The Zhitong Finance App learned that Tianfeng Securities published a research report stating that we have always been in an era of software. Going back domestically, the value of the software industry has gradually declined in the past 5 years, but there are still some TOB software companies that have created “value.” For the development of the software industry, people are a core asset. As the scale of the enterprise increases and the number of levels increases, the increase in personnel will generate negative ROI, transform SaaS, or reduce management challenges; in addition, it is necessary to focus on customer groups with stronger payment capabilities and downstream distribution closer to a spindle; finally, we must insist on commercialization, polish middle and office capabilities, and start a new product innovation cycle. From a global perspective, excellent software companies all have high per capita gross profit, excellent profit and cash flow, and large repurchases/dividends, which are characteristics of growth dividends.

In the past and in the future, we may always be in the big age of software. In 2011, MarkAndreessen wrote “Why Software Is Eating the World”, describing how Amazon changed the book market, Netflix reshaped the entertainment industry, and how Google revolutionized direct marketing. He pointed out that software is moving towards a larger market. As a result, from Q1 2011 to Q1 of 2024, among the 10 largest companies in the world by market capitalization, software companies changed from 1 to 3. Looking forward to the future, Tianfeng Securities believes that big models, especially AIAgent, will further reshape the world, help software move to more scenarios, and move more industry cost structures from Opex to Capex.

Going back domestically, value has gradually declined in the past 5 years, but there are still some TOB software companies that have created “value.” If value is measured by gross profit per capita, the value created by ToC Internet companies is even more remarkable. In 2023, the gross profit per capita of ToC software companies was 7.7 times that of ToB software companies, but Tianfeng Securities found that some ToB software companies also achieved good economic characteristics, such as Apex Software, where per capita gross profit increased rapidly in the past two years, Jinshan Office, Hang Seng Electronics, and Pan-Micro Networks from 2016 to 2019. It can be seen from this that commercialized software companies can show greater profit flexibility when deploying products on a large scale.

How can the good business of software flourish in China? Tianfeng Securities believes that the three key points are managing people well, choosing a good industry, and adhering to commercialization. First, the core asset of software is people. As the scale of the enterprise increases and the number of levels increases, the number of personnel will generate negative ROI. Management capabilities are reflected in internal R&D management and delivery project management capabilities. Good management is the foundation. If SaaS is converted, management challenges may decrease; secondly, they should choose a customer group with a more contractual spirit, more ability to pay, and the downstream is closer to a spindle distribution; finally, we must insist on commercialization and polish our capabilities to start a new product innovation cycle. Typical examples include Jinshan Office's ToC and ToB products moving towards functional features such as cloud, collaboration, and AI The starry sky of butterflies from 18-19, and the sky and stars that are gradually entering the harvest period.

From a global perspective, excellent software companies all have high per capita gross profit, excellent profit and cash flow, and large repurchases/dividends, which is a growth dividend asset characteristic. Take SAP in the latest fiscal year 2024 and Salesforce in fiscal year 2023 as examples. The two companies have already reached 50% + of their free cash flow as a share of buybacks and dividends. Back to A-shares, take Apex Software as an example. In addition to having good business performance, the dividend rate and dividend rate reached 80% and 4% respectively in 2023. In the future, a number of TOBSaaS companies represented by Kingdee are also expected to gradually start making profits.

Recommended attention: Considering factors such as management capacity, downstream prosperity, and product innovation cycle, it is recommended to focus on Jinshan Office (688111.SH), Kingdee International (00268), Apex Software (300338.SZ), Hang Seng Electronics (600570.SH), Foxit Software (688095.SH), Nanwang Technology (), China Grid Communications (), China Grid Communications (), Guoneng Rixin (301162.SZ), Zhongwang Software (System), Dingjie 688248.SH 688777.SH 600131.SH 688083.SH Software (300378.SZ).

Risk warning: Quantitative statistical methods may be biased, risk of increased industry competition, risk of policy implementation falling short of expectations, and risk of AI application implementation falling short of expectations.