20220304-招银国际-商汤-W-00020.HK-CV_demand_strong_but_AI_Cloud_market_is_crowded_9页_1mb

SenseTime (20 HK) Company Update Summary

Core Content Overview

This document provides an equity research update on SenseTime (20 HK), focusing on its financial performance, market position, and future outlook in the context of the growing AI and computer vision (CV) industry. It outlines the company's revenue expectations, challenges in the AI Cloud market, and its strategic initiatives such as the AlaaS Cloud offering and capex plans.

Main Points

Market Trends and Demand

• CV Demand: The demand for computer vision is strong and is expected to grow as AI applications expand with sensing technology.
• AIoT Market: The security camera market is the largest AIoT market, but AI is driving a 3x larger Serviceable Addressable Market (SAM) for new applications like robotics, new retail, healthcare, and logistics.
• Ambarella's Performance: Ambarella, a leading CV SoC provider, reported a 49% YoY revenue growth in FY22, with CV revenue tripling and accounting for over 25% of total revenue. It aims for 45% CV contribution in FY23.

Revenue and Financials

• Revenue Forecast: SenseTime is expected to report RMB4.7bn in FY21E, representing a 36% YoY growth, in line with the consensus.
• Gross Margin: The company's gross margin is forecasted to decline to 67.0% in FY21E, 1.5 ppts below the consensus estimate.
• Operating Loss: Operating loss is expected to widen to RMB3,818mn in FY21E, primarily due to increased R&D and listing expenses.
• Capex: SenseTime plans to invest RMB2.5bn in FY21E, with an additional RMB3.3bn capex announced in January 2022 for an office building in Shanghai.

AI Cloud Market Challenges

• High Competition: The AI Cloud market in China is highly concentrated, with BAT and Huawei accounting for 93% of the market share in 1H21.
• Baidu's Growth: Baidu has shown strong growth in AI Cloud, with a 64% YoY revenue increase to RMB15.1bn in FY21 and a doubling of capex to RMB10.9bn.
• AlaaS Uncertainty: SenseTime's AlaaS Cloud offering faces competition and potential margin dilution due to its asset-heavy nature.

Strategic Focus

• Smart City Recovery: The recovery of Smart City projects is a key driver for FY21E revenue growth.
• AlaaS and Capex Updates: AlaaS business and Lingang AI data center capex will be key focus areas in the FY21E results call.
• Business Model: SenseTime's AI software-centric business model contributes to high gross profit margin (GPM) in FY20, though this may decline due to increased hardware sales.

Key Information

Financial Highlights

• Revenue Growth: SenseTime is expected to grow revenue at a 36% YoY rate in FY21E and 37% in FY22E.
• GPM: Expected to drop to 67.0% in FY21E and continue to decline in subsequent years.
• Net Cash: SenseTime had RMB18.9bn in net cash as of 1H21.
• Valuation: The target price is maintained at HK$8.08, based on a 34x EV/sales multiple for FY22E.

Shareholding and Market Performance

• Shareholding: Key shareholders include Prof. Tang (26.3%), Softbank (14.1%), ESOP (8.2%), and Alibaba (7.2%).
• Market Cap: As of the latest data, the market cap is HK$229,526 million.
• Price Performance: SenseTime's 12-month price performance is highlighted, with a current price of HK$6.85 and a target price of HK$8.08.

Industry Comparison

• EV/Sales Ratio: SenseTime's EV/sales ratio is compared to peers like Cambricon, Ambarella, and global SaaS companies such as Microsoft and Salesforce.
• Sales CAGR: SenseTime is projected to grow at a 37% CAGR in FY20-23E.

Valuation and Investment Recommendation

• Maintain BUY: CMB International Global Markets maintains a BUY rating with an unchanged target price of HK$8.08.
• Valuation Methodology: The EV/sales multiple is used due to the early stage of AI deployment and the impact of high R&D and depreciation on short-term earnings.
• Premium to Cambricon: The target multiple reflects a 20% premium over Cambricon, considering SenseTime's larger business scale and AI company scarcity in the market.

Financial Summary

Income Statement

• Revenue: Expected to grow from RMB3,027mn in FY19A to RMB8,825mn in FY23E.
• Gross Profit: Projected to increase from RMB1,719mn in FY19A to RMB5,818mn in FY23E.
• Operating Profit: Expected to show a loss, with a forecast of RMB-3,818mn in FY21E.
• Net Profit: Expected to decline significantly, with RMB-32,489mn in FY21E and RMB-1,547mn in FY23E.

Cash Flow Summary

• Net Cash from Operating Activities: Expected to be negative in FY21E, reflecting high capital expenditures and operational costs.
• Capex: SenseTime's capex is projected to increase in FY22E with the new Shanghai office acquisition.

Balance Sheet

• Net Cash: As of 1H21, the company holds RMB18.9bn in net cash.
• Current Ratio: Improved to 6.4 in FY21E, indicating better short-term liquidity.

Conclusion

SenseTime is positioned as a leading player in the Chinese AI and computer vision market, with strong growth potential in CV applications and Smart City projects. However, the AI Cloud market is highly competitive, and the company's AlaaS offering may face challenges. Despite this, the firm maintains a BUY rating, highlighting its potential for growth and the scarcity of AI-focused companies in the market. The company's financial health and strategic investments suggest a promising future, though the outlook remains cautious due to macroeconomic uncertainties.