For investors in the secondary market, the criteria for judging a good company are never unique. However, during the “headwind” period of the economy, investors of different styles may be much less divided on this. Companies that can balance value and growth attributes are often more likely to be favored by institutions and retail investors, and at the same time, stock prices have a better chance of bucking the trend and breaking out of a slow bull pattern.

Since this year, the performance of the secondary market has not been as good as expected due to multiple factors, such as macroeconomic recovery falling short of expectations and repeated trends in foreign investment, etc., and the performance of the secondary market has not been as good as expected. Take the Hong Kong stock market as an example. Although the three major indices have been adjusted over a long period of time, stock index performance is still weak at this stage, and many individual stocks have not been able to escape the “bear path.”

However, Lingxiong Technology (02436), which went public at the end of last year, was an exception. As the parent company of Little Bear U Rent, Lingxiong Technology attracted investment from popular institutions such as Tencent, JD, Dachen, and Dongfang Fuhai before going public. However, after going public in late November 2022, Lingxiong Technology continued to reach new highs. At its peak, its stock price once soared to HK$14.9, nearly double the increase compared to the issue price.

It is worth mentioning that the equipment life cycle management market where Lingxiong Technology is located is a typical To-B market. As the first stock in the DaaS (“equipment as a service”) industry, it is probably difficult for ordinary investors to find companies that can be directly targeted in the Chinese stock market. Even so, it still hasn't quenched investors' enthusiasm for allocating Lingxiong Technology stocks. What is the reason behind this?

After in-depth communication with the investors behind Lingxiong Technology, we found the answer to this question...

“An industry watershed has emerged”

“The listing of a leading company in the industry is actually a landmark event in (this) increasing the concentration of the industry.”

Referring to Lingxiong Technology's listing, Dongfang Fuhai partner Chen Liwei commented.

Restoring history, the concept of full life cycle management of equipment was actually only introduced to the Chinese market in recent years. Currently, the industry is still in the early stages of development. According to public information, the penetration rate of China's equipment life cycle management industry is less than 5%, and this ratio lags far behind the European and American markets. However, according to agency estimates, by 2026, the overall size of China's equipment life cycle management market is expected to reach 138.2 billion yuan, and the compound annual growth rate for the period 2021-2026 will exceed 32%.

Lingxiong Technology has been deeply involved in the rapidly growing 100 billion blue ocean market for nearly 20 years as an industry veteran.

Lingxiong Technology's starting point of entrepreneurship can be traced back to 2004. At first, the company was only a small market in Huaqiangbei, Shenzhen. However, it only took four years for Lingxiong Technology to become one of the largest used computer retailers in China.

In 2018-2019, Lingxiong Technology “changed gears and accelerated” again. At that time, the company successively established strategic business partnerships with JD, Lenovo, Hewlett-Packard, etc., and in these two years, Lingxiong Technology has successively completed Series A, Series B, and Series C financing.

The clock is set to November 2022. As Lingxiong Technology officially knocks on the “door” of the Hong Kong stock market, this may be seen as a “watershed moment” in the Chinese equipment life cycle management market: in the past, industry participants were composed of a large number of small-scale regional solution providers, and high fragmentation was the “main theme” of the industry; and Ling Xiong's listing indicates that leading companies have broken through geographical and scale restrictions, and industry concentration is expected to accelerate in the future. The “Matthew effect” may continue to intensify.

Comparing recent trends in the revenue scale of Lingxiong Technology and the industry as a whole also confirms this. According to Lingxiong Technology's prospectus, during the period 2019-2021, the company's revenue increased from 500 million yuan to 1.33 billion yuan, and the compound annual growth rate for the corresponding period was about 63.1%. In the same period, the size of China's equipment life cycle management market increased from 19.7 billion yuan to 34.5 billion yuan, with a compound annual growth rate of about 32.3% over the corresponding period. In 2022, Lingxiong Technology's revenue bucked the trend and increased by 25.1% to 1,664 billion yuan, reaching another record high, ranking first in the industry.

Looking back at past results, Lingxiong Technology has shown an “acceleration in growth,” which may explain why the company was popular with many star agencies before going public. However, in Lingxiong Technology's shareholder list, Dachen, who has voted for four consecutive rounds in four years, is particularly notable.

“Before every round of investment, we compare Lingxiong Technology's data with the financial forecasts (we) made during the previous round of investment. We found that Lingxiong Technology's performance in every phase was in line with our expectations. This is also an important reason why we have invested in four rounds in a row,” Huang Yuewei, general manager of Dachen Financial Intelligence Shanghai Branch, said this when talking about why we are continuously increasing our investment in Lingxiong Technology.

“Full stack service helps customers reduce costs and increase efficiency”

In the context of an era where the economic growth rate is slowing down and the macroenvironment is under pressure, how can Lingxiong Technology and its equipment lifecycle management industry “make great strides” along the way, and even have the meaning of “the scenery is unique here”?

According to Chen Liwei, the reason why Lingxiong Technology and the industry in which it is located is able to grow against the trend is related to the commercial value it can provide. “The commercial value of this industry is actually mainly to help reduce the burden on enterprises, help customers better control cash flow, and allow customers to have more sufficient cash flow for the development of (own) main business, and thus better resist fluctuations in the economic cycle.”

Since the outbreak of the epidemic, many small and medium-sized enterprises have paid more attention to cost control, and “cost reduction and efficiency” has gradually become a consensus among many enterprises. At the same time, the rise of working from home has also made medium and large enterprises value the flexibility of the rental subscription model even more.

In this context, IT equipment subscription services that meet market needs will naturally be sought after. According to Insight Consulting, compared with traditional practices, equipment and IT technology subscription services can help enterprises reduce operating costs by about 10%-30% within three years. However, this potential cost reduction space for enterprises, especially micro, small and medium-sized enterprises with poor resilience to risks, may be the difference between life and death.

Furthermore, it should be pointed out that as a leading enterprise in the industry, Lingxiong Technology not only provides customers with leasing services, but has also created the only closed-loop ecological chain in the industry at present. Currently, Lingxiong Technology can provide customers with full-stack services including IT equipment subscriptions, IT technology services, SaaS-based device management services, and IT equipment recycling. Moreover, unlike some suppliers who are limited to a single business scenario, Lingxiong Technology can also provide customers with two leasing options: long-term rental and short-term rental.

Under Lingxiong Technology's full-life cycle service plan, customers can flexibly select the services they need from “equipment leasing, equipment recycling, technical services, and asset management SaaS services” according to their own business development stage and actual needs, freely mix and match, and “customize as needed, pay for use”, thus optimizing enterprise office asset allocation, minimizing costs and expenses, and maximizing operational efficiency.

Huang Yuewei believes that Lingxiong Technology's long-term rental service can solve the daily needs of customers, the short-term rental service can help enterprises handle sudden needs, and the recycling business can open up long-term and short-term rental capabilities to maximize the residual value of equipment and maximize customer benefits.

Also, judging from the changing trends in key business indicators, it also indicates that Lingxiong Technology's closed-loop business model continues to be effective.

Data show that during the period 2019-2021, Lingxiong Technology's number of long-term rental customers increased from 5068 to 1,030, with a corresponding compound annual growth rate of 40.7%. Meanwhile, Lingxiong Technology's KA customer retention rate data rose in the same direction. As of the end of each year in 2019-2021, the company's major customer retention rates reached 78.9%, 80.3%, and 84.2%, respectively. In 2022, the company's ability to acquire major customers continued to grow, and the number of major customers increased by about 26.3% year on year.

In addition, Lingxiong Technology's revenue from a single customer is also rising. In 2019-2021, the average revenue contribution of major customers in the company's long-term rental business was 82,000 yuan, 117,000 yuan, and 153,000 yuan respectively, and the compound annual growth rate also reached 36.4%.

“The scale effect is the 'winner' of competition”

As leading companies in the industry go public one after another, China's equipment life cycle management industry has also crossed a “watershed moment”. Looking forward to the future, can Lingxiong Technology, a “veteran” of the industry, continue to lead the way?

According to Huang Yuewei, the equipment life cycle management industry has distinct characteristics of heavy capital, heavy operation, and heavy service. These characteristics determine the future pattern of the industry where leading companies will occupy most of the market.

One important reason for this is that although the business logic of the equipment life cycle management industry seems simple, behind it, participants are required to have four core infrastructures, namely a nationwide service network, IT equipment recycling and refurbishment plants, equipment subscription management platforms and equipment asset management systems, and strong customer acquisition channels.

In other words, if DaaS companies want to stand out, they must also meet many conditions such as capital, service networks, digitalization, and customer acquisition capabilities. This determines that in the end, only a few leading companies can expect to “break through” and become strong players.

“Lingxiong Technology has built a full-chain, one-stop business model. In the industry, Lingxiong Technology's business model has better completeness and higher barriers, and is still unique even at present.” As one of Lingxiong Technology's early investment institutions, Dongfang Fuhai, as one of Lingxiong Technology's early investment institutions, was very optimistic about the company's business model, and during the interview, Chen Liwei also firmly stated many times that he is optimistic about Lingxiong Technology's development prospects. “Drawing on the experience of leading overseas companies, once such companies (DaaS companies) enter the scale effect, their profitability has improved very clearly..”

Judging from past results, Lingxiong Technology has indeed lived up to the expectations of many investment institutions. As mentioned above, in the past few years, Lingxiong Technology's core financial data has maintained a rapid expansion trend, and its position in the industry has been further consolidated and expanded.

According to the company's prospectus, based on revenue in 2021, the total market share of the top five participants in the industry is about 7.3%, while Lingxiong Technology's market share has reached 3.9%, surpassing the sum of the remaining four companies. According to the company's 2022 annual report, Lingxiong Technology continues to rank first in the industry in terms of revenue in 2022.

Being in an emerging racetrack with rapid expansion, it has an excellent track record and a growth rate far higher than the industry. Furthermore, it also has both a first-mover advantage and a scale advantage. From all angles, Lingxiong Technology undoubtedly has great potential to advance into a “growth value stock.”

Needless to say, behind Lingxiong Technology, there are also shareholders of popular institutions such as Tencent, JD, Lenovo, Dachen, and Dongfang Fuhai. Zhitong Finance App believes that these strategic shareholders mentioned above can not only provide them with financial support, but can also rely on their own conditions to mobilize more resources for Lingxiong Technology and bring more support to the company at the business and personnel levels.

Finally, going back to the perspective of the capital market, for enterprises, during the economic “headwind” period, it may become more and more difficult to grow sustainably. In this context, the equity of high-quality companies with the dual attributes of growth and value will naturally become more and more precious. Based on this, Lingxiong Technology, which has solid fundamentals and sufficient growth momentum, is probably one of the best targets for investors to hold for a long time and cross the capital cycle.