5G investment has shifted from carrier-driven investment to consumer-driven investment, with the focus on operators, main equipment providers, optical communication and RCS and other segments of investment opportunities. It is expected that the total amount of 5G construction in 21st year will be between 1 million and 1.1 million stations, and the total annual capital expenditure of the three major operators + radio and television is expected to be around 400 billion yuan. The three major operators are expected to step out of the pressure period of intergenerational switching, and are in a global depression from the valuation point of view. The main equipment supplier is still the preferred investment target of 5G at present. It is suggested to pay attention to the digital optical module and optical chip leader under the continuous high economy of optical communication market. 5G applications and servers are still in the nurturing period. We will pay attention to the investment opportunities of RCS ecological service providers brought by the full commercialization of 5G messages.
21 China’s cloud computing market is still a big year, optimistic about cloud infrastructure and SaaS investment opportunities.
1) IaaS: Large cloud vendors continue to increase capital expenditure, with FAMGA’s YoY 29% and BAT’s YoY 47% in q3 2020. It is suggested to pay attention to head IaaS vendors and growth vendors with differentiation advantages.
2) IDC: The OVERALL IDC market in China is still in a period of rapid growth, and the CAGR is expected to be around 30% in the next three years. Scale expansion is still the fundamental way for IDC manufacturers to grow. It is suggested to pay attention to third-party IDC leaders in first-tier cities with resource advantages.
3) Server: After the short-term inventory adjustment of H2 in 2020, Q1 in 2021 is expected to usher in Indian summer and maintain a high level of prosperity throughout the year.
4) SaaS: China’s enterprise-level SaaS manufacturers are in the critical transition period. Leading manufacturers break through the top customers through customized development, and expand to the middle customers, and open TAM to bring profit and valuation improvement.
Domestic SaaS industry market education is mature, technology reserves, domestic alternative demand and related policy support is in place.
The Internet of things to industry landing, focus on a horizontal three vertical investment opportunities. Under the triple resonance of standard unification, technology integration and giant entering the bureau, the Internet of Things approaches industry landing from the concept nature and policy orientation. The next five years will be the five years for the Internet of Things to expand the connection. The first to benefit are sensor, chip, module, MCU, terminal and other hardware manufacturers, platform and service value redemption cycle is delayed. In the application level, focus on the vehicle connected network, smart home, satellite Internet and other priority landing of the large particle scene, with industry know how, connection scale and data intelligence advantages of players will become the biggest winner.
“Intelligence” is the most important thread in the intelligent vehicle sector, and the main opportunity is in the supply chain. We estimate that the total size of China’s incremental passenger car market will grow from 200 billion yuan in 2020 to 1.8 trillion yuan in 2030, with a compound growth rate of 25%. The average increment of bicycles brought by intellectualization has risen from 10,000 yuan to 70,000 yuan. Around the main line of intelligence, we believe that we need to grasp the three waves from supply chain to oEMS to applications and services. In the first wave, we are optimistic about the rise of China’s supply chain in the era of automotive intelligence. We suggest that from the three dimensions of global expansion, localization replacement and new circuit shuffle, focus on the subdivided circuit with large incremental space and high bicycle value, which has established the industry leader of competitive barriers.
1.recovery and outlook
The 5G market is shifting from the equipment industry chain to the emerging ICT industry. The investment in the communication sector in 2020 is full of challenges. Communication (Shen wan) index fell 8.33%, the decline in the forefront of the whole plate. On the one hand, the intensified trade friction between China and the United States and the upgrade of huawei embargo have formed a certain pressure on the plate; On the other hand, with the commercialization of 5G, the market has revised some of the high expectations formed over the past two years.
Even so, we see some segments performing quite well. Military special communications, antenna radio frequency, Internet of things increased by more than 20%; Optical modules and components, satellite communication and navigation, cloud computing increased by more than 40%; Cloud video rose even more than 100%, up 171% for the year. From the position, the current position of communication institutions is also at a historically low level.
In the 3G period, the shareholding ratio of Shenwan Communication institutions is between 4%-5%, and in the 4G period, the shareholding ratio of Shenwan Communication institutions is between 3-4%, while the latest data of Q3 shows that the shareholding ratio of Shenwan Communication institutions is only 2.12%.
We believe that both the differentiation of the plate market and the continuous reduction of institutions’ positions in the communication plate reflect the objective trend of external integration, internal differentiation and value chain transfer of the communication industry. On the one hand, ICT and traditional industries are constantly integrating, and ICT has become the infrastructure of all industries, accelerating the digitalization process of all industries and enterprises.
On the other hand, the communication industry has begun to divide into two parts, the “old” and “new”, namely the traditional communication equipment industry chain and the new economic parts such as the Internet of Things and cloud computing. “Old” partial cycle, “new” partial growth. Traditional communication equipment manufacturing industry shows a strong cyclical, its operating performance is mainly affected by operators’ capital expenditure.
At the same time, the Internet of Things and cloud computing, which are gradually differentiated in the communication industry, are in the rapid growth stage of their life cycle and are very little affected by the cyclical changes of operators’ capital expenditure. The fundamental reason is that the products and technologies in these sub-industries start to spread and penetrate from the communication industry to other industries, thus opening up new market space.
From a longer time dimension, reviewing the 4G cycle, the middle and lower reaches of the industrial chain benefit in turn, and the 5G cycle is gradually transferred from the equipment supplier industry chain to the new generation ICT industry. 4G investment cycle has an obvious order, upstream network planning manufacturers such as Guomai Technology, antenna rf manufacturers such as Wuhan Fangu led the rise, and then to ZTE, Fiberhome communications and other main equipment providers, and then to the downstream cloud computing, Internet of things and other applications outbreak. In the 5G era, the value distribution of the industrial chain has been transferred from the equipment supplier industry chain to the new generation ICT industry. The IDC leader Baoxin Software and the Internet of Things module leader Yuyuan Communication have seen a big increase.
At the same time, 2020 will see an acceleration in the restructuring of the global ICT supply chain due to the impact of the pandemic and geopolitics. As countries and regions respond to the isolation and interruption of the epidemic, the ICT industrial chain, which has been stable for a long time in the past, has been forced to adjust. The development of 5G industry is involved in geopolitics, and the two trends of “de-C” led by the US government and “de-A” led by Chinese companies are going hand in hand.
Looking ahead, the integration and differentiation of the industry and the reconstruction of the supply chain will continue, and the future communication plate will still be a structural market. Embracing certain industry trends and growing with great companies is the best way to deal with external macro uncertainties. With the arrival of the US election, the marginal impact of macro factors such as geopolitics on the market of 5G and communication sector has weakened, while the meso industry trend and micro company management have become the dominant force determining the performance of the future. In 2021, the investment considerations of communication sector will shift from top to bottom to top. Centering on 5G, cloud computing and Internet of Things, we are optimistic about the investment opportunities of leading ICT companies with low valuation and high growth in each segment.
2. the transition of 5G investment from operator investment driven to consumer consumption driven, focusing on operators, main equipment vendors, optical communication and RCS investment opportunities in segments
We see 5G-themed investments evolving in three waves. The first wave is driven by operator investment, focusing on the trend and structural change of operator capital expenditure; The second wave is driven by consumer consumption, focusing on the supply chain value distribution of leading terminals and ICP enterprises; The third wave of enterprise and industry investment drive, focus on the big particle industry such as the Internet, manufacturing, energy, power and other industries digital progress and leading enterprise investment trend.
The current 5G sector is in the first wave of performance verification and the second wave of theme investment transition. The first wave of operator investment driven equipment supply chain market has moved from expectations to performance verification stage, and the second wave of consumer consumption driven applications and services market has begun to breed.
We expect that the overall construction progress of 5G will not advance as fast as that of 4G era, but it will still keep moderately ahead. It is expected that the annual 5G construction will be between 1 million and 1.1 million stations, accounting for about 70% of the global total. Among them, the three major operators are expected to build about 700,000 stations, and radio and television stations are expected to build about 300,000-400,000 stations. It is expected that the capital expenditure of the three major operators in 21 years will maintain a moderate growth on the basis of 20 years, the growth rate is about 10%, plus the new investment of 30 billion radio and television, the total annual capital expenditure will be around 400 billion.
Looking ahead to 2021, we are relatively optimistic about the performance of operators, main equipment, optical communication and other segments throughout the year. Meanwhile, we suggest to pay attention to the investment opportunities in RCS, the first large-scale commercial scenario of 5G.
2.1 Focus on the overall investment opportunities in the operator sector in 21 years
In 21 years, operators are expected to step out of the pressure period of intergenerational switching. Referring to the intergenerational switching period of 2G-3G and 3G-4G, operators need to increase capital expenditure to upgrade the network. Meanwhile, the growth of new services needs a certain period of cultivation and 1-2 years of operation switching period. Compared to the 4G cycle, 5G investment will be relatively modest, and the capital expenditure of the three major operators will not see the rapid growth of the 3 and 4G period in 21 years. In terms of Capex/Revenue, the peak is 41% for 3G and 34% for 4G, and we expect it to be around 27% for 21, with capital expenditure pressures relatively muted.
ARPU values of the three major operators began to stabilize and recover. At present, 5G mobile phone penetration rate has exceeded 70%, 5G package promotion is even faster than 4G, even if there is no killer 5G 2C business in the short term, ARPU value decline has been reversed.
In terms of valuation, the H-shares of China’s three biggest operators are in a global depression. In terms of PE, PB and EV/EBITDA, the H-shares of the three major operators are at the lowest level compared to other major global operators. We believe that the recent decision by the NYSE to delist the adRs of the three major operators will have very limited impact on their operations and medium – to long-term share price performance. At present, the three major operators, especially H share prices have been significantly undervalued, investors are advised to actively layout.
2.2 Main equipment vendors are still the preferred investment targets of 5G in 2021
Whether huawei’s embargo is lifted or not, ZTE’s global market share will not change. Huawei’s operator business will not appear a big risk of outage, the global wireless market is expected to top 40 percent in 20 years. Under the assumption that the embargo is in place for a long time, the market share will gradually fall back to about 30% because of chip supply problems.
Huawei’s lost market share overseas will be largely made up by Ericsson, whose market share is expected to stabilize at around 27 per cent over the next three years, and Nokia. Nokia’s market share is expected to fall back to about 15 per cent because of its poor performance in China.
Referring to the 4G era, we expect that the jump in Samsung’s global wireless market share in the initial stage of 5G construction is not sustainable. After 2020, as its dominant market share (South Korea, North America, etc.) gradually shrinks in the global market, the market share will quickly fall to around 5%. Zte is expected to be the main equipment vendor with the most certain market share growth over the next three years. China’s total 5G base station construction now accounts for about 70 percent of the global 5G market.
Zte’s market share in China is expected to grow steadily after 21 years. At the same time, we are optimistic that the company will expand its share after the overseas 5G market gradually expands in 21 years, and it is expected that the company’s global market share will increase by 3-4PP every year in the next three years (21-23). Bullish company to become the 5G era of global equipment business market share rebalancing the biggest beneficiary, investors are advised to pay attention to actively.
2.3 The optical communication market continues to be booming. It is recommended to pay attention to the digital communication optical module and optical chip leader
Under the resonance of 5G+ data center demand, we believe that the optical communication market will maintain a high boom in the future, and the global optical module market is expected to grow at a compound growth rate of more than 15% in 21-22 years.
The growth of optical modules in the telecom market will be relatively modest, and the main increment will still come from the data center market. 400G optical modules are expected to be rapidly launched in the next three years. According to 100G path, the shipment is expected to double continuously in 21-22 years. It is suggested to focus on leading companies with first-mover advantage, such as Zhongji Solechuang and Xinyisheng.
Meanwhile, in the upstream optical chip field, the current optical communication chip market is about $3.85 billion, and will grow to $8.85 billion by 2025, with a 5-year compound growth rate of 18%. In the context of market scale expansion and domestic replacement acceleration, the domestic optical chip leader is expected to run out, it is suggested to pay attention to Xi ‘an Yuanjie (not listed), Wuhan Sensitive core (not listed), Shijia Photon, etc.
2.4 5G applications and servers are still in the incubation period, and we will pay attention to the commercial development of 5G messages
5G based applications and services will begin to sprout, and 5G messaging will be the first 5G scale application to land. 5G news is the precise supply of the transition from 4G to 5G. As the industry leader, operators have the highest probability to promote the success of their business. In the future, operators will connect to the ecosystem and service in three steps, and close view is expected to promote the traditional SMS market space of 40 billion to 100 billion scale; In the future, new ICT technologies such as cloud, big data and AI will be integrated. 5G messaging services of operators will realize the transformation of messaging platform, and the market space will reach 300 billion yuan. 5G news is expected to 21 years Q1 can be fully commercial, focus on the recommendation of RCS ecological service provider investment opportunities.
3. Cloud computing — 2021 is still the year of cloud computing, optimistic about IDC and server prosperity
3.1 China’s cloud computing is in a period of long-term rapid development
Compared with the United States, China lags behind the United States by more than five years due to the differences in IT infrastructure, industrial policy, economic environment and industry-research atmosphere. However, China has the corresponding industrial environment and is in the period of rapid development:
1) The IT infrastructure is becoming more and more perfect. In 2014, the number of Internet broadband access ports in China reached 405 million, H1 reached 931 million in 2020, and the proportion of optical fiber access increased from 40.4% in 2014 to 92.1%;
2) In the past decade, China’s macroeconomic growth has been stable, GDP growth has been stable at 5%-10%. Even though Q1 was affected by the epidemic in the short term this year, it has been able to recover quickly, showing strong resilience and laying an economic foundation for the Internet and cloud computing industry;
3) In 2011, the United States upgraded the development of cloud computing to a national strategy. In 2015, China issued the Opinions of The State Council on Promoting cloud Computing Innovation and Development and Fostering New Forms of Information Industry to accelerate industrial upgrading;
4) Ali, Huawei and other enterprises learn from the mature integrated system of industry, university and research in the United States to explore (Ali and universities at home and abroad to establish a laboratory, Huawei announced that in the next five years will unite communities and universities to cultivate 5 million developers, and invest 1.5 billion US dollars in ecological construction), to build a mutually promoting ecosystem. Promoting commercialization of research results.
The deepening of the mobile Internet, the large-scale replication of the Internet of Things, and the acceleration of digital transformation of enterprises will continue to promote the cloud computing boom in China. By October 2020, the total number of 5G users in China has exceeded 200 million, with a compound monthly growth rate of up to 29 percent since February. 5G mobile phone shipments continue to increase, 16.76 million units were shipped in October, the penetration rate has reached 64%, and in late October, Huawei and Apple launched new models at the same time, 5G mobile phone shipments and penetration rate is expected to further improve.
This year, the epidemic accelerated the deepening of mobile Internet, consumer demand is far from the peak. In March, the mobile Internet access volume was 25.6 billion GB. Although there was a subsequent decline, the overall rapid growth trend remained unchanged. We believe that online office, entertainment has been widely accepted by the public, saving the end user’s education costs. While current consumer traffic usage is focused on video, shopping, and lifestyle services, we believe that until other killer apps (VR/AR games, etc.) explode, the majority of traffic usage will remain in areas such as HD video.
At the same time, 5G networks push the Internet of things to scale replication. China leads the world in 5G construction, with 718,000 5G stations completed, accounting for about 70 percent of the world’s total. The 5G network with large bandwidth, low latency and wide connectivity has begun to play a role in the industrial and production fields, pushing the Internet of Things to scale replication. In 2020, the number of Internet of Things connections in China is predicted to exceed 7 billion, which will bring the explosion of data traffic in the future and promote the development of cloud computing industry.
The digital transformation of the enterprise remains the biggest driver of demand growth for cloud computing. Compared with developed countries such as the United States, Chinese companies have a low cloud access rate, which was only 38 percent in 2018, compared with 80 percent in the United States. As governments and enterprises reduce costs and increase efficiency through the cloud, new digital demands from governments and enterprises continue to emerge.
The above factors make the cloud computing boom continues to improve, in 2019 the global cloud computing market growth rate of 20.86%, China’s growth rate of 38.6%, the growth rate far exceeds the international level, we believe that the next few years will continue to maintain the growth rate of about 30%.
3.2 IaaS: Large cloud vendors continue to increase capital spending, and industry growth is assured
China’s public cloud service structure is inverted from overseas, with infrastructure first. The global public cloud is dominated by SaaS model, accounting for more than 60%. Since 2014, The IaaS market in China has grown significantly, accounting for less than 40% of the public cloud market to more than 60%.
We believe that due to the large gap between China’s IT infrastructure and developed countries such as Europe and America in the early stage, IT infrastructure investment and cloud are basically synchronized. At the same time, China is currently in the early stage of cloud computing development, and the layout of cloud manufacturers is relatively late. Amazon launched cloud computing in 2006, and Alibaba formally established cloud Computing Co., LTD in 2009. China’s cloud enterprises are mainly Internet companies, they tend to develop software by themselves and do not buy SaaS services. In the short term, the scale of IaaS grows faster, the IaaS field is more certain and there are rich investment opportunities. With the improvement of infrastructure construction, the growth rate of SaaS will increase rapidly.
The share of domestic and foreign leading IaaS vendors increased, and the public cloud pattern was significantly centralized. Due to the large capital expenditure and research and development expenses of IaaS business, ecological and scale effect is significant. The market share of Amazon, Microsoft, Alibaba and Google increased from 48.9% in 2015 to 77.3% in 2015. The pattern of IaaS manufacturers in China has changed greatly, and Huawei has a fast growth rate. From 2015 to Q1 this year, CR3 increased from 51.6% to 70.7%. We believe that the head market of IaaS in China will become stable and concentrated in the future. Without differentiated competitive advantages, the share of small manufacturers will be eroded by large manufacturers. However, downstream customers have hybrid cloud, multi-cloud deployment, supplier balance and other requirements, and small manufacturers with differentiated competitive advantages still have room for survival in the future. It is suggested to pay attention to Jinshanyun, etc.
We recommend focusing on continued growth opportunities for top IaaS vendors. The global major cloud vendors quarterly revenue growth of more than 20% year on year, the overall growth of the industry is strong. Tencent did not separately disclose quarterly data, but the 19 year financial report revealed cloud business revenue of more than 17 billion yuan, the growth rate exceeds the industry average. Compared with the revenue growth of major cloud manufacturers in China and the United States, Alibaba Cloud Q3 growth rate is significant. Benefiting from digital transformation, especially the rapid growth of Internet, finance, retail and other industry solutions, Alibaba Cloud’s quarterly revenue reached 14.9 billion yuan, up 60% year on year (Amazon Cloud grew 29%, Microsoft Azure 48%). China’s public cloud market is developing rapidly, the government and traditional enterprises are in the digital transformation period, and 1.4 billion people constitute a large consumer market, video, live broadcasting, new retail and other industries are developing rapidly. With the phenomenon of domestic Internet enterprises going to sea, we judge that domestic cloud service manufacturers still have broad space for improvement in the global market share.
In terms of capital expenditure, the capital expenditure of cloud manufacturers at home and abroad has turned positive after Q4, indicating that the cloud computing industry is still in an upcycle. In Q3 2020Q3, US FAMGA capital expenditure increased 29% year-on-year, while Chinese BAT capital expenditure increased 47% year-on-year. The demand for downstream cloud services is the fundamental driver of cloud vendors’ capital expenditures. The demand of IaaS market is still strong, so the investment related to IaaS will still be in a high business cycle in the medium and long term.
3.3 IDC: The imbalance between regional supply and demand will exist for a long time. It is suggested to pay attention to the third party who has the core resources in first-tier cities
As the infrastructure of the cloud computing industry, IDC benefits from the development of the downstream industry and is in a rapid growth period. We judge that the industry can still maintain a growth rate of about 30% in the next three years. The development of Internet and cloud computing enterprises has increased the demand for data storage and computing. With the rise and development of new technologies such as 5G, artificial intelligence and the Internet of Things, the future demand will further expand the market space. In addition, new infrastructure policies continue to release positive. In THE United States, IDC mainly focuses on reconstruction and expansion, while in China, it still focuses on new construction. Due to its late start and rapid development, China will maintain a 25-30% growth rate in the future, and its total industrial scale is expected to double from 156.2 billion yuan in 2019 to 320.1 billion yuan.
From the point of view of data generation, the current IDC stock in China lags far behind. As the world’s largest data producer, China generates more than 23% of the world’s data every year. However, the stock of large data centers is only 8% of the world’s, and the reserves are insufficient. With the continuous rapid growth of data production in China, the IDC industry has a large space for growth. Although the current IDC manufacturers are in the stage of land grabbing and accelerating construction, the actual effective supply may not meet the future market demand. Businesses with high requirements for delay and security still need to be located in first-tier cities, and the policies in first-tier cities are tightened. Even if the supply in second-tier cities increases, the imbalance between regional supply and demand will still exist for a long time.
We suggest paying attention to third-party IDC vendors that have advantages in land and hydropower resources in first-tier cities. At present, third-party IDC manufacturers occupy the main market share in the whole world, while China’s IDC industry is still dominated by telecom operators, with early advantages in resources and scale. However, the development of cloud computing and Internet industry puts forward higher requirements on the performance and energy consumption of data centers, and first-tier cities such as Beijing and Shanghai limit the rack energy consumption index, and require the PUE of new data centers to be lower than 1.3 or 1.4. Third-party IDC vendors have advantages in customer response speed, customization, operation and cost management. The market share of China’s operators in the IDC field dropped from 52.4% in 2017 to 49.5%, and we judge that the share of third-party IDC manufacturers will further increase.
Scale expansion is still the fundamental way for IDC manufacturers to gain growth, and market concentration is expected to improve. After the industry chain research, we found that IDC manufacturers are optimistic about the market demand in the next few years, and prefer the rapid expansion strategy in recent years to achieve revenue growth. IDC industry requires heavy investment in assets. Currently, there are thousands of domestic MANUFACTURERS with IDC licenses, and the individual share of third-party IDC manufacturers is basically less than 5%, which makes the market relatively dispersed. Equinix, the world leader, quickly expanded into the global market by acquiring The UK’s Telecity Group in 2015 and Verizon’s IDC business in 2017. We add the total capital expenditure and m&a scale as the total construction input. By 2020 H1, the cumulative m&a scale of Equinix accounts for 48%, while the m&a scale of domestic leader GANGUO Data only accounts for 14.3%. According to the development path of Equinix, domestic IDC manufacturers may accelerate acquisition to expand capacity to make up for the demand growth that cannot be met by self-built and leasing methods. The increase of market concentration will benefit GDS data, 21vianet, Baoxin Software, Halo New network and other manufacturers.
3.4 Server: Short-term market pullback does not change long-term high business expectations
Servers, as the main hardware facilities of network architecture, benefit from the rapid growth of China’s cloud computing industry. According to IDC, in q3 2020Q3, global server market revenue growth slowed to 2.2% year-on-year, with shipments slightly down 0.2%, but China server market revenue grew 14.2%, still maintaining rapid growth.
The revenue of upstream server chip manufacturers decreased, and the revenue of server leader Tiao Information decreased in Q3. We believe that the main reason is the advance of Q3 demand due to the OUTBREAK of Q2 epidemic. Single quarter profit fluctuation does not change the cloud computing industry long-term high business judgment.
With the capital expenditure of downstream cloud giants growing rapidly and demand strong, we judge that the cloud computing industry is still in an upcycle in 2021. Historically, cloud computing upcycles last at least eight quarters. After 18 years of overheated capital expenditure of major cloud manufacturers in the world and 19 years of deinventory, the capital expenditure of DOMESTIC BAT in Q4 took the lead in recovering 35% positive growth compared with the world in 19 years. Q3, though down from Q2′s high growth rate of 97%, was still 47% higher than the 29% growth rate in the United States. Tracking server upstream BMC chip manufacturer Sinhua disclosed monthly revenue data, although the company began to negative revenue growth in August, but has returned to positive growth in November, forecast 21 years of cloud computing industry is still expected to maintain high growth.
With 5G commercialization on the way, an explosion of data traffic will drive growth in the server market. According to South Korea, 5G users use 2.5 times more traffic per person than 4G users. The number of 5G users in China has steadily increased by more than 25% per month. Based on historical experience, each generational upgrade of mobile communication technology increases DoU by an average of ten times, so it is predicted that DoU of 5G users will reach 50G/ month by 2025. 5G commercial superimposed edge computing and other new scenarios will promote server, storage and other IT infrastructure demand growth, but also for data processing, computing requirements are higher, intelligent computing, artificial intelligence and server fusion products will have more market space. According to IDC’s forecast data, the global server market size will almost double to $12 million in 2020 and $21.33 million in 2025.
3.5 SaaS: multi-factor catalysis, in a critical transition period, the current layout point
In terms of market size, the overall domestic SaaS market lags behind the US by 5-10 years. In 2019, Salesforce’s cloud business revenue reached 110.5 billion yuan, while China’s overall SaaS industry market size was only 34.1 billion yuan. But because the domestic SaaS market is in the cloud transition period, the growth rate is about twice that of the global, the rapid growth brings broad space for development.
China’s SaaS market is relatively backward due to three main factors: first, the domestic informatization level is low. The United States has carried out informatization construction and popularization for decades, while China’s market awareness and information foundation obviously lag behind Europe and the United States, informatization and digitalization construction is not perfect, and enterprises do not pay attention to the improvement of management efficiency.second, Its technical level is insufficient, our country SaaS enterprise is many but not fine, the technical level lags behind, the product stability is weak. Finally, the absence of channels. In the traditional software era, the status of the channel is very important. In the SaaS era, the subscription system reduces the marketing revenue of the channel, and the renewal system reduces the sense of security of the channel, which leads to the low promotion intention of the channel, high customer acquisition cost and slow market expansion. Channels are still the main resistance to the promotion of enterprise SaaS in China.
Compared with the United States, China’s enterprise-level SaaS manufacturers are in a critical transition period, with various financial and business indicators to be improved, and customized development is a pain point. Large enterprises in China have high requirements for customized development, and SaaS manufacturers need to invest high R&D costs and have a long development cycle. If the function of similar products will fall into price competition, reduce the profitability of the company. American enterprises have a high degree of product standardization and easy to expand TAM (Total Addressable Market). That is, the capacity of original products can be expanded to other fields, the ceiling of existing businesses can be broken, the Market participation space can be increased, the upfront cost investment can be diluted, and the profitability is strong. However, By deepening cooperation with large enterprises, Chinese SaaS manufacturers can simplify and modularize their products after completing benchmarking projects, and then small and medium-sized enterprises can select some functions they need, so the future product expansibility will still be considerable.
Although there is a gap between China and the United States, but we believe that the development of domestic SaaS industry has reached the inflection point, the current is still the layout point. First of all, the market education of the domestic SaaS industry is mature, technology reserves, domestic alternative demand and relevant policy support are in place. After nearly ten years of education popularization, enterprises’ cognition of informatization has evolved from the shallow stage of electronic paper materials to the demand of enterprise digitalization, which coincides with the opportunity of localization substitution. Secondly, domestic SaaS enterprises themselves develop rapidly. Although the scale of development is relatively small, but kingdee, Ufida and other transformation enterprises rely on their own industry understanding and brand effect, continue to expand their market share. Since the trade friction, the concept of independent control in China is increasingly obvious, overlay cloud transformation in-depth, we believe that the SaaS model for domestic software enterprises to provide the opportunity to overtake the curve, the development of SaaS industry has reached the inflection point.
Traditional software providers, entrepreneurial SaaS manufacturers and Internet enterprises are the main participants in China’s SaaS market, competing and cooperating with each other. Ecological cooperation between Internet manufacturers and entrepreneurial manufacturers is more common: at present, Internet manufacturers mainly focus on IaaS and PaaS level business, SaaS track layout is few, there is no large scale competition, in the industry vertical and business vertical fields (such as education, retail, CRM, finance and taxation, etc.) Internet manufacturers are integrated as technology manufacturers. The competition between entrepreneurial SaaS vendors and traditional software vendors transforming into SaaS is more direct: large enterprises with high traditional software penetration rate have higher trust in kingdee, Yonyou and other traditional vendors, but entrepreneurial vendors have advantages in some segments, so there are also cooperation or investment mergers and acquisitions. For example: Kingdee International investment enjoy customer Sales (CRM) and Myriad technology. Internet companies with traditional software traders to explore development paths, and ecological cooperation: Internet vendors have traffic advantage, traditional software business focus on high customization SaaS products, but two kind of market participants choose to be thick middle office, provide low code is no code development platform, to promote the depth and breadth of product, strengthen the ecological construction.
TAM is an important factor affecting the valuation level of enterprise SaaS service manufacturers, which directly determines the future revenue growth space of enterprises. According to the Report on the Development of China’s Top 500 Enterprises, China has a large number of small and medium-sized enterprises. It is assumed that Chinese enterprises will become more receptive to the cloud in their business, choose SaaS tools for enterprise management, reduce costs and increase efficiency, and the penetration rate of subscription model will increase in the future.
Considering that the SaaS penetration rate of some American companies has reached 95% or above, it is estimated that TAM can reach more than 560 billion yuan based on the unit price of enterprise customers surveyed in the industrial chain. And with the increasing number of enterprises in China, the growth potential of China’s market scale is considerable. Among them, large enterprises with annual revenue of more than 2 billion yuan have high customer unit price, but the number of enterprises is small; Small and medium-sized enterprise customer unit price is low, but the number is numerous. The key for SaaS software providers to gain long-term revenue growth is to grasp the waist customers, and the overall ARPU value can be improved by breaking through the top large enterprise customers. Large enterprises’ demand for SaaS products is not limited to simple functions such as office automation and business electronization, but to highly combine products with enterprise business processes, and truly become a tool for enterprise management.
China’s enterprise SaaS market concentration is low, and we believe that traditional ERP software providers transforming cloud computing have the greatest growth potential. According to IDC statistics, the top five enterprises in the enterprise SaaS market in China in the first half of 2020 accounted for only 21.6% of the market. The market is decentralized and the degree of concentration is low. The competition pattern in different application markets is different, and it is a good opportunity for layout.
We believe that traditional ERP manufacturers in the critical period of cloud computing transformation have the greatest growth potential. Traditional ERP software of yonyou, Kingdee and other enterprises has high penetration rate and trust among large and medium-sized enterprises, and is the first choice for localization. Cooperate closely with large enterprises, have a deep understanding of customer business process, and have the ability to cooperate with large enterprises, the management experience of large enterprises to replicate in small and medium-sized enterprises, help small and medium-sized enterprises digital transformation; Kingdee and Yonyou occupy a dominant position in the market segments with a high degree of standardization and relatively general market, such as finance and human resources, and have a relatively complete range of products. They have a large market space for participation and high growth potential.
Compared with TAM, TAM ceiling is more obvious for entrepreneurial SaaS manufacturers in the segmentation industry, but the leading SaaS manufacturers in the segmentation field such as Mingyuan Cloud can still obtain rapid growth with the help of product advantages and industry status, and then obtain more overvalued value, which is also worth attention. Alibaba, Tencent and other Internet vendors are more focused on infrastructure IaaS and PaaS market, and more assume the role of integrated vendors in the SaaS market.
From a valuation perspective, China’s SaaS service providers have a lot of room for improvement. There are more than 70 listed SaaS enterprises in the United States, including some with market capitalization of over 100 billion dollars. While most Chinese companies are still unlisted, only Yonyou, one of the major listed companies, is worth more than $20 billion. The average PS of American companies is nearly 40 times, while that of Chinese companies is less than 30 times. The fundamental reason for the difference is that American SaaS enterprises have a high degree of cloudization, that is, they have a high proportion of cloud business revenue. After the initial R&D and marketing expenditure, they have entered a relatively stable growth period, and the growth rate of revenue and net profit is high. Revenue growth for SaaS companies in China averaged 21%, less than half the US average, and net profit was still negative on average. With the deepening of the transformation of China’s SaaS enterprises, the increase of cloud business revenue and the gradual realization of performance, the market value still has more than 30% room to improve in the future.
4, the Internet of Things to industry landing, focus on a horizontal three vertical investment opportunities
4.1 Gold mining billion things interconnection, industry chain perception layer to welcome opportunities
The number of Internet of Things (iot) connections is much higher than that of Internet of Things (iot). According to GSMA, the global iot industry was worth $343 billion in 2019 and will reach $1.12 trillion by 2025, with a compound growth rate of more than 20 percent. According to IoT Analytics, by the end of 2020, there will be 11.7 billion IoT connected devices out of 21.7 billion connected devices worldwide. With the number of things connected to the world surpassing the number of people connected to it, the Internet of Things is emerging as the next generation of business infrastructure across industries and borders, and is expected to be the biggest investment opportunity in ICT over the next 30 years.
The process of the Internet of things is leading in China, and the number of connections by global operators occupies the top three. The development process of the global Internet of Things can be roughly judged by the number of cellular Internet of Things connections of operators. The development of the Domestic Internet of Things leads the world. According to IoT Analytics, China mobile had the most cellular IoT connections in 2015, accounting for 19 percent. By 2020H1, China Mobile’s cellular Internet of Things connections accounted for 54%, Unicom and Telecom accounted for 9% and 11% respectively. China’s three major operators accounted for 74 percent of cellular iot connections, one of the highest in the world. China has advanced the number of Internet of Things connections, mainly due to the improvement of domestic network infrastructure construction and policy promotion.
Internet of Things connectivity is still in its low value infancy. Looking at the global revenue of IoT business, the ARPU of IoT business of major operators is less than $10 per month, while the NUMBER of NB-iot connections in China accounts for more, and the ARPU is less than $1 per month. Global iot connectivity is still in its infancy and the volume of user value is low. With the expansion of connection number and application, the value has a rising trend.
Internet of things across the concept hype period, to the industry landing. According to the technology hype cycle published by Gartner, the development of a new technology usually begins in the first place, then the media hype peaks and bursts, and finally reaches the peak of application as the technology matures. According to the trend of the Wind Internet of Things Index, we can find that 2015 was the peak of the bubble of the Internet of Things industry, 2016 was the relative bottom of the Internet of Things sector, and the trading volume and index of the Internet of Things sector climbed steadily from 2019 to 2020. We believe that the Internet of things has crossed the concept hype period, to the industry landing, is worth investing in the growth of the sub-sector. Looking back on the development of the Internet of Things industry in 2020, the investment node will come under the three trends:
Trend 1: Standards are becoming more uniform
Communication standards landing, industry alliance cooperation. 1) Implementation of communication standards: In April 2020, the Ministry of Industry and Information Technology (MIIT) issued the Notice on Promoting the Accelerated Development of 5G, which proposed the important communication standards and protocols to promote 5G and LT-V2X into the construction of smart cities and smart transportation. In May, the Ministry of Industry and Information Technology (MIIT) issued the Notice on Deepening the Comprehensive Development of mobile Internet of Things, proposing that NB-iot and Cat1 will cooperate to undertake 2G/3G Internet of Things connection; In July 2020, the International Telecommunication Union (ITU) decided to make NB-iot and NR a 5G standard. 2) Cooperation of Industry Alliance: In December 2020, under the guidance and support of the Ministry of Industry and Information Technology, 24 academicians of The Chinese Academy of Sciences and Chinese Academy of Sciences and 65 leading enterprises jointly launched OLA Alliance. OLA Alliance will be committed to developing the relevant standards of ALL Things, realizing mutual recognition and exchange with global standards, and promoting the development of related technologies and industries.
Trend two: Deeper integration of technologies
The Internet of Things is divided into four links: the perception layer, the network layer, the platform layer and the application layer. The technology development of each link promotes the progress of the Internet of Things industry. The current technology upgrade is mainly reflected in the network layer and the application layer. At the network level, the commercialization of 5G and the push for WiFi6 have further upgraded communication networks, accelerating the previously slow progress of the Internet of Vehicles and the Industrial Internet of Things. At the application level, the combination of cloud computing, AI, blockchain and other technologies with the Internet of Things has improved the value of application services.
Trend three: Giant scale into the game
In the past, the main players of the Internet of Things industry were the Internet giants with strong capital. They laid out multiple levels of the Internet of Things and built the Internet of Things ecosystem. What we can see now is that the giants of the whole industry chain are entering the field on a large scale to promote the progress of the Internet of Things. The giants in the industrial chain can be divided into three main layers:
1) Perception layer: It mainly focuses on the underlying hardware manufacturers, including chip manufacturers (Qualcomm, Huawei), sensor manufacturers (Bosch, Broad Com), module manufacturers (Sierra Wireless, Remote Communications), etc., all of which have launched blockbuster iot products, playing an important role in developing mature hardware products and reducing component costs.
2) Network layer: Mainly for telecom operators, leading the construction of the Internet of Things network and speeding up the business rhythm of the Internet of Things network. Telecom operators also take advantage of their own network channel to extend both upstream and downstream of the industrial chain.
3) Application layer: Mainly for Internet giants and traditional industry giants, Internet giants focus on the direction from TO C end to B end, traditional industry giants (such as Haier, Midea, Siemens) take the initiative to promote the application of the Internet of Things in their own fields, and actively copy to other industries.
(2) The Internet of Things industry chain is long and thin, and the perception layer is the first to benefit
The industrial chain of the Internet of things extends long and thin, and the perception layer is the first to benefit. The iot industry chain is divided into four levels:1) Fragmentation of the application layer; 2) The platform Matthew effect appears; 3) Coexistence of multiple standards at the network layer; 4) Integration trend of perception layer. The next five years will be the five years for the Internet of Things to expand the connection, and the core benefits are sensor, core chip, module, MCU, terminal and other hardware manufacturers.
4.2 Internet of Vehicles is one of the most important application scenarios of 5G, and the market space in the next decade is expected to reach 2 trillion yuan
Policy first, China’s intelligent and connected vehicles roadmap clear. In November 2020, The National Intelligent Connected Vehicle Innovation Center released the “Intelligent Connected Vehicle Technology Roadmap 2.0″ intelligent connected vehicle development plan. From 2020 to 2025, L2 and L3 autonomous intelligent connected vehicles in China accounted for 50% of the total vehicle sales, and the new vehicle assembly rate of CV2X terminal reached 50%. Highly autonomous vehicles achieve commercial applications in limited areas and specific scenarios; From 2026 to 2030, l2-L3 intelligent connected vehicles will account for more than 70% of the sales volume, L4 autonomous driving models will account for 20%, and C-V2X terminal new car equipment will be basically popularized; From 2031 to 2035, all kinds of connected vehicles and high-speed autonomous vehicles will be widely operated; After 2035, L5 autonomous passenger cars will be used.
Front installation of Internet of vehicles becomes standard, and the load rate is gradually improved. According to the statistics of gaOGong Intelligent Vehicle Research Institute, from January to September 2020, the risk of 4G Internet of vehicles is 5.8591 million, with a year-on-year growth of 44.22%; From January to September, the loading rate was 46.21%, up nearly 20% year on year. T-box and car module are the most important hardware products of car front loading, and have gradually become the standard equipment in the car market.
Auto companies will speed up the penetration rate of new connected cars and coordinate with other parties to develop 5G C-V2X. Major oems at home and abroad actively promote the Internet of vehicles function of new cars, FAW, Ford, Changan, Ford and other plan to reach 100 percent of new cars in China by 2020. At the same time, oVENS are speeding up the layout of 5G C-V2X to seize technological heights. In April 2019, 13 Chinese auto companies with independent brands officially released the Commercial roadmap of C-V2X in China, aiming at the 2020-2021 time window to promote the commercial application of C-V2X industry in China. At the present stage, all major module manufacturers are accelerating the layout of 5G vehicular communication field, and HUAWEI, Yuyuan Communications and other 5G communication modules have been commercialized.
Internet of Vehicles is one of the most mature technology, the most extensive space, and the most complete industrial supporting application scenarios under 5G. It is estimated that the total space between 2020 and 2030 is nearly 2 trillion yuan, amoInternet of Vehicles is one of the application scenarios with the most mature technology, the mng which “smart car”, “smart road” and “vehicular cooperation” are 8350 billion yuan, 2950 billion yuan and 763 billion yuan respectively. At present, the Internet of Vehicles industry is facing the resonance of three factors: policy, technology and industry. It is expected that the industry growth rate will exceed 60% in 2020. At the technical level, c-V2X, a key communication technology for the Internet of Vehicles, is becoming increasingly mature. Positive progress has been made in all aspects from standardization to r&d industrialization to application demonstration. At the industrial level, technology giants, automobile manufacturers and cloud manufacturers are the three leading forces in depth layout. The current focus of automobile network and road coordination is to accelerate the scale of the industry.
Based on the principle of “cost-benefit”, the main construction pace of the Internet of Vehicles will switch back and forth between “single intelligence” and “collaborative intelligence”. On the vehicle side, we believe that in 2020-2025, the penetration rate of L1/2/3 autonomous driving will double, the value of a single vehicle will increase by more than 15 times, and the proportion of software value will increase to more than 30%; On the road side, we think that the expressway and the city intersection will be the priority direction of the landing of the “intelligent road”, and the early construction is based on the hardware equipment. On the network side, the initial stage of the industry development is mainly to establish connections. With the 5G scale network construction and the promotion of C-V2X in 2020, vehicle-to-road collaboration will realize the first wave of large-scale landing, thus pulling the prelude of the development of vehicle-to-road networking from single intelligence to collaborative intelligence.
We think that 2020 is the first car networking scale fall to the ground, smart car, the wisdom of the road and road collaborative efforts to build a three dimension will be coordinated, look from the rhythm of the current collaborative C – car road V2X industry chain is particularly noteworthy, therefore, we suggest that the wireless communication module, leading to move far communication, intelligent transportation solutions Manufacturers of one thousand science and technology, RSU manufacturers Genvict technology, WANji technology, OBU/ T-box related manufacturers high emerging and edge computing server manufacturers tidal wave information. In addition, we determine that the intelligent bicycle will continue to develop, L1/L2/L3 autonomous driving penetration rate is the trend, so it is recommended to pay attention to the relevant benefit manufacturers, including intelligent cockpit software manufacturer Zhongkichuang da, IVI leader Desai Xiwei, DMS manufacturer Rui Ming Technology, etc.
4.3 Smart Home — The implementation of single product intelligent solution to the whole house intelligent solution
The scale of China’s smart home market is growing steadily, and products and ecology are the core of future breakthroughs. China’s smart home industry started late, and the process of technology productization is rapid, pushing China’s smart home into the fast lane. According to IDC, China shipped 208 million smart home products in 2019, among which smart security, smart speakers, smart lighting and other single products shipped more. Due to the impact of the epidemic and other macro factors, 2020 is forecast to grow by 3% year-on-year, which will become a key year for market development. Smart home market sensing, AI and other technologies are still in the breakthrough stage, user experience needs to be improved, the overall ecosystem has not yet formed. In the future outbreak of the market slowdown, product power and ecology for the future breakthrough core.
OLA Alliance was established to promote smart home connectivity. On December 1, the Open Link Association (OLA Alliance) was jointly launched by 24 academicians, China Federation of Industrial Economics, Alibaba, Baidu, Haier, Huawei, JD, Xiaomi, China Telecom, China Institute of Information and Communication, China Mobile and other institutions. OLA Alliance aims to give full play to the advantages of the domestic Internet of Things industry, build a unified connection standard and industry ecosystem of the Internet of Things with leading technology that conforms to the characteristics of China’s industry, and open and promote it to the world. According to the OLA Alliance product plan, the first batch of products based on the connectivity standard of OLA Alliance, including smart speakers, gateways, routers, air conditioners, smart lights, door magnets, cloud platforms and apps, will realize cross-platform, cross-brand and cross-category product interoperability, which has greatly promoted the development process of smart home in China.
Smart home from smart single products to one-stop solution landing. In the early stage of the development of smart home, single product terminals were the main, Wi-Fi, APP and cloud were the three standard devices, and smart speakers became the main market for territory. With domestic Internet giants Such as Ali and Xiaomi entering the free-for-all, smart speakers are entering the low-price volume cycle. At present, the home scene is subdivided, and the variety of intelligent devices is increasing, which gives birth to mature intelligent product forms such as intelligent lighting, intelligent cameras, intelligent switches and so on, and opens the era of one-stop intelligent home whole-house intelligent. In the future, with the rapid progress of the four key technologies of Internet of Things, cloud computing, edge computing and artificial intelligence, a large number of devices will be AloT, and the connectivity between the bottom and the cloud will be further deepened. On the basis of a large amount of user data precipitation, the need to build portraits for analysis will be deepened.
Smart home industry chain: the upstream hardware localization is promoted, and the midstream competition pattern is “three parts of the world”.
Upstream: The upstream of smart home is divided into hardware and software.
Hardware: The chips needed for smart home are basically the same as the mainstream chips in the Internet of Things industry. At present, the larger shipments are still overseas chip manufacturers, such as Qualcomm, Nvidia, Intel, etc. Domestic Lexin Technology insists on AIoT chip research and development and innovation, and is one of the main suppliers in the field of Wi-Fi MCU chips in the Internet of Things. Strong import substitution strength and domestic market competitiveness. In terms of intelligent controller, domestic leading enterprises have heertai and Topang shares.
Software: The focus of software catalysis is the wireless communication technology of the Internet of Things. A relatively unified industry communication standard will be gradually formed to make smart home controllable at any time. The major domestic players include Huawei and ZTE. Cloud technology is widely used in smart home, and artificial intelligence technologies such as machine recognition and pattern recognition are also constantly improving the interactive ability of smart home. Domestic layout companies include BAT and Huawei.
Midstream: Smart home midstream includes intelligent single product manufacturers and platforms, there are three types of enterprises to participate in the competition. Traditional home appliance enterprises, such as Gree, Haier, Midea, etc., have launched a variety of smart home appliance products, and on the basis of rich smart home appliance categories, they cooperate with software service providers to build a platform ecosystem. Internet technology companies, such as BAT, Huawei and Xiaomi, have laid out the smart home ecology through their technological advantages. For example, Xiaomi has implemented the “1+4+N” strategy, which takes mobile phones as the core and smart TVS, speakers, routers and laptops as the entry to form a product matrix and establish IoT platforms. Innovative enterprises are divided into two camps. One focuses on the layout of intelligent products, such as Luke, and the other provides solutions, such as Oribo.
Downstream: The downstream of smart home is a user-oriented sales channel, which realizes full-channel sales with the help of online and offline sales. The specific modes include: e-commerce platform, O2O sales, smart home experience hall, etc.
4.4 Satellite Internet is incorporated into the new infrastructure, ushering in large-scale production
Satellite Internet will bridge the digital divide, with high-throughput satellite revenue exceeding $30 billion by 2024. On April 20, 2020, satellite Internet was classified as “new infrastructure” for the first time. In 2019, the global Internet penetration rate was 53.6%, and nearly half of the world’s population was “offline”. Compared with the ground base station, satellite Internet has advantages such as wide coverage, lower cost and no terrain restriction, and is one of the important solutions to solve the digital divide and build global connectivity. With technology upgrading, high-throughput satellites are gradually replacing traditional communications satellites. Revenue of the high-throughput satellite industry reached us $9.1 billion in 2019, with a compound growth rate of about 30% between 2018 and 2024. The main revenue sources are broadband, mobile communications, and corporate commerce.
The industrial chain of satellite communication has been extended, and the c-end market space has been expanded. Currently, ground terminal manufacturing and satellite applications account for 90% of the satellite industry revenue, and c-terminal broadband services, automotive and civil aviation networking services will be the major sources of global satellite Internet revenue by 2030. At present, the satellite communication industry and information technology industry has gradually depth fusion, the future satellite communications services will be made by a single resource operating downstream value-added information services, such as make up automated driving demand for network connection, realize the Internet of things application scenarios, etc., all connection to C end users to provide quality communication solutions.
More than 10,000 satellite applications have been completed, marking a period of rapid development of China’s satellite Internet. By December 4, 2020, China had launched 75 satellites, ranking second in the world, and completed the first phase of its first satellite Internet of Things cloud project. On September 28, 2020, China officially submitted to itu the orbit and frequency application network data of China’s large low-orbit constellation, which has a total of 12,992 satellites. With the increase of the capability of multiple satellites in one rocket and the decrease of the launch cost, China will enter the intensive period of satellite launches in 2021.
One of the prerequisites for the completion of a huge satellite network work is the landing of a large-scale manufacturing satellite factory. In terms of state-owned enterprises, the Shanghai Micro Satellite Engineering Center, jointly built by the Chinese Academy of Sciences and The city of Shanghai, plans to build a satellite innovation factory in the second phase. Dongfanghong satellite recently cooperated with Aihualu Robot to automate the assembly of local production lines of commercial micro-satellites through intelligent robots. In terms of private enterprises, Satellite factories of Yinhe Aerospace, Nintian Microstar and Guoxing Aerospace have been officially launched, and auto giant Geely has also started to join the satellite project.
Financing for private space enterprises has picked up, and stable and sustainable launch capability is the key. As Space X’s rocket recovery technology has significantly reduced launch costs and successfully launched multiple missions of 60 stars in one shot, commercial Space investment has surged. As of December 4, according to the information released by 36KR, a total of 14 financing times have taken place in the commercial space sector in 2020, 8 of which involve an amount of more than RMB 100 million. Among them, Changguang Satellite has completed RMB 2.464 billion pre-IPO round financing, Blue Arrow Space has completed RMB 1.3 billion C+ round financing. After the investment, the valuation of Galaxy Space is nearly 8 billion yuan, becoming the first unicorn enterprise in the field of satellite Internet, and the capital is concentrated to the head. Compared with overseas giants Space X and OneWeb, China’s private Space companies still have a significant gap in launch capabilities, with only two of four commercial rocket launches successful. The realization of business closed loop is the key point for the sustainable development of enterprises in the future, and the stable and sustainable launch capability is the primary key point. In November 2020, the Xinghe-powered Ceres 1 was successfully put into orbit, and the Blue Arrow space test run was successful. It is expected to make its maiden flight next year.
It is estimated that the output value of China’s satellite industry will reach 600-860 billion yuan in the next nine years. According to THE ITU, the proposed constellation would need to launch half of its satellites within six years and be fully launched within nine. The pessimistic scenario is that 75% of the satellites will be launched in the next nine years, with 2,450 satellites, and the optimistic scenario is that 100% of the satellites will be launched, with 3,500 satellites. It is estimated that in the next nine years, the output value of China’s satellite industry will reach 600-860 billion yuan.
Investment strategy suggests manufacturing first, and then turn to the industry chain downstream investment. We believe that the Internet Satellite Constellation program will start with the manufacturing and launch of satellites, and after the initial networking is completed for service, ground equipment manufacturing and satellite applications will start. Industry chain investment opportunities first invest in upstream industry chain companies such as satellite manufacturing and satellite launch, and then gradually turn to downstream industry chain companies such as ground equipment, satellite operation and satellite application.
Satellite manufacturing: led by “national team”, supplemented by private enterprises. In the field of satellite manufacturing, State-owned enterprises represented by aerospace and military enterprises and national Defense Research Institute have outstanding strength and are able to achieve the whole satellite export and launch missions, occupying a dominant position. The main state-owned enterprises in satellite manufacturing include: 1) The Fifth Institute of Space Science and Technology, which is engaged in the development of space technology and spacecraft, and has developed and launched more than 200 spacecraft; 2) China Satellite (listed company controlled by the Fifth Academy of Aerospace Sciences), with multi-layer layout in the industrial chain of small satellite development, satellite ground application system integration, terminal equipment manufacturing and satellite operation service; 3) Shanghai Academy of Space Technology, the main research and development base of meteorological satellites and remote sensing satellites in China; 4) The second Institute of Aerospace Science and Industry, the leader of “Hongyun Project” construction, etc. Satellite manufacturing private enterprises have nine days micro star, Changguang satellite, tianyi Research Institute, Guoyu Star, Qianxun positioning, micro nano star and other start-ups, private enterprise system is flexible, can be used as an effective supplement to state-owned enterprises.
Satellite launch: China Aerospace Science and Technology Corporation and China Aerospace Science and Industry Corporation are the “national teams” of carrier rockets, and private enterprises have initially achieved successful launch. Aerospace science and technology group and aerospace science and industry group took almost all carry fire in our country Arrow construction tasks, including space technology corp., the long march rocket series can be from small to heavy, from solid to liquid rocket engine, tandem covering the whole spectrum, from series-parallel type to the current long march shipment The carrier rocket has exceeded 300 mark; Casic’s Pioneer and Kuaizhou rockets are small, solid-motor rockets aimed at low-earth orbit launches. Among the newly established private enterprises, Star Glory, Blue Arrow space, Onespace and Lingke Space have successively completed their first launch missions since 2018. At present, private rockets are all in the growth period, and most of them are in the development process of leaping from solid rocket to liquid rocket.
Satellite ground equipment companies are fragmented, and China Satcom has a monopoly on satellite operations. Satellite ground equipment is divided into two categories: ground network equipment and user terminal equipment. China Aerospace Science and Technology Corporation, China Satellite, Big Dipper Star, Hage Communications, China Haida and so on are involved in the construction of ground equipment. The only satellite operation company in China is China Satcom, which monopolizes the satellite operation market. Other satellite-based application manufacturers include Aerospace Hongtu, Hualichuangtong, Hypermap software, unistrong, etc.
5. Intelligent driving: Intelligence is the biggest opportunity, and the main opportunity is in the supply chain
5.1 With Huawei’s entry into intelligent vehicles, the industrial value chain faces restructuring
Intellectualization is an unprecedented opportunity in the next 30 years. Automobile intellectualization is one of the most important scenes in the era of intellectualization. The automotive industry will to some extent repeat the transition from functional machines to smartphones, and the industrial supply chain and value chain will be restructured. At present, ICT technology and automotive industry are taking place in the depth of convergence, computing and intelligence will become a new strategic control point of the industry. The traditional car market, about three times the size of smartphones, is more strategic. About 1.8 billion mobile phones have been shipped worldwide and the global market is worth about $500 billion, according to IDC. According to the International Organization of Automobile Manufacturers, the global passenger vehicle shipments in 2019 were 64.34 million units, and the total vehicle shipments were 91.36 million units. Based on the average passenger vehicle price of 200,000 yuan, the global passenger vehicle market alone reached about 1.8 trillion dollars. The car market is more strategic for Huawei than the $500 billion smartphone market.
From the point of view of time, the level of automobile intelligence has been rapidly improved, and the automobile industry is transforming from traditional manufacturing to technological manufacturing. According to China Automotive Research And Development Co., LTD., of the 573 new cars launched between January and October 2020, 239 will have L1 autonomous driving function, while 249 will have L2 autonomous driving function. From January to October 2020, the assembly rate of L1 and L2 driver assistance functions has reached more than 40%, and is expected to continue to rise in the future.
The penetration rate of electrification and electrification is increasing rapidly, while intelligent driving is still in its initial stage. At present, although the penetration rate of L1/L2 intelligent connected vehicles has reached nearly 30%, which is equivalent to the penetration level of global smartphones in 2011, the global intelligent driving is still in the initial stage of intelligent. In the future, with the gradual commercialization of 5G-V2X, the cooperative landing of high definition map and road, and the continuous improvement of intelligent level of bicycles, intelligent driving will gradually leap from L1/L2 to L3/L4 until L5.
Huawei’s entry into intelligent vehicles at this time is an inevitable choice that combines its own endowment and complies with the industry trend. Historically, Huawei’s large-scale strategic investment in new businesses generally meets two conditions: first, a large market capacity; Second, from the point of time, the market is in the eve of rapid improvement of penetration.
Huawei recently released the full stack intelligent vehicle solution brand HI, and the product matrix of the Internet of vehicles is fully formed. On October 30, 2020, Huawei unveiled HI (Huawei Intelligent Automotive Solution), an independent brand of Intelligent vehicle solutions, at its annual new product launch. HI full stack intelligent vehicle solution includes 1 computing and communication architecture and 5 intelligent systems, intelligent driving, intelligent cockpit, intelligent electric, intelligent network and intelligent vehicle cloud, as well as a full set of intelligent components such as lidar, AR-HUD. HI’s new algorithm and operating system includes three computing platforms, intelligent driving computing platform, intelligent cockpit computing platform and intelligent vehicle control computing platform, as well as three operating systems AOS (intelligent driving operating system), HOS (intelligent cockpit operating system) and VOS (intelligent vehicle control operating system).
1) One computing and communication architecture. Based on the functions of automotive electronic components, Huawei computing and communication architecture is divided into three domains: driving, cockpit, and vehicle control, and provides corresponding three computing platforms and operating systems. This architecture helps traditional automakers speed up the process of software-defined vehicles and realize a new business model with replaceable hardware and upgradable software.
2) Five smart systems. Huawei improves the network of vehicles terminal cloud layout, providing five intelligent systems. The end side provides intelligent driving and intelligent energy system, the management side intelligent network system covers a series of products such as communication module, T-box and on-board network, and the cloud side provides huawei cloud-based autonomous driving cloud service and HiCar intelligent cockpit system.
3) 30+ intelligent components. In direct competition with traditional Tier1, Huawei becomes the incremental market Tier of intelligent vehicles, directly providing intelligent components such as lidar and AR HUD to automobile enterprises.
At present, the market of Internet of vehicles and intelligent driving is monopolized by the international Tier1 giants. Huawei’s own positioning is to focus on ICT technology and become an incremental component supplier, facing 70% of the incremental market. In the long term, we believe that Huawei is expected to fill the domestic gap and become a world-class Tier1 supplier like Bosch and Mainland China.
5.2 Intelligent driving: focus on layout perception + decision-making layer, computing platform and lidar growth strongest
Intelligent driving system is the core incremental part of intelligent car different from traditional car, which can be divided into perception layer, decision layer and executive layer. Currently, Huawei has layout for all of them. Sensing layer (eye and ear) : mainly includes cameras, millimeter-wave radar, lidar and other sensors to realize the perception of the environment. Decision-making layer (brain) : including chips and computing platforms, responsible for processing information, and based on the information to predict, judge, and give instructions. The executive layer (hands and feet: including braking, steering, etc., is responsible for executing instructions and making actions such as braking, steering, lane change, etc. The incremental components market brought by intelligent driving are mainly in the perception layer and decision layer, while the executive layer is more about upgrading and adaptation.
We estimate that the incremental space for intelligent driving (sensing and decision-making) in the Chinese passenger car market will reach 220.8 billion yuan by 2025 and 500 billion yuan by 2030. Among them, the value of decision-making level is the highest, accounting for more than 50%. In terms of growth rate, computing platform and lidar have the best growth, with a compound growth rate of more than 30% in the next decade.
Investment opportunities: The most robust growth over the next decade will be in computing platforms, lidar and in-vehicle cameras, focusing on supply chain localization and international opportunities
Huawei has strong hardware and computing platform advantages in the field of intelligent driving, and its strong participation is conducive to accelerating the commercialization process of the entire industrial chain. In the field of perception layer such as camera, a number of globally competitive companies have emerged in China, such as Sunny Optics, Howe Technology, etc., which will benefit from the growth of the total and share of the automobile market. In the long term, lidar and computing platforms have the strongest growth prospects over the next 10 years, and while the competition is still in its infancy and the landscape is far from fixed, focus can be placed on the first commercial companies with the first mover advantage and the ability to expand internationally.
Key company in domestic industry
On-board camera: Sainty Optics (optical lens), Weil Holdings (image sensor)
Lidar: Lasai Technology, Radium God Intelligence, Sagittarius juchuang
Computing platform: Huawei, Horizon Line Control: Bethel
5.3 Smart Cockpit: The car infotainment system is the core, focusing on suppliers with competitive advantages in core hardware, operating system/software
Intelligence will completely change the traditional business model, selling cars will no longer be the end point of value realization but a new starting point. The cockpit is the center of the intelligent interaction between people and cars. In the whole scene of people, car and home, the consistent experience of multiple scenes is the key to the intelligent cockpit.
We believe that intelligent cockpit is the most mature application in the process of intelligent driving, and the market size is expected to reach 100 billion yuan by 2025 and 152.7 billion yuan by 2030. Among them, the car entertainment system accounted for the highest 60% or so. The hardware and software of intelligent cockpit have begun to differentiate. The cost of hardware such as screen decreases with the maturity of engineering skills, and the value of vehicle entertainment and other software increases with rich functions. Future investment should focus on Tier 1 suppliers with integrated advantages and competitive advantages in core hardware, operating system/software.
In the field of intelligent cockpit, oems, traditional Tier1 and Internet giants are approaching to Tier0.5 system integrators. The future trend is crossover and multi-field integration and opening, and the value is gradually transferred to software/algorithm, application and service. The current focus is on Tier 1 vendors with integrated advantages and competitive advantages in core hardware and operating system/software.
Key company in domestic industry
Operating system: Huawei, Ali, Zhongke Chuangda
Supcon multimedia host system integrators: Desai Xiwei, Huayang Group, Hangsheng Electronics
Car entertainment: Baidu, Ali, Tencent, Huawei
Display (HUD/ dashboard/central control screen) : Desai Xiwei, Huayang Group, Zejing Electronics
Chip manufacturers: Huawei, Horizon, Allambition Technology
5.4 Smart electric: penetration rate increases rapidly under policy drive. It is suggested to pay attention to investment opportunities in incremental market industry chain such as charging pile and vehicle power semi-conductor
“Three electricity” is the core part of new energy vehicles to distinguish traditional fuel vehicles. We forecast that the market size of China’s passenger vehicle “three power system” will reach 95.7 billion yuan in 2020, 268.5 billion yuan in 2025 and 617.9 billion yuan in 2030, with a compound growth rate of more than 20% in 2020-2030.
It is suggested to pay attention to investment opportunities of incremental market industry chain such as charging pile and automotive power semiconductor
We believe that the demand for high power density and permanent magnet synchronization of electric vehicles promotes the electric drive system to be highly integrated, the demand for IGBT and silicon carbide power devices continues to increase, and the highly coupled power devices promote the upgrade of cooling system. In addition to batteries, Huawei has a deep layout in all the core links of intelligent electric, although the domestic and related companies constitute a competitive relationship, but in the early stage of the industry development, the market is far from saturated, investors should pay more attention to the rapid increase in industry penetration opportunities.
Key company in domestic industry
Charging pile: Telai Electric battery: Ningde Times, BYD
IGBT: Star half guide, BYD
Silicon carbide: Shandong Tianyue, SAN ‘an photoelectric
Thermal management: Sanhua intelligent control
5.5 Intelligent network: The trend of Internet of Vehicles front installation, module and T-box for small and medium-sized companies may break through
We believe that the on-board module, gateway module and T-box are the main in-car components to realize the on-board communication function. According to the calculation, the value space of Chinese passenger car market for bicycle networking in the future will reach 27.6 billion yuan in 2025 and 40.8 billion yuan in 2030. Among them, car module and car T-box 10 years compound growth rate at 10%.
Investment Opportunities: Chips are still the big boys’ game, mods and T-boxes make it possible for smaller companies to break out
Chips are still the big boys’ game, and there’s room for smaller players to break through in mods and T-boxes. In the field of communication chips and modules, traditional mobile chip giants such as Qualcomm and Huawei are still major players. The chip competition barrier is higher, the reward is more generous, the giant will still focus on the chip for a long time, the chip module will be self-use or supply individual high-end customers. Therefore, there are still opportunities for traditional chip module manufacturers to break out in this field.
Key company in domestic industry
Communication module: remote communication, wide communication
T-box: Huawei, Desai Ciwei, Gao Xinxing
5.6 Vehicle cloud service: The prospect of vehicle cloud service is broad. With full-stack service, Huawei is expected to catch up
Huawei is relatively late in the field of vehicle cloud services. It mainly provides four bulk incremental vehicle cloud services, namely autonomous driving, high-precision mapping, Internet of Vehicles and V2X. In the future, it is expected to take the lead in the multi-cloud and hybrid cloud trend with full stack end-to-end advantages.
Domestic and foreign technology giants are entering the car cloud service, multi-cloud, hybrid cloud and other trends, the next ten years there is a large space for growth, industry chain partners are expected to achieve common growth with Huawei car cloud service. It is suggested to grasp the investment opportunities of Huawei cloud service industry chain partners from infrastructure construction, data to application and service according to the transfer sequence of value chain.
Key company in domestic industry
ICT infrastructure partners: GDS, IHUalu, China Software International, Digital China, etc.
Intelligent voice partners: IFlytek, etc.
High precision map partners: four dimensional map new, etc.
Partners of Internet of Vehicles: Shanghai Botai, etc.
Car app partners: Bilibili, Same trip, Deep Love listen, Gedou, etc.
5.7 Offline investment opportunities for smart car owners
“Intelligent” is the core keyword and main line of our investment in the era of intelligent vehicles. Around the main line of intelligent, we believe that the overall pace of investment in intelligent vehicles need to grasp three waves.
The first wave, the supply chain. We are optimistic about the rise of Chinese supply chain in the era of intelligent automobile, and we can grasp the investment opportunities from three dimensions. First, opportunities for global expansion. In some segments such as batteries, cameras, networked modules and vehicular communication equipment, domestic leading companies have the ability to expand globally. Once entering the global core OEM supply chain, the scale can be rapidly expanded. The second is the localization of the replacement of the opportunity, in some segments such as vehicle IGBT, MCU, millimeter-wave radar, thermal management, control by wire, etc., some domestic companies through iteration and upgrade are expected to gradually erode the market share of the replacement of overseas giants in the future. Third, the opportunity of new circuit shuffle, in some segments such as computing platform, lidar, high-precision map, silicon carbide power devices, the penetration and application of new technology has just begun, with the transformation of independent brand car enterprises and the rise of new forces in domestic car manufacturing, is expected to create a new segment of the world leader.
Second wave: oems and autonomous driving solution providers. Smart cars provide opportunities for Chinese car companies to change lanes and overtake cars. Those companies that fail to adapt to the trend of smart cars will be eliminated. This round of shuffling has only just begun, and it is too early to judge who is the winner. We can only see a clue when the penetration rate of China’s new energy vehicles reaches 20% in 2025. The oEMS will be divided into two camps. Most of the new forces and some of the traditional leading manufacturers will choose the vertical integration mode and develop the core software and some hardware by themselves. Most traditional automakers will provide manufacturing and integration capabilities, and work closely with ICT giants like Huawei and Waymo that master full-stack autonomous driving technology. The emerging oems and autonomous driving solution providers, which will take most of the industry’s profits, will be the big winners in this wave.
The third wave, applications and services. With the popularization of vehicle-to-road cooperation infrastructure and the improvement of intelligent level of bicycles, the L4 scale commercial market of passenger cars, Robotaxi service enters the scale operation, and applications and services based on autonomous driving scenarios begin to burst out. Autonomous driving infrastructure providers, mobility service companies, and mobile Internet of vehicles application and service platform providers will be the focus of the third wave of investment.
We are optimistic that Huawei is expected to fill the domestic gap and become a $50 billion new ICT Tier1 supplier alongside Bosch and China Mainland. In addition to a few links such as vehicle manufacturing, battery, ultrasonic radar, vehicular infotainment machine and other low-value hardware, Huawei has a layout in almost all core links of intelligent driving.
We believe that Huawei’s participation will promote the industrialization of China’s intelligent driving, intelligent driving industry chain in the long-board cooperation, complementary capacity cooperation companies are expected to be the first to benefit. Such as the oEMS changan, Baic new energy, battery leading Ningde times, high precision map manufacturers, such as the new four dimensional map.
For the sectors that Huawei has entered or is laying out, such as lidar, computing platform, IGBT and other segments, due to the low industry penetration or the localization has just begun, TAM market space is large enough, and other companies that have laid out in these fields still have great investment opportunities. In general, considering that Huawei’s entry into the field of intelligent vehicles is still in the initial stage, there is a high degree of uncertainty about who will benefit from industrial chain partners and how much they will benefit, and continuous dynamic tracking is required in the future.
Huawei focuses on intelligent driving, intelligent cockpit, intelligent network, intelligent electric, and vehicle cloud services, which are also the most important incremental markets brought by intelligent vehicles in the future. We estimate that the total incremental market size of China’s passenger car market will grow from 200 billion yuan in 2020 to 1.8 trillion yuan in 2030, with a 10-year compound growth rate of 25%. The average value of bicycles brought by intelligent connectivity will rise from 10,000 yuan to 70,000 yuan. From the perspective of structure, the future intelligent electric, intelligent driving, car cloud services will account for more than 90%. At present, the highest proportion of intelligent electric in more than 45%, intelligent driving will be in the medium term force, the value of 2025 accounted for about 31%. At the current stage, the market value of vehicle cloud services has not yet emerged, and it is expected to account for 12% by 2025 and 30% by 2030.
Among the five sectors mentioned above, investors are advised to focus on the segments with large incremental space and high bike value, such as battery, lidar, computing platform, IGBT, map and software service provider, and car network module.
The global autonomous driving industry is in a period of rapid growth. The value distribution of the industrial chain will shift from supply chain to intelligent driving solution manufacturers, oems, and application and service markets in turn. It is suggested to focus on the following:
Intelligent driving: Sainty Optics/Weil (vehicle camera), Hexai Technology/Radium Intelligence/Sagitar Juchuang (liDAR), Huawei/Horizon (computing platform), Bethel (line control)
Smart cockpit: huawei/ali/kechuang (operating system), huawei/horizon/chi technology (chip) intelligent electric: ningde age/byd (battery), up to half a guide/byd (IGBT), shandong days yue/three AnGuang electric (sic), three flowers intelligence control (thermal management), (call) intelligent charging piles made: Yuyuan/Fibocom (Communication module), Huawei/Desesiwei/Gao Xinxing (T-Box)
Vehicle Cloud services: GDS/China Software International (ICT infrastructure partner), 4d Map New (High Precision Map)
Six.key targets
5G: China Mobile/China Telecom/China Unicom (operator), ZTE (main equipment vendor), Zhongji Xuchuang/Xinyisheng (optical module), Shijia Photon (optical chip), DreamNet Group (5G news)
Cloud Computing: Jinshan Cloud (IaaS), WANGUO Data/Baoxin Software/Halo New Network (IDC), Inspr Information (server), Kingdee International/User Network (SaaS)
Internet of Things: Yuyuan communication/Fibocom (module), Huweiwei Communication (terminal), Heertai/Topone (Smart Home), Hongsoft Technology (AIoT), China Satellite/Haig Communication/China Satcom/Hainengda (Satellite Internet of Things)
Intelligent vehicles: Horizon (computing platform), Sun-Yu Optics (optical perception), Hexai Technology (lidar), Star Semi-guidance (IGBT), Zhongke Chuangda (operating system), Desai Xiwei (intelligent cockpit)
Seven. risk tips
A clear business model has not yet been formed for 5G 2C business, and it will take 2-3 years for the industry to develop its application, and operators’ willingness to spend 5G capital may be lower than expected;
The growth of ICP capital expenditure is slowing down, and the development of public cloud business may not meet expectations; The progress of enterprises on the cloud is not as expected, the industry competition is intensifying, and the enterprise IT spending is significantly reduced;
The localization of software is less than expected; The number of Internet of Things (iot) connections is not growing as expected, and the industrial chain is lagging behind;
The smart driving industry is not growing as expected;
The risks of escalating trade friction between China and the United States.
Post time: Aug-02-2021