan to 1.33 billion yuan, with a compound annual growth rate of about 63.1 percent.

In 2021, the top five market participants in the industry accounted for about 7.2% of the total market share in terms of revenue, according to cautionary consultancy. Among them, Lingxiong Technology's revenue accounts for about 3.9% of the total market share, ranking first in the industry. This also means that Lingxiong's market share is more than that of the other four major players combined. In addition, in 2022, Lingxiong Technology will continue to be number one in the industry in terms of income.

"the business logic of the DaaS industry seems simple, but if you want to be a leader, the threshold is actually very high, and there are high requirements for capital, operational efficiency and scale. As a leading player in the industry, Lingxiong Technology can steadily occupy the leading position in the industry for many years, and continue to maintain an upward momentum of development. " The person in charge of the relevant business pointed out that, on the one hand, it can accurately grasp the laws of the market and continue to meet market demand, on the other hand, it has built an insurmountable core barrier of the industry.

What is the law of DaaS market? One of them is that the deeper the service, the stronger the stickiness of the customer. In other words, as the scale of corporate customers becomes larger and larger, their needs will become more and more diversified. in this context, corporate customers tend to choose qualified suppliers with full-stack full-life cycle service capabilities. Because, for customers, this solution is the optimal solution of cost.

This solution is divided into two dimensions: one is to provide closed-loop services from IT equipment recovery to device subscription and IT technical services. The second is to provide full range of IT equipment subscription services. " The above responsible person analyzed that after Lingxiong Technology clarified the mechanism behind this, the response speed and implementation efficiency were very high: the IT equipment subscription service business was launched in 2008, the IT equipment recycling service business began in 2017, and the equipment management SaaS service was launched in 2018. In this process, the supporting IT technology subscription service business has been following. As a result, Lingxiong Technology has taken the lead in completing the layout of the whole industry chain in the DaaS industry.

Subsequently, Lingxiong Technology innovated to create a digital closed-loop DaaS service model based on digital construction. This model provides full-stack services for enterprises, including equipment subscription service, IT technology subscription service, equipment management SaaS, equipment recycling service and so on. Enterprises can flexibly choose service combinations according to their own development stage and actual needs, thus to a certain extent, enterprises can customize on demand, pay according to use, and help enterprises complete the transformation from purchasing equipment to purchasing services. Effectively solve the pain points of IT equipment lifecycle management in the process of digital transformation of small and medium-sized enterprises, so as to help enterprises reduce operating costs and improve operational efficiency.

In this regard, Huang Yuewei, general manager of Dachen Caizhi Shanghai Branch, believes that asset operators have a natural integrated status, encapsulating the originally scattered service elements into package-style services, so as to meet the one-stop needs of customers, and as the scale increases, the return on assets of a single customer increases. "compared with the single equipment subscription service of other market participants in the industry, Lingxiong Technology provides full-product, full-stack and full-life cycle solutions covering IT office equipment (including computers, photocopiers, conference screens, etc.), which greatly improves the user experience of corporate customers, brings them closer to customers, and enhances the stickiness of corporate customers and the return on assets of single customers."

With the more mature operation of the business model and more in-depth services, Lingxiong Technology has gradually built up the core barriers of the industry. Haitong International Research News pointed out that the industry barriers constructed by Lingxiong Technology include: first, closed-loop DaaS ecology can produce strong synergy, IT equipment utilization is significantly improved, cross-selling consolidates its synergy and high customer stickiness; second, a sound and strong recycling and renovation industry chain has a strong support and synergy for equipment subscription services. Third, the intelligent risk control system is very important to the development of DaaS business, the company maintains a very low bad debt rate all the year round; fourth, the strong support of strategic shareholders.

Taking the synergy between various businesses as an example, Huang Yuewei said that first, the equipment recycling business can not only enable it to obtain rich cheap and leasable second-hand equipment, reduce rental costs, but also improve the quality of equipment through refurbishment and equipment. Reduce the failure rate and improve gross profit. Second, short-term rental business and long-term rental business complement each other, which can improve the turnover rate and leasing efficiency of inventory equipment. Third, IT technology operation and maintenance service not only improves the contribution rate of single guest, but also enhances the enterprise service experience. Fourth, the asset management SaaS platform is the diversion entrance for all kinds of services.

"A complete closed loop has been formed between various services, the cooperation has been fully verified, and the whole industry chain has achieved the effect of" 1: 1 > 2 ". Compared with competitors, Lingxiong's closed-loop business model of the whole industry chain is a very important core advantage. " Huang Yuewei pointed out.

Lingxiong Technology has achieved remarkable results in building high core barriers, and one of the most important manifestations is the continuous improvement of the quality of performance growth. According to the data, the number of long-term equipment subscription customers of Lingxiong Technology increased by about 32.9% in 2022 compared with the same period last year; the acquisition capacity of major customers continued to grow, with the number of major customers growing by about 26.3% in 2022; and total equipment subscriptions in 2022 increased by about 17.1% to nearly 5 million units.

In terms of profit, in 2022, Lingxiong Technology's net profit and adjusted profit achieved a substantial turnaround, and the adjusted EBITDA (profit before tax, interest, depreciation and amortization) continued to grow substantially. Among them, the net profit is nearly 100 million yuan.

Some analysts said that under the multiple tests such as the impact of the COVID-19 epidemic and the domestic economic downturn, revenue and profits continued to maintain high-quality growth against the trend, indicating that the company's fundamentals are of high quality and that there is certainty of sustained growth in the future.

According to the performance report, looking forward to the second half of 2023, Lingxiong Technology will, as always, adhere to the value of serving good customers as the center, continue to seize development opportunities to expand business territory, and constantly improve service level and service quality. to better make it easier for customers to work. At the same time, Lingxiong Technology will continue to optimize the revenue and cost structure of various business sectors in order to further enhance the resilience of the business and create greater value for shareholders.

Performance potential may be accelerated, big banksGive positiveExpectation

Due to the overall pressure on the capital market, many high-quality targets are undervalued. However, as capital markets gradually stabilise, companies with performance support like Lingxiong are expected to be the first to usher in a revaluation. The analyst said.

In this regard, Oriental Fuhai partner Chen Liwei further pointed out that the future market value of Lingxiong Technology is mainly reflected in the improvement of China's DaaS market penetration. "the market capitalization is as big as there is room for market penetration to improve. We have very optimistic expectations for Lingxiong Technology. "

Some institutional data show that China's DaaS market penetration is about 5%, compared with the daily average penetration of more than 50% in Europe and the United States, there is still huge room for development. And a fact worthy of attention is that the improvement of DaaS market penetration in China has ushered in a period of historical opportunity.

On the one hand, under the continuous evolution of a century of changes and the superposition of multiple over-expected factors, major enterprises in the face of many uncertain factors, attach great importance to cash flow, pay great attention to reducing costs and efficiency, and have a more and more rigid demand for DaaS services. This virtually also accelerates the development and maturity of the catalytic DaaS industry.

On the other hand, under the traction of the country to vigorously promote digital transformation and upgrading, China's major enterprises have invested more and more in the field of digital construction, in order to achieve high-quality growth. According to IDC, Chinese small and medium-sized enterprises spent $81.2 billion on IT in 2022, up 4 per cent from a year earlier. IT spending is expected to grow at an annual rate of more than 12% in the next few years and reach $130.9 billion by 2026. This means that China's DaaS market has huge room for growth in the future.

The size of China's DaaS market is expected to maintain a compound annual growth rate of 32 per cent in the next few years and reach 138.2 billion yuan in 2026, according to the research report. According to Haitong International, if China's IT equipment subscription penetration increases to 50% and Lingxiong's market share doubles, the company has 20 times the potential growth space.

Haitong International gave the company a "better than the market" rating in its research report. The bank estimates that the valuation of Lingxiong Technology in 2023 is 4.64 billion yuan, and the company's total revenue from 2023 to 2025 will be 19.12 picks up to 24.17 yuan / 3.331 billion yuan. The adjusted EBITDA (profit before tax, interest, depreciation and amortization) is 3.69 gamma 5.62 / 861 million yuan, and the adjusted net profit is 41.07 million yuan / 149 million yuan / 355 million yuan. It is not difficult to see that Haitong International believes that in the next few years, the company's gross profit margin and net profit will be greatly improved, the performance is worth looking forward to.