Sangfor Technologies Inc(300454) (300454)
Key assumptions & our different views from the market:
XaaS：
The company’s strategic formulation has changed from the “security” + “cloud” twin engine in the past to the comprehensive cloud transformation of xaas proposed this year. In the past, we regarded Sangfor Technologies Inc(300454) as a company with two businesses, network security as the cornerstone and private cloud super integration as the increment. In the future, we will regard the company as a cloud computing convenience store that serves everything.
1. Infrastructure as a service hosted cloud: it has the advantages of both public cloud and private cloud, with safe and reliable data, exclusive resources, no self operation and maintenance, and real-time response of professional services to meet the cloud needs of users of small and medium-sized enterprises. Sangfor Technologies Inc(300454) managed cloud is close to customers. At present, T3 + level data centers have been established in 32 covered cities across the country, 40 + coverage has been completed by the end of the year, and 1000 + managed cloud nodes have been built within three years to allow customers to use nearby and improve resource acquisition performance; Provide full life cycle security protection covering physical machine security, cloud security, data security, etc. China’s cloud computing will maintain rapid development. Whether it is public cloud or private cloud, the company’s managed cloud will enjoy the dividends of both. We believe that China’s cloud computing industry will continue to maintain high prosperity and growth in the next three years, with a growth rate of about 35%. The technology of China’s IAAs market is mature and will enter the stage of comprehensive application, which is still the main theme of cloud computing in the next few years. At present, the company’s development focuses on the bottom and security level, which is in line with the trend.
2. Sangforaccess of security as a service SASE architecture: the business operation mode has changed, and the SASE mode is the future of security. SASE is a combination of network capabilities and security capabilities, and is delivered to customers through the cloud SaaS model. It is estimated that the global total revenue of SASE will reach US $11 billion in 2024. The current total revenue scale is US $1.9 billion, with a compound growth rate of 42%. The market size of Greater China is about 769 million US dollars, equivalent to 4.922 billion yuan (exchange rate of 1 US dollar and 6.4 RMB). We believe that the ability or competitiveness of SASE deployment will be reflected in the three capabilities of cloud infrastructure layout (the number of pop nodes built), basic resource cloud capability (virtualization, software definition capability, etc.) and traditional security protection capability (FW, VPN, etc.), which is why the main players of SASE are Internet cloud computing manufacturers (such as Alibaba cloud and Tencent cloud) Traditional security vendors (such as Nsfocus Technologies Group Co.Ltd(300369) , Qi An Xin Technology Group Inc(688561) ) and virtualization vendors (such as VMware). Based on the advantages of their own fields, these three types of manufacturers have expanded horizontally to the other two capabilities to achieve SASE deployment capabilities. While Sangfor Technologies Inc(300454) is a comprehensive manufacturer with virtualization, cloud computing and network security capabilities, and takes the lead in the SASE field, which will seize the first mover advantage: as early as 2016 Sangfor Technologies Inc(300454) has begun to layout cloud security access services. Up to now, it has established a cooperative operation mechanism with three major operators in China and jointly established multiple cloud security access service nodes in various provinces, Dozens of self built super large data centers; At present, Sangfor Technologies Inc(300454) cloud security access service (sangforaccess) has integrated a variety of network security products such as whole network behavior management AC, sd-wan access management, cloud VPN, terminal security EDR, next generation firewall AF, data leakage prevention and security threat analysis; Sangfor Technologies Inc(300454) has entered the magic quadrant of SWG for ten consecutive years (the five key components of SASE are sd-wan, SWG, ztna, CASB and fwaas).
3. Desktop as a service desktop cloud adesk: it is a new desktop mode based on super fusion architecture, which has advantages in price, cost, security, portability and so on compared with traditional PCs. China’s desktop cloud market has a broad space: according to Jishi information data, the average annual compound growth rate from 2018 to 2023 will be maintained at 20%. IDC predicts that by 2025, the scale of China’s thin client market will exceed 1.99 million units, and the five-year compound growth rate will reach 7.2%. The market scale of desktop cloud terminal VDI will exceed 2.58 million, with a five-year compound growth rate of more than 8.2%. Matthew effect is prominent, and Sangfor Technologies Inc(300454) benefits as a head manufacturer: according to the latest data from IDC, in 2021h1, the top three in the desktop cloud terminal VDI market are shengteng, Sangfor Technologies Inc(300454) and Huawei, with a total market share of 49%. The market is further concentrated to the head. Shengteng has increased significantly in the political, religious and financial markets, and Sangfor Technologies Inc(300454) wins in the medical and enterprise user markets.
Cloud computing industry:
1. In terms of technology, the company has made breakthroughs in computing virtualization and storage virtualization. In terms of computing virtualization, computing / server virtualization has been shortlisted in Gartner and its strength has been verified. In terms of storage virtualization, the underlying architecture is self-developed and the performance is steadily improved. The research and development of the company’s storage virtualization technology is progressing smoothly, the underlying architecture has been fully self-developed, and the performance of distributed storage has been improved. The only leading manufacturer in China to stabilize in Gartner’s Magic Quadrant. Since the company was listed in 2019, it is the only top manufacturer in China based on self-research for three consecutive years: Gartner Magic Quadrant has certain authority. Considering the manufacturer’s current strength and future competitiveness from multiple dimensions, it is an important reference element for downstream customer procurement.
2. In terms of market expansion, the market share of the company’s products stabilized in the first three years since the third year of product release. Since the company deployed super integration, the market share has increased rapidly: 2015 is the first year of China’s super integration, the market growth is rapid, and the market scale is more than three times that of 14 years. Sangfor Technologies Inc(300454) has entered the super integration market since 2015, with a market share of 7% in 16 years, ranking fourth only to the foreign manufacturer VMware. Then he sang all the way. Since he achieved 19% market share in 17 years, the market share has remained in the top three in China. The increase of market share is the embodiment of the company’s R & D and sales cooperation. In addition, the company’s customer layout is hierarchical and focused. The company has made significant breakthroughs in government key customers, Sangfor Technologies Inc(300454) super integration architecture has more than 10000 application cases, covering all walks of life such as government, finance, medical treatment, education, operators and large enterprises, of which more than 60% of users have migrated their core business or all businesses to the cloud. Release hummingbird cloud all-in-one machine for small and medium-sized enterprises: for small and medium-sized enterprise users, Sangfor Technologies Inc(300454) released hummingbird cloud all-in-one machine in 2021.
3. We believe that the company’s advantage over other manufacturers such as Huawei and Xinhua III is that the company’s super integrated products integrate the original security capabilities, meet the needs of downstream education, government and manufacturing customers, and can better empower downstream customers. In addition, compared with the all-in-one machine delivery mode of other manufacturers, the company provides a software delivery mode, which is lighter and more flexible. Take the lead in releasing super integrated products that can be based on ARM architecture, and actively build a domestic alternative ecology of Xinchuang. The company released the super integration of arm architecture to provide one more choice for domestic alternative paths. According to the structure diagram of the company’s official website, the company has adapted to domestic databases (Wuhan Dameng, NPC Jincang and NTU general), domestic middleware ( Beijing Tongtech Co.Ltd(300379) , Beijing Baolande Software Corporation(688058) and Zhongchuang), and domestic operating systems (Kirin OS and depth).
4. Hyperfusion is the evolution trend of data center private cloud technology. Compared with traditional architecture, hyperfusion has advantages in performance, scalability, availability, installation and configuration, management and maintenance, space occupation and other dimensions, which can greatly reduce the deployment cost of enterprises. China’s private cloud based hybrid cloud will become a trend, and the super integration will maintain a high growth. China’s cloud computing will maintain rapid growth, and the hybrid cloud dominated by private cloud will be the trend in China. It will maintain an annual compound growth rate of 18.5% in the next five years, and the super integration market will reach nearly US $3.32 billion in 2025. As the head customer, the growth rate of the company is guaranteed.
Information security industry:
1. We believe that the information security industry will have three development trends in the future: (1) the industry will continue to focus on the head, and the comprehensive service ability is the embodiment of strong competitiveness; (2) With the sinking of demand and the improvement of enterprise demand, channel construction has become an important competitive factor; (3) The new security market will maintain rapid growth, which is a must for major manufacturers.
2. Corresponding to the above information security industry trends, we believe that Sangfor Technologies Inc(300454) is in line with the industry development trend and has a certain foresight:
(1) The company is the leading enterprise with the top three market share in the industry, with comprehensive product coverage, product coverage in traditional safety, safety service and new safety, and strong comprehensive service capacity. The market share is the first in the industry in many subdivided fields, and the product strength has been verified. We believe that the company, as a leading manufacturer, will continue to benefit from the improvement of market concentration.
(2) The company is the first manufacturer to layout channels in the information security industry, with the proportion of channels maintained at more than 90%. The company’s channel construction division follows Huawei, is famous for its perfect channel and has the first mover advantage. We believe that the company’s channel advantages will be sustained and difficult to replicate, mainly because the company’s channel construction is consistent with the company’s strategy. While improving the comprehensive network security service capability, the company has a certain focus on product development and promotion, such as VPN, Internet behavior management and next-generation firewall, which are the company’s core advantageous products, and the market share is ahead of other manufacturers; The products in these fields have a high degree of hardware attributes, generalization and standardization, and are relatively easy to install. They are suitable for promotion in local governments, enterprises, schools and hospitals through channels. Moreover, in the company’s customer structure, enterprise users and small and medium-sized customers account for more than other head manufacturers, which is suitable for channel coverage. Benefiting from the gradual maturity of channel construction, the company’s sales expense rate has decreased year by year.
(3) The company is forward-looking in cloud security and takes the lead in launching SASE products. From the perspective of the company’s past product promotion ability, from 2005 to 2018, the company launched a core product every 2.3 years on average, and it took an average of 3.4 years to become the first three market segments after the product was launched. From the perspective of cloud security technology and product characteristics, the company has advantages in the synergy of network service capability, security products and cloud computing virtualization technology. Therefore, we have confidence in the company’s cloud security products.
3. The company vigorously develops R & D and continues to escort the competitiveness of the company’s products. From 2018 to 2020, the R & D expense rate of the company was ahead of the average level of the whole industry. The proportion of R & D personnel is high, and the technical personnel in recruitment involve virtualization, super integration, cloud security and other directions, which is in line with the company’s strategic foresight. The stock incentive plan ensures the enthusiasm of employees.
4. The company has advantages over the industry average and other top 9 manufacturers in terms of gross profit margin, accounts receivable and cash income ratio: gross profit margin: in 2020, the company’s gross profit margin of network security business was 81.67%, much higher than the industry average of 57.38%, higher than the other 8 leading manufacturers. Accounts receivable: in 2020, the company’s average accounts receivable turnover days were 29.27 days, far lower than the industry average of 201.68 days and lower than the other 8 leading manufacturers. Cash to income ratio: in 2020, the company’s cash to income ratio was 24.14%, much higher than 13.73% in the industry, and higher than other 7 manufacturers except Hangzhou Dptech Technologies Co.Ltd(300768) .
5. Policy and compliance requirements are still the biggest drivers of the network security industry. China’s relevant laws and regulations are issued intensively, and the structure and focus are gradually clear. The network security industry will maintain steady growth, with a growth rate of about 15%, and the growth rate of leading manufacturers will be higher than this; The new security market will achieve high growth. As a security head manufacturer and cloud security leader, the company has guaranteed revenue growth.
Risk tips:
The risk that the implementation of industrial policies is less than expected; Risk that the growth rate and opening space of the industry are less than expected; The risk that the technological breakthrough is less than expected; Risk of tight upstream supply; Relevant risks caused by Sino US trade war; The risk that repeated epidemic situations lead to orders or business implementation less than expected.
