For a long period of time in the past, the traditional concept of consumption centered on purchasing has always dominated, and many Chinese companies still use purchasing methods to purchase IT office equipment.

However, in recent years, under the impetus of the “double innovation” policy and the influence of multiple complex factors, various small and medium-sized enterprises have gradually realized the importance of digitalization, asset-light, and refined operations, and have begun to seek more efficient and flexible IT office equipment procurement methods.

As a result, the DaaS (Device as a Service) service model came into being, providing enterprises with a more cost-effective solution.

Simply put, through the DaaS model, enterprises can better manage the life cycle of equipment, reduce equipment procurement costs, improve equipment usage efficiency, and maintain good cash flow to focus on developing core business.

From an investment perspective, the market's attention to the DaaS circuit has continued to grow this year. This phenomenon also provides investors with an opportunity to discover potential DaaS companies. Among them, Lingxiong Technology (02436.HK), the parent company leased by Little Bear U, the largest DaaS supplier in China, may be an example worth watching.

Policy enabled+demand driven, the development prospects of the DaaS circuit are clear

First, if you want to see the growth space of an enterprise, you must first conduct research on the development potential of the industry in which it is located. This is like looking at the growth potential of a tree, first looking at how deeply rooted it is.

DaaS refers to IT equipment based business targets, IT equipment subscription services, IT technology subscription services, SaaS-based device management, and IT equipment full life cycle management services for IT equipment recycling.

As for the development trend of the DaaS industry, the market has now formed a basic consensus, believing that the development trend of this industry is clear and sustainable. The reasons behind this can be viewed from the two points of industry policy and enterprise demand:

In terms of policy, the country's support for the digital economy is driving the development of the DaaS industry.

With the publication of the “14th Five-Year Plan” for the Digital Economy Development, the digital economy has been raised to a national strategic level, and a series of support measures such as financial support and tax incentives strongly guarantee the development of the DaaS industry.

Moreover, the development of the digital economy has also rapidly promoted the innovation and upgrading of IT technologies such as cloud computing, big data, and artificial intelligence, further providing strong technical support to the DaaS industry.

On the demand side, the demand of enterprises for digitalization to reduce costs and increase efficiency and control technological risks continues to increase.

On the one hand, in the context of the increasingly complex environment at home and abroad, many downstream DaaS customers point out that companies need to better cope with financial uncertainty. DaaS, on the other hand, provides a more flexible approach, which can help enterprises reduce costs and increase efficiency. Judging from the data, compared to the traditional model, DaaS can help enterprises reduce initial investment by 97.4% and reduce operating costs by about 10% to 30% within three years.

On the other hand, in the face of uncertainty in the economic situation, companies are more cautious about investing in technology. The one-stop service provided by DaaS can help enterprises better achieve technological upgrades and reduce technological risks through digital means, making DaaS an effective solution for enterprises to achieve sustainable development in an uncertain environment.

Driven by these two reasons, the size of the DaaS market in China has begun to grow rapidly.

According to the Insight Consulting report, from 2019 to 2021, the size of China's DaaS market increased from 19.7 billion yuan to 34.5 billion yuan, with a compound annual growth rate of about 32.3%; it is estimated that by 2026, the market size will further grow to 138.2 billion yuan, quadrupling in five years.

At the same time, it is worth noting that compared to European and American countries, there is still a lot of room for improvement in the penetration rate of the domestic DaaS market. According to data from Ling Xiong Research Institute, the current penetration rate of the IT equipment rental market in China is about 5%, while the penetration rate of the European and American markets is above 50%. This means that the Chinese market has room to improve more than tenfold.

It is easy to judge that as policies and demand continue to resonate, driving the increase in the penetration rate of domestic DaaS services, there is still a lot of room for improvement in the market space of the industry.

The closed-loop ecological evolution of the entire industry chain establishes four core competitive barriers

Second, after seeing the foundation of the sustainable growth and potential development space of the DaaS industry, we should pay more attention to the long-term profitability and intrinsic value of the enterprise, which requires further exploration of the enterprise's business model and competitive barriers.

By observing the development of business models of various DaaS companies, we can see that the industry has changed from a simple leasing model in the past to an ecological DaaS model represented by Lingxiong Technology. The emergence of this model means that the DaaS industry is beginning to develop in a more efficient, lower cost, and more sustainable direction.

Simply put, the closed-loop DaaS service model for the entire industry chain created by Lingxiong Technology can provide enterprises with one-stop services including IT equipment subscription (leasing) services, IT technology subscription services, IT equipment management SaaS services, and IT equipment recycling services, providing more comprehensive and efficient solutions.

In terms of external services, Lingxiong Technology's DaaS service can provide a full range of full-life cycle services to meet the needs of enterprises in different dimensions in different scenarios.

Simply put, customers can flexibly select service combinations from the four major businesses according to their own business development stage and actual needs, so that enterprises can customize according to their needs and pay for use, thereby reducing operating costs and improving operating efficiency.

In terms of internal management and resource integration, the synergy of Lingxiong's technology business model continues to improve, forming four core competencies.

Among them, the closed-loop IT equipment life cycle management ecosystem can significantly improve the utilization rate of IT equipment, achieve cross-sales and strengthen customer stickiness, and continue to drive the increase in the company's revenue and market share.

Another example is Lingxiong Technology's complete recycling industry chain, which covers recycling, testing, sorting, preparation, and reuse, etc., and has achieved the goal of “being able to harvest everything, rent as you collect, sell as you collect.” At the same time, the recycling industry chain also has a draining and supporting effect on the company's equipment subscription service, maximizing the recycling and value of equipment, and providing customers with more convenient and flexible equipment leasing and management plans.

Then, the early warning and response capabilities of the intelligent risk control system can promptly identify and evaluate the potential risk factors of Lingxiong Technology in carrying out IT equipment life cycle management business, and take corresponding measures to reduce risks and keep the company's bad debt rate low all year round.

Furthermore, while the endorsement of strategic shareholders brings capital to Lingxiong Technology, it also provides a large amount of industrial resources and ecological resources to help the company's business ecology evolve again. Currently, the company has received support from the three major industrial strategic shareholders of JD, Tencent, and Lenovo, as well as government industrial funds.

For example, the company has jointly developed the “JD Enterprise Leasing Channel” with JD to complete deep integration at the system platform level. Tens of millions of enterprise customers can directly purchase Lingxiong Technology's DaaS services on the JD platform; create an enterprise-level “Cloud Conference Asset Light Plan” with Tencent; Tencent Cloud encrypts and protects “Little Bear U Manager” customer data privacy; and Lenovo provides priority collection support for new devices, and shares Lenovo's 5000+ service provider resources across the country to jointly create a “timeshare leasing solution”.

It can be seen that the evolution of Lingxiong's technology business ecosystem has not only further promoted the development of the industry, but also continuously consolidated its core competitiveness.

The business model has been verified, and valuation restoration can be expected

Finally, looking back at the capital market, the performance of an enterprise can be said to be the most direct reflection of the stability and growth of the business model. This is also one of the standards for investors to verify whether their investment logic is correct.

In recent years, Lingxiong Technology's good and steady financial situation and business performance means that its business model has been tested in practice and proven to be effective.

Financial reports show that the number of long-term device subscription customers of the company in 2022 increased by about 32.9% year on year, and the acquisition capacity of major customers continued to grow, and the number increased by about 26.3% year on year. The number of long-term device subscription customers increased by about 38.1% in the first half of 2023, and the number of IT technology subscription customers also increased by 48.8%.

As reflected in performance, the company achieved net profit of 99.95 million yuan in 2022. In the first half of 2023, Lingxiong Technology bucked the trend and still achieved adjusted EBITDA (profit before tax, interest, depreciation and amortization) of 134 million yuan, an increase of about 5.2% over the previous year.

At the same time, brokerage institutions have also shown confidence in Lingxiong Technology's subsequent growth.

According to Haitong International's financial forecasts for the company, the company will achieve total revenue of 1,912 billion yuan, 2,417 billion yuan, and 3,331 billion yuan respectively from 2023 to 2025. The revenue growth is impressive, and the profit growth rate far exceeds the revenue growth rate. The adjusted net profit for the same period was 41.07 million yuan, 149 million yuan, and 355 million yuan respectively, an increase of 8.66 times.

In fact, major banks have recently pointed out that with the Federal Reserve's signal of becoming dovish, the spread between China and the US is expected to reverse, and the liquidity of the Hong Kong stock market may improve. Furthermore, major banks said that investors may lay out opportunities for reversal in Hong Kong stocks ahead of time.

Among them, Lingxiong Technology is a leading enterprise in the domestic DaaS field, and the value of its business model ecosystem has not been fully digested and recognized by the market. According to Futu data, the current total market value of the company is about 2.6 billion yuan. Meanwhile, Haitong International estimates that the company's valuation in 2023 is 4.64 billion yuan, and the target price is HK$14.15 per share, maintaining the “superior to the market” rating.

This means that in the future, Lingxiong Technology hopes to use the power of the capital market to enhance its competitive advantage and consolidate its position in the market in various ways, and continue to unleash its intrinsic value. This development path may drive the company's value curve to continue to rise, and we should keep paying more attention to it.