GoldmanSachsResearch4 March 2023 6:56AM HKTGC Tech:"Digital China"Policy:Infrastructure and big data as focus toaccelerate digitalizationIn Feb 2023,The Central Government and State Council announced the "DigitalAllen Chang+852-2978-29301China"Policy (Link)to accelerate growth of the digital economy by 2035.To developallen.k.chang@gs.comGoldman Sachs (Asia)L.L.C.the digital economy,the govemment highlighted its priority of focusing on:(1)Verena Jengstrengthening infrastructure(network,computing power)as support,(2)improving+852-2978-1681 verena.jeng@gs.comGoldman Sachs (Asia)L.L.C.scale and quality of database and ensuring data security,and (3)more efficientSimon Cheung,CFAE-government solution.Based on the development plan,we view companies with+852-29786102higher revenue exposure to key segments (E-government,big data,infrastructure)and government/SOE customers as earlier beneficiaries.Details within the report.Justin Kwok,CFA+852-2978-0481 justin.kwok@gs.comRead more:China Software 14th Five-Year PlanGoldman Sachs (Asia)L.L.C.Timothy Zhao+852-2978-2673 timothy.zhao@gs.comExhibit 1:"Digital China"Policy related stocksGoldman Sachs (Asia)L.L.C.CompanyTickerAnalystProduct/ServiceShuo Yang,Ph.D.Big data:Database,data security002230.SZ300454.SZAllen ChangData security,cloud computing,and cloud securityTing SongVenustech002439.SZVerena JengData security governance,database auditing solutionTranswrapNCBig data platformDAS Security688023.SSNCData security solution,data transactionBONC300166.SZNCDatabase system,Al and data scienceVastdata603138.SSNCLocal databaseQiAnXin688561.SSNCData security soutionHillstone688030.SSNCData security solutionEhualu300212.SZNCData operation,transaction and management solutionTRS300229.SZNCTianyuan DIC300047.SZNCE-government and Al solution for big data analysis300168.SZNCE-government and Al data solutionDamengPrivateLocal databaseVertical software:ERP,Office software,CAD/BIM,EDA,property IT,finance IT,hotel IT,healthcare IT600588.SSAllen ChangYonBIP cloud platform for SOE customersKingsoft Office688111.SSAllen ChangOffice software for govemment and SOE,for IT innovationZWSOFT688083.SSAllen Chang2D/3D CAD,CAE and CAM for industrial designYJK300935.SZAllen ChangBIM design tool for industrial designGlodon002410.S2Allen ChangBIM solution for construction and design fimmsEmpyrean301269.S2Allen ChangLocal EDA tools for design and fab customersPrimarius688208.SSAllen ChangLocal EDA tools for design and fab customersThunisoft300271.SZVerena JengE-govemment,legal tech and E-education solutionWinning Health 300253.SZJustin KwokHealthcare IT solution for hospital and medical institutionMYCTimothy ZhaoERP and property IT solution for property developersWeimob2013.HKTimothy ZhaoMarketing subscription and merchant solutionsTuyaTUYATimothy ZhaoloT PaaS and SaaS solutionShiji002153.S2Simon ChengHotel and restaurant ITGoldman Sachs does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of thisreport.Investors should consider this report as only a single factor in making their investment decision.For Reg ACcertification and other important disclosures,see the Disclosure Appendix,or go towww.gs.com/research/hedge.html.Analysts employed by non-US affiliates are not registered/qualified as researchanalysts with FINRA in the U.S.Goldman SachsGCTechExhibit 2:"Digital China"Policy related stocks(continued)CompanyTickerAnalystProduct ServiceHundsun600570.SSShuo YangRetail finance,Asset mgmt and bank ITSemitronix301095.S2NCLocal EDA tools for yield improvementFoxit688095.SSNCOffice software for enterprise customersInfrastructure:5G,cloud,chipsetZTE763.HK /000063.SZ Allen ChangTelecom infrastructure to support digitalizationCambricon688256.SSVerena JengData center chipsetMontage688008.SSLynn LuoInterface IC for server DRAM,90%+revenue to serversAnalogic688107.SSLynn LuoFPGA for serverSugon603019.SSNCIDC serverInspur000977.SZNCIDC serverTalkweb002261.SZNCIDC server,and E-government solutionHygon688041.SSNCCPULoongson688047.SSNCCPU002368.SZNCState-owned Cloud partnership with CETC,E-governmentInesa IT600602.SSNCState-owned Cloud services and data analysisUcloud688158.SSNCState-owned CloudBingosoft688227.SSNCIT services for State-owned CloudSource:Company data"Digital China"PolicyThe Central Government and State Council announced the "Digital China"Policy toguide the overall layout and development plan on Feb 27,2023 (link).In 2021,the totalvalue of China's digital economy reached Rmb45.5tn,or 40%of 2021 China GDP perCyberspace Administration of China.According to the plan,China's government targetsto enhance the connectivity of digital infrastructure and improve the scale and quality ofdata resources by 2025;By 2035,China aims to become one of the leading digitaleconomies across a broad range of sectors.To reach the target,"Digital China"Policyhighlights the government's top priorities for digital development:(1)Infrastructure to support digital development:Accelerating the constructionof 5G network and GbE(Gigabit Ethernet),and scaling the deployment of IPv6 andBeidou Navigation Satellite System to support the digital economy from aninfrastructure perspective.(2)Comprehensive database with focus on data security:Defining National DataManagement Standard and data value,while building publichealthcare/technology/education database to better leverage the available data.Theplan also emphasizes regulation and warning mechanism to ensure data security.(3)Enhanced E-government solution:Digitalized solution with offline/online dataintegration,collaboration across different departments,and E-governmentapplications to improve efficiency.Implication for our coverageBased on the "Digital China"Policy,the E-government,infrastructure,big data and datasecurity sectors are mentioned in the plan,and we believe those companies (Exhibit 3)2Goldman SachsGCTechwith higher revenue exposure to the above sectors or government/SOE(State-ownedEnterprises)would be earlier beneficiaries,as the government plans to allocate moreinvestment and talent resources to these areas.Exhibit 3:Our software coverage ToG/To B/ToC revenue exposureTickerRevenue exposure (2022)mpanyRatingToGToBTo SOEKey industriesYonyouBuy9%91%0%Kingdee0288HK0%100%XGlodon0%100%0%ZWSOFTBuy0%100%0%YJK300935.SZ0%100%300253SZ90%0%MYC0909HK0%100%2013HKBuy0%100%X%TuyaTUYATimothy Zhao0%100%中0%0%100%0%HundsunBuyShuo Yang0%100%0%Buy0%100%Smartphone 33%).Auto (33%).loT (32%)002920.SZBuy0%100%X0%Verena Jeng0%100%0%EmpyreanBuy100%X0%0%100%0%Buy5%95%0%80%20%0%2%53%18%0354HKBuy90%0%Huawei (50%).other IT services (28%)BuyVerena Jeng10%90%X0%40%30%30%300271SZVerena Jeng87%%Legal tech (51%),E-educason (36%)HrainBuy0%100%0%Yonyou(600588.SS,Buy):Yonyou is the local ERP vendor with high revenue exposureto government,large-sized SOE and enterprise customers,offering its YonBIP cloudplatform with big data analysis and Al technology.Key related functions include:(1)customized functions designed for state-owned Cloud for real-time monitoring;(2)industrial data analysis and prediction for manufacturing customers;and (3)healthcaresolution to integrate finance,HR and supply chain data for hospital digitalization.Weexpect Yonyou's large/mid enterprise solution to grow at 59%/41%YoY in 2023/24E.Venustech(002439.SZ,Buy,on CL):The company offers data security governance,infrastructure mgmt.platform,database auditing and protection platform,focusing onsecurity of both data operation and transactions with several new project wins in thepast few months.We model Venustech new business(cloud security,industrial security,services)to grow at 29%/29%YoY in 2023/24E,supported by growing new demand oncloud and data security,and a strategic partnership with China Mobile since Sep 2022on co-development and new projects from regional-based subsidiaries.iFlytek (002230.SZ,Neutral):iFlytek leverages Al technology to process and analyzedata and applies it to education(personalized study brochure,Al assistant),smart city,and medical(smart medical assistant)applications.We expect the company's smarteducation/medical revenues to grow at 15%/41%YoY in 2023E.iFlytek also seesgrowing demand from the govemment to build an integrated data platform,which helpslower application development cost by 30%.The company recently won a Rmb550mintegrated data platform project from the Anhui govemment and targets to expand toother regions in 2023.3