GMTEight Special Offer|Mid-to-long term "bull market" emerging, is it time for investment opportunity in INSPUR DIGI ENT00596?

With the continuous increase in investment in cloud computing and AI fields in the Hong Kong stock market, hot money in the market has also started to flow into technology stocks. Taking INSPUR DIGI ENT (00596), which is deeply involved in the digital economy track, as an example, the company has attracted a lot of attention and capital inflows as the investment enthusiasm in the cloud computing and AI fields continues to rise. This is due to the company's strong technical accumulation and business layout in the cloud computing and AI fields, making stock trading active and driving the stock price up. On January 9, 2025, INSPUR DIGI suddenly rose sharply during trading hours, rising over 9% at one point, and then maintaining a high level of operation. By the close of trading, its stock price had risen by 6.96% to 3.84 Hong Kong dollars, with a trading volume of 7.264 million shares and a total market value of 4.385 billion Hong Kong dollars. Looking at a longer timeline, since December 6, 2024, INSPUR DIGI's stock price trend has been more obvious, with an accumulated increase of over 21% until now. Among these, there are two signals worth noting: first, from December 6, 2024 to now, INSPUR DIGI's stock price has been running above the 30-day moving average. As of January 9, 2025, its MA30 average price was 3.469 Hong Kong dollars. This trend usually indicates that the stock is in a medium to long-term bull market, and investors should maintain a positive attitude towards the stock. Second, during this period, the trading volume of its stock has also been continuously increasing, with a total volume of 65.4836 million shares over 22 trading days. Generally, if a stock price rises above the monthly average and the trading volume also increases, it can be considered that the upward trend of the stock is strong. These signs undoubtedly mean that INSPUR DIGI ENT has already "taken action" in this wave of technology stock price rise. So, next, let's explore the real investment value of INSPUR DIGI ENT through its fundamentals and market competitiveness. Localization replacing imports "volume is imminent", increasing certainty in performance It is reported that INSPUR DIGI ENT is an ERP vendor with a state-owned background, mainly engaged in enterprise management software, enterprise cloud services, and IoT solutions. The company is mainly supported by an intelligent ERP, industrial software, and PaaS platform product system to help companies transform their entire business digitally in terms of management and production operations. By the end of 2023, INSPUR DIGI ENT had provided digital transformation services to 76 central enterprises, 186 Chinese top 500 companies, and over 1.2 million companies. Looking at the industry trends, the ERP track that INSPUR DIGI ENT is currently in is entering a new stage of localization replacing imports in terms of replacing management systems. ERP software has been widely used in Chinese enterprises for over thirty years. Since Oracle entered the Chinese market in 1989, well-known foreign ERP vendors such as SAP, Oracle, and Infor had dominated the market. Since the 21st century, with the rapid development of new-generation information technologies in China, such as cloud computing, big data, artificial intelligence, and internet technology, ERP systems that are cloud-based, digital, platform-based, component-based, and service-based have become the focus of the market. Against this backdrop, domestic ERP products are overtaking their foreign counterparts and gaining substantial market share. Currently, benefiting from national policies leading companies towards digital transformation and innovation, ERP localization replacing imports is entering a new stage of replacing management systems. The localization strategy follows the sequence of replacing infrastructure first, then office systems, followed by management systems, and finally production and operation systems. At present, ERP localization replacing imports is on the eve of replacing management systems on a large scale, with volume soon to follow. This development trend is reflected in the business performance as well, with a significant increase in net profit. In the first half of 2024, INSPUR DIGI ENT achieved a revenue of 4.141 billion yuan, an increase of 1.09% year-on-year, with a net profit attributable to shareholders of 1.06 billion yuan, an increase of 114.66% year-on-year. Looking at the split business structure, during the period, the company's cloud service revenue reached 980 million yuan, an increase of 36.01% year-on-year, and the enterprise management software business revenue reached 1.202 billion yuan, an increase of 7.43% year-on-year, with these businesses collectively helping the company achieve steady revenue growth. Additionally, the significant increase in net profit in this period is mainly due to the following reasons: Firstly, the company's intelligent upgrade has shown remarkable results, with an increase in the proportion of high-margin products. In the first half of 2024, INSPUR DIGI ENT continued to increase its investment in cloud services with intelligent ERP and PaaS platform products as its core, using the Haiyue PaaS platform as its base and the Haiyue big model as its intelligent central unit, improving product automation capabilities, thereby increasing market competitiveness and product added value, driving profit growth. As the proportion of high-margin software products and cloud service income continues to increase, the company's comprehensive gross profit margin has increased to 22.02%, an increase of 1.55 percentage points year-on-year, thereby increasing profit space. Secondly, breakthroughs in core business technology have promoted a significant increase in operating profit in the management software business segment. In the first half of 2024, the company comprehensively upgraded the Haiyue software product system to help companies in their digital and intelligent transformation, continuously promoting the localization replacement process of ERP and other management software, making the company competitive in central enterprises and large companies markets, leading the profitability of the management software business segment to reach 174 million yuan, an increase of 19.29% year-on-year. Therefore, from an operational perspective, with the expansion of the company's revenue scale and the sharp increase in net profit in the impending ERP localization replacement trend, INSPUR DIGI ENT obviously has the "genes" of certain hidden funds. Three major competitive advantages emerge, but high-end ERP is still "underpowered"DIGI ENT is backed by the Waves Group and, as a state-owned enterprise, it has a natural advantage of trust and endorsement within the state-owned enterprises. Currently, the company's clients are mainly large central state-owned enterprises, including Dongfang Electric Corporation, CHINA TOWER, Moutai Group, and Lu Hua Group. Due to the emphasis on information and data security, central state-owned enterprise clients trust state-owned background brands more. INSPUR DIGI ENT, as the only comprehensive ERP vendor with a state-owned background, is more likely to be favored by central state-owned enterprises in the selection of ERP localization. In addition, the advantage of large central state-owned enterprise clients lies in stable growth, further highlighting the company's competitive advantage.Furthermore, currently INSPUR DIGI ENT also has the characteristics of rich and competitive products in terms of product strength. The company has products such as the Haiyue PaaS platform, which ranks first in aPaaS comprehensive competitiveness in China. Its traditional ERP and cloud product business are developing well, with the cloud business proportion continuously increasing. Additionally, they have released the Inspur Haiyue small and medium-sized enterprise intelligent ERP inSuite3.0, which comes with pre-set enterprise-level AI large models, and has the product advantages of being easy to use, fast, and accurate. In addition, the company has a complete cloud infrastructure, with 7 core cloud data centers, 113 regional cloud centers, and 502 distributed cloud nodes nationwide, forming the largest distributed cloud system in the country. This allows for unified operation management and continuous iterative upgrades based on the unified OpsCenter. From the above-mentioned competitiveness, Inspur Digi undoubtedly possesses certain "unique advantages" in domesticating Inspur. However, it is worth noting that from the perspective of the layout of high-end ERP in China, Inspur Digi ENT's high-end ERP strength may still be lacking. According to the data released in the "2021 China Industrial Software Development White Paper" jointly published by Alibaba Cloud Innovation Center and Jingzhun researchers, domestic ERP software accounted for nearly 70% of the market share in 2021. The top three domestic manufacturers, UFIDA, Inspur, and Kingdee, rank in the top three. The high-end ERP market is still dominated by foreign manufacturers, with the traditional ERP giants SAP and Oracle holding a significant position. Other foreign medium-sized ERP manufacturers like Infor also have a place in the high-end market. It can be seen that although INSPUR DIGI ENT holds a certain market share in the domestic market, its influence in the international market is relatively weak compared to international giants. There is still a significant gap in brand awareness, market share, and business coverage on a global scale. In summary, whether from the fundamentals, competitiveness, or market development potential, INSPUR DIGI ENT seems to have the effect of attracting investment. However, with the weak influence in the international market and the development disadvantage of lacking high-end ERP capabilities, the upward momentum of the company's stock price may face some challenges in the future.