Zhitong Finance APP learned that Soochow Securities released a research report, covering Inspur Digital Enterprises (00596) for the first time, giving a "buy" rating, and expected revenue of 10.1/12/14 billion yuan in 2024/2025/2026, net income attributable to parent of 0.39/0.53/0.75 billion yuan, and a target price of HKD 7.7. The bank is optimistic about the company's market space and business advantages as a leading state-owned ERP company.

The main viewpoints of Soochow Securities are as follows:

As a state-owned ERP vendor, the company has unique advantages in the localization of domestic alternatives to Inspur.

Inspur Digi Ent is one of the leading domestic ERP vendors with extensive experience and successful cases in multiple industries such as construction, grain, pharmaceuticals, and chemical. As of the end of 2023, Inspur Group Co., Ltd. holds 37.50% of the company's shares, while Inspur Shandong Overseas Investment and Development Co., Ltd. holds 16.94%. The actual controller is the Shandong State-owned Assets Supervision and Administration Commission.

The ERP market is expected to accelerate its growth, and the demand for domestic alternatives is abundant.

The country has proposed to achieve 100% domestic substitution in both government agencies and the eight major industries by 2027. As the core platform for enterprise data management, the domestication process of ERP is synchronously proceeding with the trend of enterprise cloud migration. UFIDA, Inspur, and Kingdee respectively occupy 40%, 20%, and 18% of the market share, with high market concentration. Foreign companies SAP and Oracle account for 53% of the high-end ERP market, leaving ample room for substitution. At present, the domestic substitution of ERP is on the eve of the replacement of the management system, and it can be described as a large-scale volume.

The scale effect of cloud businesses is gradually emerging, and performance is expected to be released.

The company began implementing cloud transformation in 2018. Due to the impact of the epidemic after cloud transformation, the performance of cloud business have not been fully reflected, and it has gradually been fully released after the epidemic. Moreover, all product lines have completed cloud transformation, passed the period of large-scale research and development input, and R&D costs have steadily declined. Therefore, the company's cloud business loss rate has continued to narrow in recent years ( -2.8% in 2023). The bank predicts that the cloud business will turn a loss into a profit in 2024 and gradually release performance.

The company's customers are mainly large central state-owned enterprises, with a unique advantage in state-owned background, and relatively low valuation compared to peers.

Due to the importance placed on information and data security, state-owned enterprise customers are more likely to trust brands with state-owned backgrounds. As the only comprehensive large-scale ERP vendor with a state-owned background, Inspur Digi Ent is more likely to be favored by state-owned enterprise customers in the selection of domestic alternatives to ERP. Moreover, Inspur Group can provide strong resource support for the development of Inspur Digi Ent, bringing advantages such as brand, policy, tax, and market. The advantage of large state-owned enterprise customers lies in stable growth, highlighting the company's competitive advantage.

Risk Warning: Policy progress falls short of expectation, downstream customer IT budgets are tight, and industry competition intensifies.