Industry leader FOURTH PARADIGM (06682) receives a rating upgrade from Huatai Securities: Target price of HK$80.53.

As the leading domestic enterprise AI platform, FOURTH PARADIGM (06682) has been on a high and steady rise since March, with its stock price soaring over 90% from the beginning of the month to the current price of 72.5 Hong Kong dollars. Considering its high-quality customer resources, AI platform capabilities, outstanding performance in growth and application development, and the acceleration of commercialization of AI, Huatai has released its first coverage report, giving a target price of 80.53 Hong Kong dollars. In recent years, driven by the wave of enterprise intelligence, AI technology has been rapidly developing, with large-scale artificial intelligence models such as ChatGPT continuously emerging. With the conclusion of the two sessions, "AI + " has become a national strategy. In the digital age sweeping the world today, artificial intelligence has become a key force for enterprise transformation and competitive enhancement. As the leader of domestic enterprise AI, FOURTH PARADIGM has been deeply cultivating enterprise AI solutions for 10 years, driving enterprise intelligence transformation with "AI platform + industry solutions". FOURTH PARADIGM started in decision-making AI, with businesses including the Prophet platform and products (standardized software/hardware integrated machines) and application development (customized solutions). Huatai is optimistic about FOURTH PARADIGM's stable and continuously expanding high-quality customer base and continuously exploring new fields to establish extensive industry coverage. FOURTH PARADIGM's clients are spread across various industries such as finance, energy and power, telecommunications, transportation, technology, education, and media, with top clients including banks, the three major telecom operators, State Grid, PetroChina, CGN, and People's Daily, among others top central state-owned enterprises. At the same time, FOURTH PARADIGM's client base is continuously expanding, pursuing not only "breadth" but also "depth". In terms of "breadth", the number of benchmark users of the company's head customers has rapidly increased, with the number of benchmark clients served increasing from 47 in 2020 to 104 in 2022, ARPU increasing from 12.3 million yuan in 2020 to 17.9 million yuan in 2022, and the revenue contribution from benchmark clients remaining at around 60%. In terms of "depth", FOURTH PARADIGM continues to expand into new areas such as manufacturing, healthcare, and retail, gradually establishing extensive industry coverage and successfully avoiding the risk of revenue decline brought by individual industry cycles. Currently, industries with significant revenue contributions include finance (16.9%/19.8% in 2022/1Q23), energy and power (20.3%/11.4%), transportation (13.1%/30.0%), and more. Furthermore, Huatai is optimistic about FOURTH PARADIGM leveraging its solid foundation in enterprise service software to reconstruct enterprise software with generative AI, enhancing customer experience and development efficiency. According to IDC data, in 2022, the market size of machine learning development platforms in China reached 3.5 billion yuan, with FOURTH PARADIGM holding a market share of 32.7%, surpassing Huawei Cloud, Jiu Zhangyunji, and AINNOVATION to become the largest machine learning development platform in China. Building on this foundation, FOURTH PARADIGM actively embraces large models and has introduced the AIGS strategy. On April 26th, FOURTH PARADIGM showcased its large model product "Shi Shuo 3.0" to the public for the first time and proposed the AIGS strategy, which aims to reconstruct enterprise software with generative AI. "Shi Shuo" is positioned as a new development platform based on multimodal large models, enhancing the experience and development efficiency of enterprise software to achieve "AIGS". Today, Shi Shuo has cooperated with hundreds of enterprises in finance, retail, manufacturing, healthcare, logistics, telecom, real estate, among others, and was selected as one of the 15 "advanced applications of Chinese AI large models" released by MIT Technology Review. Huatai believes that the customer resources accumulated by FOURTH PARADIGM in the field of enterprise service software provide an advantageous entry into the AIGS market and is optimistic that the company will combine generative AI with enterprise software to enhance user experience and promote the commercialization of AI. Finally, based on the company's Prophet platform and products, the continuous growth of application development business, extensive industry coverage, and a customer base mainly consisting of large enterprises, Huatai rates FOURTH PARADIGM with a "buy" rating for the first time, corresponding to a target price of 80.53 Hong Kong dollars.