The business-end (B-end) business model of Servyou can be benchmarked against Intuit, an overseas financial and tax company, and the integration of artificial intelligence (AI) is likely to enhance product value and help it explore high-value product markets. The government-end (G-end) business of Servyou continues to advance, winning the core project of the fourth phase of the Golden Tax System (GTS), a nationwide value-added tax (VAT) administration and monitoring system, and opening up market space with the continuous introduction of data elements. We are optimistic about the sustained coordinated development of Servyou's B and G-end businesses under policy guidance and technological updates, with huge growth potential. Based on comps valuation levels, we assign 8x 2024E PS, equivalent to a target market cap of Rmb20.3bn for 2024E and a target price of Rmb50. We reiterate the "BUY" rating.
Benchmarking against Intuit overseas, Servyou is a leading domestic financial and tax SaaS cloud platform service provider.
As a leading provider of comprehensive financial and tax software as a service (SaaS) services in China, Servyou has been deeply engaged in the financial and tax SaaS field for many years and has successfully served two major customer groups: G-end and B-end. In the G-end field, the products provided by Servyou cover eight categories including individual tax systems, social security collection and payment systems, fully catering to the tax service needs at the bureau level. In the B-end field, Servyou covers almost all modules of corporate financial and tax services through three core products: 17win.com, 17dz.com, and the innovative business (including digital services for human resources, large enterprises, and intelligent data, etc), meeting various customers’ needs. Compared to Intuit, Servyou has exhibited a similar development trajectory and potential. At present, Intuit has gained a significant market share in overseas markets and is undergoing AI transformation. Based on this, Servyou not only has a business model similar to that of Intuit, but also has huge potential for further development and expansion.
B-end: SaaS business is gradually accelerating, and AI and finance & taxation are embracing development opportunities.
With the rapid growth of China's corporate finance and taxation SaaS market, comprehensive finance and taxation services will be the main development trend in the market going forward. The B-end business of Servyou integrates multiple service types, and its performance has shown an accelerating trend in recent years. According to Servyou's 2022 annual report, 17win.com posted stable revenues, with a renewal rate of up to 85%, and an average user payment amount of over Rmb800. The number of paying users and average payment amount of the products under 17dz.com are constantly increasing, with payment penetration at c.64% and renewal rate at 103%. The innovative business posted revenue of Rmb120mn, with a YoY increase of 32.7%. The current GPT model is developing rapidly, and Servyou is actively integrating AI technology, collaborating with multiple institutions on AI research, and investing in the construction of multiple AI projects. Looking ahead, Servyou's B-end products are likely to shift from being tool-oriented to being service-oriented, bringing more value-added service projects. We expect that this may push Servyou's revenue to grow further, thereby maintaining its leading position in the industry.
G-end: The GTS Phase IV continues to advance, creating growth upsides for tax data.
China’s tax informationization industry has entered a new stage of cloud and intelligent development. As an important component of the national tax system, the GTS project has entered the fourth phase stage. Compared to the third phase, which is constructed separately by each provincial and municipal bureau, the suppliers of the fourth phase are more concentrated. We expect that the fourth phase will speed up the building process in the coming years.
Servyou has actively participated in the Phase IV construction, and with its successful experience in the third phase, it has laid a good foundation for whatever-is-coming in the fourth phase. Currently, Servyou has successfully won multiple core projects for the fourth phase, demonstrating strong strength and position. At the same time, accelerated digital transformation at the government level, particularly with an emphasis on data elements, provides new opportunities for the subsequent construction of tax big data. Servyou capitalizes on this trend and has built a preemptive presence in tax digitalization, laying a foundation for the further development of tax big data going forward.
Potential risks: The penetration of new products missing expectations; changes in industry policies and government budgets affecting Servyou's businesses; intensified industry competition; Servyou's market expansion not up to expectations; lower-than-expected profit margins; network system and data security risks.
Investment recommendation: We are optimistic about the sustained coordinated development of Servyou's B and G-end businesses under policy guidance and technological updates, with huge growth potential. We forecast its 2023E-25E revenue of Rmb2.054bn/2.532bn/3.155bn, with attributable net profit (ANP) at Rmb0.300bn/0.412bn/0.536bn. Based on comps valuation levels, we assign 8x 2024E PS, equivalent to a target market cap of Rmb20.3bn for 2024E and a target price of Rmb50. We maintain the "BUY" rating.
