汇丰银行-中国-软件行业-中国软件业：所有都在云的列车之上-2019.8-67页.pdf

Disclosures&Disclaimer:This report must be read with the disclosures and the analyst certifications inthe Disclosure appendix,and with the Disclaimer,which forms part of it.Equity Research Report SoftwareAugust 2019By:Sijie Ma(S1700517120003)China SoftwareAll aboard the cloud trainWhile China has been a late starter in some corners of the cloud,we see the countrys IT sector now catching up fastwith the leaders in various sub-sectors of the cloud,like enterprise management software,retaining their crownInitiate coverage with a Buy rating on Yonyou,Shiji and Weaver,and maintain a Buy rating on GlodonWhile China has been a late starter in some corners of the cloud,we see the countrys IT sector now catching up fastwith the leaders in various sub-sectors of the cloud,like enterprise management software,retaining their crownInitiate coverage with a Buy rating on Yonyou,Shiji and Weaver,and maintain a Buy rating on GlodonWhile China has been a late starter in some corners of the cloud,we see the countrys IT sector now catching up fastwith the leaders in various sub-sectors of the cloud,like enterprise management software,retaining their crownInitiate coverage with a Buy rating on Yonyou,Shiji and Weaver,and maintain a Buy rating on GlodonSP OTLIGHT 1 Equities Software August 2019 Just like much of the rest of the world,Chinese companies are turning to the cloud for everything from storing data remotely to powering their software.However,unlike the US,where much of that transition has already taken place,China is some 5-10 years behind,providing a significant opportunity for high-tech cloud services providers to help as the country catches up.In this report we mainly focus on two of the main areas of the cloud:Software as a Service(SaaS)and Platform as a Service(PaaS),which provide services like web-based applications and platforms.We also look briefly at Infrastructure as a Service(IaaS),where internet giants like Alibaba and Tencent dominate.How are we different?We emphasise that Chinas cloud market is different from the cloud market in the US,since:1)the adoption by smaller companies is still relatively low,with Chinas government leading most of the investment in the cloud so far,and,2)currently,the most profitable cloud business for our covered companies is the private cloud,which provides cloud-style services that are available only to individual customers.We see our covered companies as undergoing a technological upgrade cycle,since large parts of their cloud revenues are still based on selling better and cheaper cloud versions of traditional core IT products.Our respective Buy rating on Yonyou,Shiji and Weaver is based on our positive view of the whole China-made software market,though the biggest driver in the next five years will likely be the cloud.We,therefore,apply a discounted cash flow(DCF)approach to value the companies(except Weaver,which was only recently listed)instead of price-to-sales(PS)or sum-of-the-parts(SOTP)methods.We provide a detailed analysis about how the cloud transition for IT providers will bring about changes to their financial performances,including advances and receivables.We suggest investors pay more attention to changes in revenue and cash flow,as most companies have entered the second or third stage of transitioning to the cloud.We initiate coverage with a Buy rating on Yonyou,Shiji and Weaver,and maintain a Buy rating on Glodon.Among the No.1 vendors in the four different sub-sectors,we prefer Yonyou,because it has more large customers that will,typically,keep spending on the cloud,even if the economy downturn worsens.We like Glodon,because of its leading position in supplying IT services to Chinas construction industry.Why read this report?Chinas companies are shifting their computing needs to the cloud,a move that is shaking up the countrys thriving IT sector The leaders in different cloud sub-sectors will benefit the most,as they have strong core products that are cheaper and more localised Initiate coverage with a Buy rating on Yonyou,Shiji and Weaver,and maintain a Buy rating on Glodon Sijie Ma*(S1700517120003)Analyst,Head of A-share IT Software Research HSBC Qianhai Securities Limited +86 755 8898 3140 *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations Equities Software August 2019 2 Why read this report?1 Facts and figures 3 Related research 4 Executive summary 5 Softwares solid prospects 14 Opportunities opening up for domestic players 18 Downstream:manufacturing and SMEs to stand out 23 Company section 27 Yonyou Network(600588 CH)28 Shiji Information(002153 CH)37 Weaver Network(603039 CH)47 Glodon(002410 CH)55 Disclosure appendix 60 Disclaimer 64 Contents 3 Equities Software August 2019 Facts and figures 29%Chinas cloud adoption rate for Customer Relationship Management(CRM)systems 73%The proportion of SaaS spending by global CRM market in 2018 Two of Chinas main cloud markets SaaS and PaaS will grow at a 41%and 57%CAGR,respectively,in 2018-22e,higher than 38%and 55%in the prior four years RMB71bn The combined size of two of the main cloud markets(SaaS+PaaS)in 2022e 11%Yonyous cloud revenue proportion in 2018 RMB185m Shijis annual recurring revenue from SaaS in 2018 36%/26%Weavers revenue and net profit CAGRs in 2013-18 20.7%The Chinese governments share of spending on the cloud infrastructure market in 2016 while US government IT spending only accounted for 7.1%of the total IT expenditure 60%Domestic players market share of major software sub-sectors like ERP and CRM 10%The combined market share of the top three domestic vendors in Chinas enterprise SaaS market in 1H18,according to IDC Equities Software August 2019 4 Related research Glodon(002410 CH)Buy:Unchanged long-term investment thesis with short-term profit decline,28 February 2019 Glodon(002410 CH)Initiate at Buy:A glimpse at the digital future of Chinas building industry,20 August 2018 5 Equities Software August 2019 Big market,big growth Up until recently,the amount spent in China on the IT industry has been rather paltry.It came to just 3.7%of GDP in 2017,far below the figure in the US,and notably the government made up a large proportion of that spend.However,we believe this will gradually change with the help from the fast-growing cloud industry,which promises to lower costs,speed up systems,and improve efficiencies.To gauge how seriously the cloud industry is being taken,the development of it has been identified as a major strategic priority for the central government and mentioned prominently in both 12th and 13th Five-Year Plans.One of the brightest spots in the cloud market is“Service as a Sector”where companies use a subscription-based license model instead of the traditional way of buying a one-time perpetual license and installing the software on servers and computers and which we see will grow at a 41%CAGR in 2018-22e.Exhibit 1.Global cloud computing market size forecasts(USDbn)Exhibit 2.Chinas public cloud services market overview(RMBbn)Source:CAICT,Gartner,HSBC Qianhai Securities estimates Source:Company data,Gartner,CAICT,HSBC Qianhai estimates 0%20%40%60%80%100%0501001502002503002012 2013 2014 2015 2016 2017 2018 2019e2020e2021e2022eIaaSPaaSSaaSIaaS y-o-yPaaS y-o-ySaaS y-o-y0%20%40%60%80%100%120%140%160%0501001502002502012 2013 2014 2015 2016 2017 2018 2019e2020e2021e2022eIaaSPaaSSaaSIaaS y-o-yPaaS y-o-ySaaS y-o-yExecutive summary While Chinas shift to the cloud is undoubtedly underway,its different from whats happening in the US market.A significant proportion of companies has still to jump on board,while products designed for the local market still need to be improved.However,all that means is that there are significant opportunities ahead for cloud providers.In this report,we focus on the individual advantages and risks of the leaders in different enterprise software sub-sectors,and initiate coverage on the three companies with the highest growth potential,in our view.Development of the cloud industry is one of the governments major strategic priorities Equities Software August 2019 6 Moving to the cloud offers opportunities for domestic players Cloud adoption is still low in major software sub-sectors However,despite all the buzz,we estimate that the cloud adoption rate in major sub-sectors of Chinas enterprise software market is below 30%.The Customer Relationship Management(CRM)and Office Automation(OA)sectors have seen relatively high adoption rates,likely because those areas are less complex and easier to transform or rebuild on the cloud.Exhibit 3.Major software sub-sectors and adoption rate of the cloud Source:Company data,China Software Industry Association,CCID,IDC,iResearch,Haibi Research,HSBC Qianhai Securities estimates Note:Bubbles represent market size in 2017.Domestic players have the largest market share in major software sub-sectors,and we expect their market share in cloud markets to increase consistently.Why we are positive on leading domestic players in the cloud era Price:The products of foreign software vendors are significantly more expensive than those of domestic software vendors.Even with their high-end image in China,foreign vendors find it difficult to compete against domestic vendors,especially in the market for small-and medium-sized enterprises(SMEs).Localisation and customisation:Given the unique business and regulatory circumstances in China,foreign software vendors need extra time and resources to localise their products to meet government and enterprise requirements.Customer support:Foreign software vendors may face difficulties in providing adequate customer support due to a shortage of qualified technical personnel.Downstream demand:manufacturing and SMEs to stand out Cloud computing applications have been widely accepted in many industries that provide products directly for consumers like education and the catering industry.Elsewhere,cloud adoption is lagging,especially in secondary industries like manufacturing and construction,as these industries are still increasing their overall informatisation levels.0%5%10%15%20%25%30%35%0%5%10%15%20%25%30%35%2017 Growth rate(y-o-y)Cloud adoption rateERPCRMOAFinancial management softwareHRMCybersecurityCloud products from foreign software vendors are more expensive and less localised 7 Equities Software August 2019 Exhibit 4.Major industries profile in Chinas SaaS market Source:Wind,Alibaba Cloud,HSBC Qianhai Securities estimates Note:Bubbles represent GDP contribution in 2016.We think SMEs may slow their IT spending when the economy slows,given their sensitivity to the macroeconomic environment.Enterprise management software and SaaS may play an important role during this process to help companies achieve higher efficiency.Initiate coverage on three companies Yonyou network(600588 CH;Buy;TP RMB33.18)Yonyou currently is the largest enterprise management software vendor in China.According to CCID Consulting,Yonyou was ranked No.1 in Chinas enterprise management software,financial management,ERP,CRM and enterprise asset management software markets in 2017.After a rapid transition in 2015-18,Yonyous cloud services revenue(excluding financial services)reached RMB851m in 2018,similar to Kingdees revenue of RMB849m,according to company data.The core cloud products include NC cloud(launched in 2018),U8 cloud and T+cloud(launched in 2017),targeted at large-,medium-and small-sized enterprise users,respectively.We forecast Yonyous revenue and net profit CAGRs to be 18.9%and 23.5%in 2018-23e,respectively,and expect the cloud services(excluding financial services business)revenue will account for 32%of the companys total revenue in 2021e(up from 11%in 2018),with a three-year CAGR of 72.1%.We apply a three-stage DCF approach to derive a 2020e target price of RMB33.18,implying upside of 17%from the current share price.Initiate with a Buy rating,since we are positive on the companys long-term growth.Shiji Information(002153 CH;Buy;TP RMB40.09)Shiji Information is a leading provider of systems and solutions for consumer industries,including hospitality,catering,retail,and entertainment.The company has a 60%share in Chinas star-rated hotel information systems market(c90%market share of Chinas five-star hotels),and a 60-70%share in Chinas scaled retail information systems market.Taobao(China)is now the second largest shareholder of Shiji,and Alibaba has invested in Shiji Retail with a 38%stake.We believe Shijis core strengths are its large market share and large user base in hotel,retail,and catering systems markets.Based on these unique advantages,we believe there are three key drivers for growth:the release of new cloud products,mainly those used by hotels;the 0%5%10%15%20%25%0123456Clients distribution in SaaS marketCloud penetration levelManufacturingFinanceRetailConstructionEducationCommunications,IT services,and softwareAccommodation and catering industryEquities Software August 2019 8 direct link with Alipay and WeChat Pay will likely generate considerable share revenue,mainly in the retail system business;and global expansion.Shijis most successful cloud products are:cloud POS(point-of-sale)and cloud PMS(property management systems)for hotels.We forecast Shijis revenue and net profit CAGRs to be 11.9%and 17.7%in 2018-23e,respectively,and apply a three-stage DCF approach to derive a 2020e target price of RMB40.09,implying upside of 14%from the current share price.Initiate with a Buy rating,since we are positive on the companys long-term growth.Weaver network(603039 CH;Buy;TP RMB94.21)Weaver is a leading Office Automation(OA)system provider in China with a market share of 23%,giving it the No 1 rank as of 1H18,according to the China Software Industry Association.Though the market is still fragmented,we believe a sector leader like Weaver could gain market share in the future by providing quality products and in-depth cooperation with entrance level apps(e.g.,Tencent Enterprise WeChat).We forecast Weavers revenue and net profit CAGRs to be 31.7%and 32.3%in 2018-21e,respectively.We apply an A-share cloud industry average PEG to value the company.Based on 2019e net profit estimates and the 2018-21e net profit CAGR(32%),we derive a 2019e target market capitalisation of RMB14.2bn and a target price of RMB94.21,implying upside of 37%from the current share price.Initiate with a Buy rating.Maintain Buy rating on Glodon(002410 CH;Buy;TP RMB38.89(from RMB33.72)According to FY18 results and 1H19 preliminary results,Glodons cloud transformation progress is ahead of expectations.Faster-than-expected cloud transformation progress is the main reason for the lower 1H19 net profit,in our view,while we see a limited impact on Glodons long-term performance.We slightly raise our FY19-20e revenue estimates but lower our net profit estimates,given:1)we raise R&D expenses;and 2)we cut VAT refund due to recognition item changes.We use a three-stage DCF valuation and get a 2021e EV o