In the process of “accelerating” at the same frequency as the industry, the concentration of market share on the industry leader Lingxiong Technology (02436) has quietly become a trend.

The Zhitong Finance App learned that data shows that in 2019-2021, the size of China's DaaS (Device as a Service) market grew from 19.7 billion yuan to 34.5 billion yuan, with a compound annual growth rate of about 32.3%. In the same period, Ling Xiong Technology's revenue increased from 500 million yuan to 1.33 billion yuan, with a compound annual growth rate of about 63.1% during the corresponding period. According to the Insight Consulting report, the top five market players in the industry account for about 7.2% of the total market share in terms of 2021 revenue. Among them, Ling Xiong Technology's revenue accounts for about 3.9% of the total market share, ranking first in the industry. This also means that Lingxiong Technology's market share exceeds that of the other four major players combined.

In September of this year, the 2023 interim report released by Ling Xiong Technology showed that its revenue for the first half of the year reached 822 million yuan, and adjusted EBITDA (profit before tax, interest, depreciation and amortization) increased by about 5.2 percent year-on-year to 134 million yuan. In terms of revenue for the first half of 2023, Ling Xiong Technology's revenue continues to rank first in the industry.

“From the development history of European and American listed companies with similar business models such as Cindus, we can see some rules: although the overall penetration of China's DaaS market is not very high, there will definitely be a process of 'concentrating market share on leading companies' in the future.” Chen Liwei, partner of Oriental Fuhai, said that an increase in market concentration in an industry will have a landmark event. “The listing of leading companies in the industry, such as Ling Xiong Technology, is a landmark event in increasing industry concentration.”

Huang Yuewei, general manager of Dachen Caizhi Shanghai Branch, believes that industry barriers determine the strong and that in the end, market share will be concentrated in a few major leading companies. “Ling Xiong Technology is already in an absolute leading position in the industry.”

The views of Chen Liwei and Huang Yuewei are very representative among Ling Xiong Technology's investment shareholders. According to reports, the shareholders behind Ling Xiong Technology include famous investment institutions such as Tencent, JD, Dachen, Dongfang Fuhai, Lenovo, and Shenzhen Hi-Tech Investment. “In terms of the underlying logic of investment, these well-known investment institutions have been able to firmly accompany Ling Xiong Technology for many years. It is certain that every stage of development of Ling Xiong Technology has met their expectations, and they can clearly see that Ling Xiong Technology's broad growth prospects can bring rich returns on investment.” The relevant person in charge of the Ling Xiong Research Institute analyzed it.

So, how can Ling Xiong Technology achieve continuous high-quality growth, thereby increasing the trust of investors? Also, how do you continue to lead the industry, so that investors are firmly bullish?

The business model is unique and superior

“Sometimes, investing depends on fate.” This is the mantra of good investors. However, everything behind “fate” includes the simple investment logic of when the bid was first met: looking at industry prospects, business models, and growth. It is then verified through due diligence and tested through time. Thankfully, Ling Xiong Technology's performance has never disappointed its investors.

In terms of industry prospects, the DaaS market has unlimited room for imagination. China's DaaS market penetration rate is only about 5%. Compared with the average penetration rate of more than 50% in Europe, America, and Japan, there is still huge room for development. Most importantly, this space is being freed up at an accelerated pace. How do you say it?

On the one hand, due to the deep impact of multiple factors exceeding expectations, such as the epidemic and economic downturn, major enterprises pay great attention to cash flow control, and attach great importance to cost reduction and efficiency. DaaS services are becoming just what enterprises need in their daily operations. On the other hand, as the country vigorously drives enterprises to carry out digital construction, IT investment by major enterprises in China continues to rise. According to IDC data, Chinese SMEs are expected to maintain an annual IT expenditure growth rate of more than 12% in the next few years and reach a scale of 13.9 billion US dollars (about trillion yuan) in 2026. Benefiting from these comprehensive benefits, Insight Consulting predicts that the overall market size will maintain a compound annual growth rate of 32% in the next few years and reach 138.2 billion yuan in 2026.

In terms of the business model and its growth potential, the digital closed-loop DaaS service model created by Ling Xiong Technology Innovation can be called “excellent year after year”.

Focusing on the IT equipment lifecycle management pain points common to major companies but still unresolved, Ling Xiong Technology started the IT equipment subscription business in 2008, IT equipment recycling business in 2017, and launched the equipment management SaaS business in 2018. In the process, the supporting IT technology subscription service business has always followed suit. As a result, it was the first in the DaaS industry to complete the entire industry chain layout. Subsequently, Ling Xiong Technology innovated to create a digital closed-loop DaaS service model based on digital construction.

According to the introduction, this model provides enterprises with full-stack services including equipment recycling, equipment subscriptions, IT technology subscription services, and equipment management SaaS. Enterprises can flexibly select service combinations according to their own development stage and actual needs, thus enabling enterprises to customize and pay per use to a certain extent, helping enterprises complete the transformation from purchasing equipment to purchasing services, and effectively solving the pain points of IT equipment lifecycle management in the digital transformation process of small and medium-sized enterprises, thus helping enterprises reduce operating costs and improve operating efficiency. According to agency data, the DaaS service model can help enterprises reduce operating costs by about 10% to 30% within three years.

The emergence of Ling Xiong Technology's business model has dazzled many star institutions looking for high-quality investment targets.

Chen Liwei said that if a business model can only help customers reduce costs, then its value is relatively limited, but if it can provide customers with additional added value and help customers increase efficiency, then it will have more value space. The business model created by Ling Xiong's scientific and technological innovation aims to continuously help enterprises achieve cost reduction, efficiency and high-quality development through continuous enrichment of products and services. “This means that its future value space is huge.”

Huang Yuewei believes, first, that the equipment recycling business not only allows them to obtain abundant cheap and leasable used equipment, reduce leasing costs, but also improve equipment quality, reduce failure rates, and increase gross profit through refurbishment and maintenance. Second, the short-term rental business and the 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 services enhance the enterprise service experience while increasing the contribution rate of individual customers. Fourth, the asset management SaaS platform is also a gateway for various services.

“A complete closed loop has been formed between businesses, the synergy has been fully verified, and the entire industry chain has collaborated to achieve the effect of 1+1＞2. Compared with competitors, Ling Xiong Technology's closed loop business model throughout the industry chain is a very important core advantage.” Huang Yuewei added.

Judging from the actual results, the performance brought about by Ling Xiong Technology's business model fully verified the investors' judgment and did not disappoint them. According to the data, in 2019-2021, the compound annual growth rate of Ling Xiong Technology's revenue was 63.1%, and profit losses narrowed sharply year by year. Among them, it had basically achieved break-even by 2021. In 2022, Ling Xiong Technology's revenue continued to grow rapidly. Both profit and adjusted profit turned a sharp year-on-year loss into profit, of which profit was close to 100 million yuan.

Chen Liwei said, “In the current market environment, an enterprise that can grow must be an excellent enterprise.” The relevant person in charge of the Ling Xiong Research Institute analyzed that Ling Xiong Technology's performance in 2022 fully proved that it had reached the break-even point, fully entered the profit cycle, and fully demonstrated the long-term compounding nature of its business model.

In view of the excellent performance of Ling Xiong Technology's business model, although the circuit it belongs to is a typical To-B market (the performance of the To B model in the secondary market generally shows a long-term slow bullish trend), investors are confident about its future value.

After Chen Liwei thoroughly analyzed the fundamentals of different players on the entire circuit, the integrity and barriers of Ling Xiong Technology's all-category full-stack one-stop business model were even higher. “Until now, Ling Xiong Technology's business model is still unique.” Huang Yuewei also said bluntly that Ling Xiong Technology's business model represents the development direction of the DaaS industry.

“As the leading company in the DaaS industry, the core barriers built by Ling Xiong Technology are difficult to surpass, and its market share will be higher and higher in the future. As a result, Ling Xiong Technology's future revenue volume and profit level have a great deal of room for imagination. Therefore, its overall market value performance will be very good in the future.” Huang Yuewei added that this is a typical characteristic of value stocks.

Agencies with high growth quality say the company's potential growth space is 20 times

With in-depth research and the test of time, in addition to an excellent business model, the growth quality of Ling Xiong Technology is clearly more valued by investors. It is worth mentioning that Ling Xiong Technology's internal growth factors, such as team operation level, customer structure, etc., showed strong vitality, and investors also saw the certainty of the company's long-term high-quality growth.

In terms of the company's team, shareholders such as Dongfang Fuhai and Da Chen believe that the team led by Hu Zuoxiong, chairman of the board of directors of Ling Xiong Technology, has been deeply involved in the DaaS (equipment as a service) industry for nearly 20 years. They are all “veterans” of the industry, are familiar with the rules of industry development, can accurately grasp market needs, are pragmatic, and have very strong execution ability.

In terms of innovative products and services, Ling Xiong Technology has never stopped at a standstill, and is becoming more and more open. Focusing on the needs of enterprise customers, Ling Xiong Technology continues to expand its ecological circle of friends. The service products provided range from the earliest types of computers, switches, and servers, to current printing/copiers, cloud conference screens, etc., to solve customer pain points in multiple dimensions. In order to allow more enterprise customers to enjoy the value of DaaS services, Ling Xiong Technology is also innovating and creating an “enterprise rental festival” in the industry, deeply cooperating with well-known brands in the fields of water dispensers, coffee machines, office equipment, office greenery, etc., to launch a variety of new product rental services, which have been widely praised by customers. These effective measures have enhanced the depth and breadth of services and further enhanced Lingxiong Technology's customer stickiness.

In terms of customer structure, while continuously optimizing and upgrading the customer structure, Ling Xiong Technology continues to maintain a high return rate of return per customer. According to the data, in 2019-2021, the company's major customer retention rates were 78.9%, 80.3%, and 84.2%, respectively. In 2022, Lingxiong Technology's ability to acquire major customers continued to grow, and the number of major customers increased by about 26.3% year-on-year. It is worth mentioning that the average revenue per major customer continued to grow every year during the same period. From the perspective of financial revenue, the growing number of major customers has laid a solid foundation for the steady growth of Ling Xiong Technology.

“In the past 6 years, Ling Xiong Technology's customer base has become more and more mature. It has grown from micro, small and medium-sized enterprises to large enterprises and government agencies such as state-owned enterprises and the world's top 500, which has verified the viability of its business model.” Huang Yuewei said. Chen Liwei, on the other hand, believes that TOB will go through the process of development from small to medium customers to CUHK customers. From the perspective of scale expansion, there will inevitably be a transition from small to medium to large customers. “Ling Xiong Technology has complied with this rule and also met market needs. Because of the pandemic, CUHK customers have been increasingly accepting and demanding IT equipment subscriptions.”

“As it has more and more large customers, Ling Xiong Technology's revenue space has opened up, and its brand influence is getting stronger and stronger. At the same time, due to the broad needs of CUHK customers, Ling Xiong Technology can also expand service categories as customers become more and more sticky.” Chen Liwei added that in addition, the high requirements of CUHK customers can in reverse promote the further improvement of Ling Xiong Technology's digital service capabilities.

In terms of channel sinking, Ling Xiong Technology has keenly grasped the country's “metropolitan area” strategy. While the core Tier 1 and 2 cities are being intensively cultivated, it has gradually sunk into Tier 3 and 4 cities showing strong demand for DaaS services, and has achieved positive results.

Some agencies pointed out that the many important measures taken by Ling Xiong Technology not only guarantee the quality of its growth, but will also accelerate its scale expansion and have a greater scale effect, that is, the larger the scale, the lower its comprehensive cost, thus promoting the shift to high gross profit.

“Taking foreign companies that provide leasing services as a reference, once the scale of these companies is established, the profit effect is very obvious: gross margin can reach 40% or more, and the net profit margin is above 10%, and it is a long-term trend of compound growth.” Chen Liwei said he believes domestic and foreign mature enterprises are also converging.

Some organizations believe that Ling Xiong Technology has reached the break-even point and turned loss into profit. As the scale of the business expands, operating efficiency continues to improve, and it will enter a stage of continuous and large-scale profit in the next few years. According to Haitong International's research report, Ling Xiong Technology expects to achieve total revenue of 19.12/24.17/3.331 billion yuan in 2023-2025, adjusted EBITDA (profit before tax, interest, depreciation and amortization) of 3.69/5.62/861 million yuan, and adjusted net profit of 41.07 million yuan/149 million yuan/355 million yuan. Furthermore, the bank said in its first coverage report that if the penetration rate of IT equipment subscriptions in China increases to 50% and the market share of Ling Xiong Technology increases by 1 times, the company's potential growth space is 20 times.