20220202-招银国际-商汤-W-00020.HK-Unrivalled_computer_vision_leader_in_China_57页_3mb

Summary of CMB International Securities Equity Research on SenseTime (20 HK)

Core Content

SenseTime is a leading Chinese AI computer vision software company with a market share of 11% in 2020, according to Frost & Sullivan. The company is positioned as a key player in the expanding AI software market, particularly in the computer vision segment, which is expected to grow at 43.5% CAGR from RMB16.7bn in 2020 to RMB101.7bn in 2025E. CMB International Securities initiates coverage with a BUY recommendation and a target price of HK$8.08, based on a 34x FY22E EV/sales multiple, which is 20% higher than that of Cambricon, the closest comparable.

Main Points

• Market Position: SenseTime is the largest AI computer vision software provider in China with a 11% market share in 2020.
• Revenue Growth: The company's revenue is projected to grow at a 37% CAGR from RMB3,446mn in FY20 to RMB8,825mn in FY23E.
• Business Segments: SenseTime operates in four main segments: Smart Business, Smart City, Smart Life, and Smart Auto.
• Technology Infrastructure: SenseTime's proprietary AI infrastructure, SenseCore, enables efficient AI model production and addresses diverse industrial scenarios through a base model approach.
• R&D Strength: The company has a strong R&D capability with 3,593 R&D staff and R&D spending of RMB2,454mn in FY20, which is the highest among software-centric AI peers.
• Computing Capacity: SenseTime has built 23 supercomputing clusters, with over 20,000 GPUs, providing an aggregate computing capacity of 1.17 exaFLOPs.
• Key Risks: The report highlights potential risks including tightening U.S. restrictions, evolving data privacy regulations, lengthening working capital, and a weakening macro environment.

Key Financials

Competitive Landscape

• Software-Centric Peers: SenseTime competes directly with companies like Megvii, Yitu, CloudWalk, Intellfusion, Alinnovation, DeepGlint, and ArcSoft. SenseTime has the highest revenue and gross margin among these.
• Hardware-Centric Peers: Hikvision and Dahua are major competitors, but they focus more on hardware solutions and have lower gross margins (45% in FY20).
• Cloud Providers: Companies like Huawei, Alibaba, Baidu, and Tencent also offer AI capabilities, but they are broader in scope than SenseTime.

R&D and Computing Capacity

• R&D Expenditure: RMB2,454mn in FY20, representing 71.2% of revenue.
• R&D Staff: 3,593 R&D staff as of 30 Jun 2021, with 2/3 holding or pursuing master's or higher degrees, including over 250 PhDs.
• Computing Power: SenseTime has 23 supercomputing clusters with over 20,000 GPUs, supporting high-capacity AI model training.

U.S. Restrictions and Implications

• Entity List: Only one subsidiary, Beijing SenseTime, is on the Entity List. This does not affect the main listed entity.
• NS-CMIC List: SenseTime Group Limited is on the NS-CMIC list, which restricts U.S. persons from buying or selling its securities.
• Federal Procurement: U.S. federal agencies are prohibited from sourcing from certain Chinese tech companies, but this does not apply to SenseTime.

Investment Risks

• U.S. Restrictions: Potential tightening of U.S. export controls and restrictions on U.S. persons.
• Data Privacy Regulations: Evolving regulations may impact the company's operations.
• Working Capital: Lengthening working capital could affect cash flow.
• Macro Environment: Weakening macro conditions may slow AI adoption in enterprise and government sectors.

Conclusion

SenseTime is well-positioned as a leader in the Chinese computer vision software market, with a strong R&D capability, superior computing infrastructure, and a diverse range of business applications. Despite U.S. restrictions, the company is not significantly impacted. The report recommends a BUY with a target price of HK$8.08, based on a 34x EV/sales multiple, reflecting its strong growth potential and market leadership.