20220923-招银国际-玄武云-02392.HK-Leading_intelligent_CRM_service_provider_34页_3mb

Xuan Wu Cloud Summary

Core Content

Xuan Wu Cloud is a leading intelligent CRM service provider in China, ranked as the largest domestic provider with a market share of 13.8% in 2021 (revenue-based), according to Frost & Sullivan. The company offers both CRM PaaS and SaaS services, which integrate cloud, AI, and data intelligence to deliver comprehensive, intelligent customer relationship management solutions.

Main Points

• Market Position: Xuan Wu Cloud is the second-largest provider of intelligent CRM services in China and the largest domestic provider in terms of revenue.
• Client Base: In FY21, Xuan Wu Cloud served 2,640 clients, of which 325 were core clients (annual contribution >RMB300,000), contributing 94.6% of FY21 revenue.
• Retention Rates:
  • Overall client retention rate: 66.6%
  • Core client retention rate: 86.1%
  • Net dollar retention rate: 109.4% (core clients: 102.2%)
• Revenue Growth:
  • Revenue is expected to grow at 19% CAGR from RMB992mn in FY21 to RMB1,661mn in FY24E.
  • Adj. net profit is expected to grow at a 62% CAGR, driven by higher margins in the CRM SaaS segment.
• Service Mix:
  • CRM PaaS: 55.9% of FY21 revenue.
  • CRM SaaS: 44.1% of FY21 revenue.
• Valuation:
  • Initiated at BUY with a target price of HK$10.14.
  • Based on 3.2x FY23E EV/sales, in line with the average valuation of cloud communication service providers and China software peers.
• Market Trends:
  • The intelligent CRM services market in China is projected to grow at 38.6% CAGR from RMB7.2bn in 2021 to RMB36.8bn in 2026.
  • The TAM is expected to grow from RMB71.8bn to RMB280.0bn in FY21-26E, with a 31.3% CAGR.

Key Drivers of Growth

• Stable Communication Infrastructure: China's IT industry and communication infrastructure support the development of intelligent CRM.
• Integration of AI and Big Data: Enterprises increasingly rely on AI and data intelligence for better customer management and business insights.
• Favorable Policies: Government initiatives promoting cloud computing, AI, and big data adoption are beneficial for the industry.

Competitive Landscape

• The intelligent CRM services market is highly concentrated, with the top five players accounting for 63.0% of the market share in 2021.
• Xuan Wu Cloud competes with peers such as Company A, B, C, D, E, G, and H, each offering a mix of CRM PaaS and SaaS services.
• Xuan Wu Cloud's core client retention rate is 89.1%, and its net dollar retention rate is 112.9%, indicating strong client loyalty.

Financial Highlights

Key Risks

• Intensifying Competition: The market is becoming more competitive as various players expand their service offerings.
• Rising Telecommunication Costs: Increased costs for communication resources could affect profitability.
• Technological and Operational Risks: Reliance on cloud and AI technologies may pose challenges in implementation and maintenance.

Investment Thesis

• Market Share: 13.8% in 2021, with expected growth in both revenue and adj. net profit.
• Growth Drivers: Expansion of core client base and increased revenue per core client.
• Valuation: Based on EV/sales, with a target price of HK$10.14, reflecting +27.9% upside from the current price of HK$7.93.
• Strategic Position: Strong presence in core industries such as financial, TMT, and government-related sectors.

Business Model

• CRM PaaS Services:
  • Provide communication capabilities via APIs and SDKs.
  • Functional modules include verification code, notification, and hidden-number.
• CRM SaaS Services:
  • Offer Marketing Cloud, Sales Cloud, and Service Cloud.
  • Integrated with cloud, AI, and data intelligence to provide one-stop solutions.
  • Customizable plug-ins and features tailored to client needs.

Strategic Focus

• Cloud Communication: Xuan Wu Cloud's cPaaS platform is central to its PaaS services.
• AI and Data Intelligence: These are key enablers for intelligent CRM, allowing for better data analytics and customer insights.
• Cross-selling: The company is expected to leverage its technical foundation to offer integrated solutions across different CRM modules.

Summary of Financial Performance

• FY21 Revenue: RMB992mn (55.9% from PaaS, 44.1% from SaaS).
• Gross Margin:
  • PaaS: 10.9%
  • SaaS: 39.3%
• Profitability: Adj. net profit is expected to grow significantly due to higher-margin SaaS services outperforming PaaS.

Appendix: Company Profile

• Founded: 2010
• Headquarters: China
• Market Cap: HK$4,533mn
• Shareholding Structure:
  • Mr. Chen, Mr. Huang, Mr. Li: 53.35%
  • Mr. Song: 15.90%
  • ESOP: 5.62%
  • Fosun International: 5.61%

Conclusion

Xuan Wu Cloud is well-positioned in the growing intelligent CRM market, with a strong client base, high retention rates, and a diversified business model that includes both PaaS and SaaS services. The company's focus on AI and data intelligence, combined with its scalable and customizable solutions, supports its growth trajectory. The investment thesis highlights its potential for significant revenue and profit growth, with a BUY recommendation and a target price of HK$10.14.