YONYOU NETWORK(600588)：LEVERAGING BIP TO PROMOTE DIGITALIZATION OF THE “PILLARS OF A GREAT POWER”

Yonyou is creating a new generation of digital business innovation platform BIP3, and building a moat of “PaaS + SaaS + ecosystem”. It gradually follows the similar development path as Salesforce. At the same time, the Company focuses on the three key tasks of “product strengthening, market occupation and ability improvement”, strengthens the “platform, cloud, subscription” strategy to stand out in the opportunities of digitalization and technological innovation of the central state-owned enterprises (SOEs), and consolidates its leading position in business innovation. We assign 10x 2023E PS to derive a target market cap of Rmb130bn, equivalent to a target price of Rmb38, and initiate coverage with a "BUY" rating.
BIP contributes to the digitalization of the “pillars of a great power”, opening a new era of Xinchuang and the cloud.
Yonyou has shaped an open and shared business ecosystem by building YonBIP, the world’s leading digital intelligence business innovation platform (BIP) and a cloud-native iUAP platform from bottom up to support the upper layer of large-/medium-sized enterprise application development and innovation. With a comprehensive product matrix of BIP platform + application products, it accelerates customer acquisition in top central SOEs and consolidates its leading position in the large-sized market. Meanwhile, it also promotes subscription-based cloudification in the medium-sized market and restructures the organization to realize a fast and sound transformation. The earnings side has achieved a breakthrough by grasping the historical opportunity of digitalization and intelligentization and the development of Xinchuang industry (information technology application innovation).
iUAP: Building the base of BIP platform + ecosystem and leading business innovation. iUAP platform as one of Yonyou’s BIP PaaS platform is a combination of the unified application platform (UAP) and business innovation cloud platform. It meets the high performance and concurrent requirement of internet-based and cloud-based application, realizes the in-depth cloud native restructure, supports the upper layer application practice of enterprise resources planning (ERP) and provides customized solutions with low cost and high efficiency to promote the development of cloud products and ecosystem and creates the advantages in brand power, platform strength and ecosystem. By building a moat of “SaaS + platform + ecosystem” in multiple aspects, the Company is likely to consolidate its position as a leading business innovation solution provider benchmarked against the overseas industry leader Salesforce in the era of digitalization and intelligentization.
Large-sized customers: YonBIP seizes the opportunities.
On the demand side, the main development route lies on the digitalization of central SOEs amid the information technology application innovation. With the policy support, we believe that the central SOEs are likely to accelerate their ERP construction. On the supply side, the Company occupies the market with YonBIP, accelerates the ecosystem buildup and transforms to a platform company with iUAP as the base. With the benchmarking effect brought by the top customers and positioning advantages of the Company, the cloud-based subscription system is likely to advance smoothly in the future, improving the Company’s efficiency and profit growth.
Medium-sized market: Subscription growth accelerates, and YonSuite + U9C achieve full coverage.
On the demand side, we believe it is hard for software as a service (SaaS) companies to develop with the small-/medium-sized market as the fundamental in the short term, but in the long run, the market potential is huge.
Small-/medium-sized pan-ERP has a potential annualized market of around Rmb100bn, reflecting that the development opportunities come from long-term blue ocean fields. On the supply side, the Company accelerated product polishing and subscription promotion. Cloud-native YonSuite and BIP are continuously improving. U9C has gradually transformed into subscription-based product, which is likely to expand the medium-sized market share with the incentive of the Company and achieve the rapid increase in overall accounting rate of return (ARR) and renewal rates.
Development strategy: Optimization of structure and promotion of cloud and platform strategy.
At the key point of 3.0-II strategy, the Company focuses on three key tasks of “product strengthening, market occupation and ability improvement”. To seize the strategic development opportunity of cloud services business, the Company is committed to promoting platform, cloudification and subscription of products. With optimization of structure, coordination between high-end business lines, focus on medium-sized subscription-based products and the younger management team, we believe the Company is likely to usher in fast-growing earnings from next year and beyond. In addition, with the private placement of Rmb5.3bn, the capital from star investors and increased foreign capital percentage, we believe that the Company's equity structure will likely be further optimized.
Potential risks: Disappointing transformation of platform and ecosystem; slower-than-expected digitalization progress of central SOEs; less-than-expected localization progress; disappointing BIP3 product rollout; macroeconomic fluctuations; intensified competition.
Investment strategy: Considering the Company’s enhanced “platform, cloud, subscription” strategy to stand out in the opportunities of digitalization and technological innovation of the central SOEs and its leading position in business innovation. We forecast the Company’s 2022E/23E/24E revenue to be Rmb10.38bn/13.02bn/ 16.30bn, corresponding to PS multiples of 8x/6x/5x at the current price. The short-term net profit does not fully represent the long-term profitability as the Company continues to invest largely in R&D investment and sales efforts in the short term. In the medium term, we expect the Company’s profitability to increase rapidly under the scale effect. We combined the PS valuation and medium-term PE discount valuation methods and take the lower result by the PE valuation method under prudent considerations. We pick A-share companies Shiji Information (002153.SZ), Glodon (002410.SZ), Hundsun Technologies (600570.SH), Kingdee Int’l (00268.HK) as comparable companies which are trading at an average PS of 9x/8x/6x in 2022E/23E/24E.
We grant certain premium given the Company’s leading position and its compete and advanced product matrix, the transformation and the acceleration of localization, and assign 10x 2023E PS to derive a target market cap of Rmb130bn, corresponding to a target price of Rmb38. Initiate coverage with a “BUY” rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。