20230329-招银国际-商汤-W-00020.HK-Leading_in_the_China_large_AI_model_race_10页_1mb

SenseTime (20 HK) Summary

Core Content

SenseTime, a leading AI company in China, reported FY22 results that were weaker than expected, with revenue at RMB3.81bn (-19% YoY). The company's performance was impacted by delays in Smart City projects due to the pandemic. Despite this, the company showed positive signs with the growth of its recurring AI as a Service (AlaaS) business, which is driven by its SenseCore platform.

Main Points

• FY22 Financial Performance:

  • Revenue: RMB3.81bn, missing estimates by 22% and 24% respectively.
  • Gross margin: 66.8%, down 3 percentage points from FY21.
  • R&D expenditure: RMB4.01bn (+11% YoY).
  • Net loss: RMB6.05bn.
  • Adjusted net profit: RMB4.688bn.

• Segment Performance:

  • Smart Business: Revenue declined by 25% YoY to RMB1.464bn, with SenseCore contributing over 20% of the segment's revenue.
  • Smart City: Revenue dropped 49% YoY to RMB1.096bn, but the number of cities increased to 162.
  • Smart Life: Grew by 130% YoY to RMB955mn, driven by AIGC and AI sensors.
  • Smart Auto: Grew by 59% YoY to RMB293mn, with stable customer numbers but higher average revenue per customer.

• Operational Model:

  • The company is shifting focus towards recurring AlaaS, with a significant portion of its revenue coming from this segment.
  • The operating margin has improved slightly in FY22, but the net margin remains negative.

• AI Large Model Development:

  • SenseTime has developed a CV foundation model with 32bn parameters and plans to launch a large language model with over 100bn parameters in mid-2023.
  • The company has the capacity to support up to 4,000 GPU card for single-task training, with over 27,000 GPUs in total.

• Valuation and Target Price:

  • The company's EV/sales ratio is revised to 18x for FY23E, aligning with China AI peers.
  • The new target price is HK$3.45, up 28.9% from the current price of HK$2.68.
  • The market-cap weighted EV/sales for China AI has increased from 4.4x to 10.0x YTD.

Key Information

• Business Diversification: The company is diversifying its revenue streams, with new segments like Smart Life and Smart Auto showing strong growth.
• AIaaS Growth: The ramp-up of AlaaS is expected to drive future revenue growth and improve operational efficiency.
• Market Position: SenseTime is positioned as a leader in large AI model development, with strong capabilities in both CV and language models.
• Financial Adjustments: The company revised down its FY23-24E revenue by 17-18% due to the slow recovery in AI spending post-pandemic.
• Earnings Forecast: Adjusted net profit for FY23E is estimated at RMB3.83bn, and for FY24E at RMB3.345bn.
• Shareholding: ESOP holds 14.9%, and Softbank holds 14.8%.
• Stock Performance: The stock has shown positive performance over the past 12 months, with a 54.9% increase in absolute terms.

Valuation Table

Figures and Trends

• Figure 1: China computer vision market to increase at 43.5% CAGR in FY20-25E.
• Figure 2: China CV software market mix will change on stronger Consumer and Automotive growth.
• Figure 3: 29% CAGR of revenue in FY22-25E.
• Figure 4: Revenue diversification to accelerate.
• Figure 5: SenseCore enables more efficient AI model development.
• Figure 6: SenseTime GPM to gradually decline as AlaaS ramps up.
• Figure 7: SenseTime FY22 results review.
• Figure 8: Earnings revision.
• Figure 9: CMBI vs. consensus forecast.
• Figure 10: SenseTime income statement.
• Figure 11: SenseTime forward EV/sales.
• Figure 12: China AI market-cap weighted forward EV/sales.

Financial Summary

Conclusion

Despite the weak FY22 performance, SenseTime is expected to benefit from its strong AI model capabilities and the growth of its AlaaS business. The company maintains a BUY rating with a new target price of HK$3.45, reflecting a more optimistic outlook on its future growth potential.