Seeking value investment anchorage in Lingxiong Technology (02436) from the perspective of investment institutions.

For secondary market investors, there is never a single criterion for judging a good company. However, during an economic downturn, the differences among investors with different styles may be smaller. Companies that can balance value and growth attributes are often more likely to be favored by institutions and individual investors, and their stock prices are more likely to counter the market trend and show a slow bull market. Since the beginning of this year, the performance of the secondary market has been disappointing due to multiple factors such as the macroeconomic recovery being weaker than expected and the fluctuating trends of foreign capital. Taking the Hong Kong stock market as an example, although the three major indexes have experienced a long period of adjustment, the current performance of the stock market is still weak, and many individual stocks are still unable to break free from the "bear market." However, Lingxiong Technology (02436), which went public at the end of last year, is an exception. As the parent company of Xiaoxiong U Rent, Lingxiong Technology attracted investment from Tencent, JD.com, Dachen, Dongfang Fuhai, and other star institutions before it went public. After its listing in late November 2022, Lingxiong Technology continued to reach new highs, with its stock price soaring to HK$14.9 at one point, nearly doubling from its IPO price. It is worth mentioning that the market for device full lifecycle management where Lingxiong Technology is located is a typical B2B market. As the first stock in the "Device as a Service" (DaaS) industry, it is difficult for ordinary investors to find comparable companies in the Chinese stock market. Nevertheless, this has not dampened the enthusiasm of investors to allocate Lingxiong Technology's stocks. What is the reason behind this? After in-depth communication with the investors behind Lingxiong Technology, we found the answer to this question... "The industry watershed has appeared." "The listing of industry-leading companies is actually a milestone event in the concentration of the industry." Chen Liwei, a partner at Dongfang Fuhai, commented on the listing of Lingxiong Technology. Looking back at history, the concept of device full lifecycle management has only been introduced into the Chinese market in recent years, and the industry is still in its early stages of development. Public information shows that the penetration rate of China's device full lifecycle management industry is less than 5%, which is far behind the European and American markets. However, according to institutional estimates, by 2026, the overall size of China's device full lifecycle management market is expected to reach 138.2 billion yuan, and the compound annual growth rate between 2021 and 2026 will exceed 32%. As a veteran player in this rapidly growing billion-dollar blue ocean market, Lingxiong Technology has been deeply rooted in it for nearly 20 years. The entrepreneurial starting point of Lingxiong Technology can be traced back to 2004, when the company was just a small stall in Shenzhen Huaqiang Industry North. However, in just four years, Lingxiong Technology became one of the largest second-hand computer retailers in China. In 2018-2019, Lingxiong Technology once again accelerated its growth. At that time, the company established strategic business partnerships with JD.com, Lenovo, HP, and others. It was also during these two years that Lingxiong Technology completed its Series A, B, and C financing rounds. In November 2022, with the official listing of Lingxiong Technology on the Hong Kong stock market, this can be seen as a "watershed" for the Chinese device full lifecycle management market: in the past, industry participants consisted of a large number of small-scale regional solution providers, and high decentralization was the "main theme" of the industry. Lingxiong's listing marks the breakthrough of leading companies beyond geographical and scale limitations, and the concentration of the industry is expected to accelerate, further strengthening the "Matthew effect." This is also evidenced by the revenue scale changes of Lingxiong Technology and the entire industry in recent years. According to Lingxiong Technology's prospectus, the company's revenue increased from 500 million yuan to 1.33 billion yuan from 2019 to 2021, with a compound annual growth rate of approximately 63.1%. During the same period, the scale of China's device full lifecycle management market increased from 19.7 billion yuan to 34.5 billion yuan, with a compound annual growth rate of approximately 32.3%. In 2022, Lingxiong Technology's revenue continued to grow against the trend, reaching a record high of 1.664 billion yuan, firmly ranking first in the industry. Looking back at its track record, Lingxiong Technology has shown "accelerated growth," which may explain why the company received enthusiastic investment from a group of star institutions even before going public. Among the shareholders of Lingxiong Technology, Dachen, which invested in four rounds within four years, is particularly noteworthy. "Before each investment round, we compare the data of Lingxiong Technology with our financial forecasts from the previous investment round. We found that Lingxiong Technology's performance in each period met our expectations, which is an important reason why we continuously invested in four rounds," said Huang Yuewei, General Manager of Dachen Financial Intelligence Shanghai Branch, when asked why they continued to increase their investment in Lingxiong Technology. "Full-stack services help customers reduce costs and increase efficiency." In an era of slowing economic growth and pressure on the macro environment, why can Lingxiong Technology and its device full lifecycle management industry continue to grow against the trend, and even have a sense of "here is the best scenery"? In Chen Liwei's view, the reason why Lingxiong Technology and its industry can grow against the trend is related to the business value it can provide. "The main business value of this industry is actually helping companies reduce their burden, helping customers better control cash flow, allowing customers to have more sufficient cash flow for the development of their core businesses, and better resist the volatility of the economic cycle." Since the outbreak of the pandemic, many small and medium-sized enterprises have paid more attention to cost control, and "cost reduction and efficiency improvement" has gradually become a consensus among many enterprises. At the same time, the rise of remote work has also made large and medium-sized enterprises pay more attention to the flexibility of leasing and subscription models. In this context, IT equipment subscription services that meet market demand naturally become popular. According to data from Zhoushi Consulting, compared with traditional practices, device and IT technology subscription services can help companies reduce operating costs by about 10%-30% over three years. For enterprises, especially small and micro enterprises with weak risk resistance, this potential cost reduction space may make a difference between life and death. Moreover, it should be pointed out that as an industry leader, Lingxiong Technology not only provides leasing services to customers but has also built a comprehensive service system that covers the entire lifecycle of devices.The only closed-loop ecosystem within the current industry. Currently, Lingxiong Technology can provide customers with a full-stack service including IT equipment subscription, IT technical services, SaaS-based device management services, and IT equipment recycling. Moreover, unlike some suppliers limited to a single business scenario, Lingxiong Technology can also offer customers two leasing options: long-term leasing and short-term leasing.Under Lingxiong Technology's full lifecycle service solutions, customers can flexibly choose the required services from "equipment leasing, equipment recycling, technical services, and asset management SaaS services" based on their own business development stage and practical needs, freely match them, and customize them according to their needs and pay based on usage, thereby achieving optimal office asset allocation, minimal cost expenses, and maximum operational efficiency. Huang Yuewei believes that Lingxiong Technology's long-term rental service can meet customers' daily needs, short-term rental service can help companies deal with sudden demands, and the recycling business can bridge the capabilities of long-term and short-term rentals to maximize equipment residual value and customer benefits. In terms of the trend of key operating indicators, it also points to the continuing effectiveness of Lingxiong Technology's closed-loop business model. Data shows that from 2019 to 2021, the number of Lingxiong Technology's long-term rental customers increased from 5068 to 10030, with a compound annual growth rate of 40.7%. At the same time, Lingxiong Technology's retention rate for key account (KA) customers has also increased. As of the end of each year from 2019 to 2021, the company's retention rates for major customers reached 78.9%, 80.3%, and 84.2% respectively. In 2022, the company's ability to acquire major customers continued to grow, with a year-on-year growth rate of approximately 26.3% in the number of major customers. In addition, Lingxiong Technology's revenue from single customers is also increasing. From 2019 to 2021, the average contribution revenue from major customers in the company's long-term rental business was RMB 82,000, RMB 117,000, and RMB 153,000, respectively, with a compound annual growth rate of 36.4%. "Scale effect is the winning advantage in competition." As top companies in the industry continue to go public, the Chinese equipment full lifecycle management industry has also crossed the "turning point". Looking to the future, can Lingxiong Technology, as an "old soldier" in the industry, continue to lead? In Huang Yuewei's view, the equipment full lifecycle management industry has distinctive characteristics of heavy capital, heavy operations, and heavy services. These characteristics determine that the future pattern of the industry will be dominated by leading companies occupying the majority of the market. The reason behind this is that although the business logic of the equipment full lifecycle management industry seems simple, it requires participants to have four core infrastructure: a nationwide service network, IT equipment recycling and refurbishment factories, equipment subscription management platforms and equipment asset management systems, as well as strong customer acquisition channels. In other words, DaaS companies need to simultaneously meet various conditions such as funding, service network, digitalization, and customer acquisition capabilities to stand out, which means that only a small number of top companies have the opportunity to "break through" and achieve the strong getting stronger. "Lingxiong Technology has built a complete and one-stop business model in the industry. Its business model has better integrity and higher barriers. Even at present, it still possesses uniqueness," said Dongfang Fuhai, one of Lingxiong Technology's early investment institutions, speaking highly of the company's business model from the initial contact. During the interview, Chen Liwei also expressed his strong confidence in Lingxiong Technology's development prospects. "Drawing on the experience of overseas top companies, once these companies (referring to DaaS companies) enter the stage of scale effect, the improvement of their profitability is very significant." Looking at its past performance, Lingxiong Technology has indeed lived up to the expectations of various investment institutions. As mentioned earlier, in the past few years, Lingxiong Technology's core financial data has maintained a high-speed expansion, further consolidating and expanding its industry position. According to the company's prospectus, based on the revenue in 2021, the combined market share of the top five industry participants is approximately 7.3%, while Lingxiong Technology alone has a market share of 3.9%, surpassing the total of the other four companies. According to the company's 2022 annual report, based on the revenue in 2022, Lingxiong Technology's revenue continues to rank first in the industry. Being in a rapidly expanding emerging track, having outstanding achievements and a growth rate far higher than the industry, and having the advantages of first-mover and scale, Lingxiong Technology undoubtedly has great potential to rise to a "growth value stock". Not to mention, behind Lingxiong Technology are renowned institutional shareholders such as Tencent, JD.com, Lenovo, Dachen, and Dongfang Fuhai. These strategic shareholders can not only provide financial support but also mobilize more resources for Lingxiong Technology based on their own conditions, bringing more support to the company in terms of business and personnel. Finally, from the perspective of the capital market, for companies, it may become increasingly challenging to achieve sustainable growth in the "contrary wind" period of the economy. In this background, the equity of high-quality companies with both fundamental strength and growth momentum naturally becomes more precious. Based on this, with solid fundamentals and strong growth momentum, Lingxiong Technology may be one of the best targets for long-term holding and traversing the capital cycle.