Hanwha Investment & Securities said DOUZONE BIZON CO. is the only domestic software corporations that will continue to grow even as concerns rise about the growth of domestic and overseas software-as-a-service (SaaS) corporations amid the spread of artificial intelligence (AI).
At the same time, it maintained a buy recommendation and raised its target price to 110,000 won. The previous trading day's DOUZONE BIZON CO. closing price was 90,200 won, leaving 22% upside potential.
Kim So-hye, an analyst at Hanwha Investment & Securities, said, "Even though concerns about a slowdown in the growth of SaaS corporations due to AI are coming to the fore, DOUZONE BIZON CO. is the only domestic software corporations expected to see customer expansion and operating leverage based on AI advancement."
It analyzed that DOUZONE BIZON CO.'s customer base is structurally expanding as on-premise customers move to the cloud while new customers come in at the same time. Customers of the integrated ERP solution "Amaranth10 (Amaranth10)" increased by about 3,000, from 1,637 a year ago to 4,628 at the end of this year. About 60% of these are conversions of existing on-premise customers, and new customers account for about 40%.
Kim said, "It is encouraging that new customers are increasing at the time of AI solution advancement," adding, "About 8,000 on-premise iCUBE customers still remain, and the shift to another integrated solution, "OmniEsol (OmniEsol)," is only in its early stages, so earnings growth will continue for at least two years."
Results also beat market expectations. In the fourth quarter of last year, DOUZONE BIZON CO. posted sales of 127.1 billion won and operating profit of 46.1 billion won, with operating profit about 23% above consensus. The operating margin was 36.3%, up 9.8 percentage points (p) from a year earlier.
By segment, Lite and standard ERP sales rose 12.6% and 27.4%, respectively, from a year earlier. While sales of on-premise products are declining due to the end-of-support policy, the shift to the cloud-based next-generation solutions "WEHAGO (WEHAGO)" and Amaranth10 is progressing faster than expected.
Kim also explained, "Software corporations with an operating margin reaching 40% are rare at home and abroad, and cases of margin improvement on a quarterly basis are even rarer." Kim added, "In the short term, share price volatility may appear depending on the progress of the private equity firm's acquisition of the largest shareholder's equity, but considering only the fundamentals and growth of the core business, a market capitalization of around 3 trillion won is fully explainable."