Which HarmonyOS concept stock is the strongest?

10/24 2024 345

Since October, the A-share market, which initially showed signs of a bull market, has experienced a correction, and differentiation has become the main theme after the general rise.

Undoubtedly, the most prominent feature in this differentiated market is technology stocks at the forefront, among which Huawei's highly influential concept has emerged as the leading force, with concept indices such as Huawei Euler, Huawei Hisilicon, Huawei Kunpeng, Huawei Ascend, and Huawei HarmonyOS all posting gains exceeding 15%.

The significant reason behind the heated speculation around Huawei concepts is that Huawei has a series of major events planned for the fourth quarter, with the most anticipated being the Native HarmonyOS Night and Huawei's Full-Scenario New Product Launch Conference on October 22.

▲HarmonyOS Concept Trend Chart, Source: iFinD

Stimulated by the news, HarmonyOS concepts set a new historical high the day before the conference.

[Breaking the Status Quo and Achieving Excellence]

The popularity of HarmonyOS actually began at the start of the year. Born out of the need for technological self-reliance, Huawei's HarmonyOS has exploded with incredible energy after five years of development.

In the first half of 2024, HarmonyOS's market share in China increased to 17.2%, a year-on-year growth of 66.7%, surpassing iOS and becoming the second-largest mobile operating system in China, trailing only Android and ranking third globally.

2024 also marks the beginning of the Native HarmonyOS ecosystem. On October 8, Native HarmonyOS HarmonyOS NEXT officially began its public beta testing for users. From then on, HarmonyOS ceased being compatible with Android and transformed into a fully independent operating system, achieving autonomy and control over everything from the operating system kernel and file system to programming languages, compilers, and programming frameworks.

HarmonyOS's rise has not been easy, as the operating system industry is typically a winner-takes-all market. Over the past decade in the mobile internet era, Apple's iOS and Google's Android have dominated, leaving little room for other operating systems.

Other giants are not without ambitions to challenge Android and iOS. Microsoft, Samsung, and Nokia have all launched their own operating systems, but ultimately failed, primarily due to:

Lack of technical innovation, insufficient security, and a thin ecosystem.

Huawei's HarmonyOS stands out largely because it surpasses competitors in both technology and ecosystem development. HarmonyOS NEXT boasts three core strengths: native intelligence, native security, and full-scenario capabilities.

In terms of technological innovation, HarmonyOS employs a microkernel architecture, offering exceptional intelligence and security. For instance, when a security issue arises in an application, the microkernel architecture effectively isolates system services from applications, mitigating potential damage to the entire system.

Regarding ecosystem development, HarmonyOS bypassed mobile internet from the outset, aiming for full-scenario Internet of Everything. It carved out a more open path beyond Android and iOS.

HarmonyOS breaks the limitation of previous operating systems that could only run on a single device. It is the only operating system that can be installed on virtually any device, supporting not only smartphones, tablets, wearable devices, smart screens, and automotive systems but also smoke detectors, lights, cameras, access control systems, door locks, and various daily use devices.

This means that all devices can communicate seamlessly through HarmonyOS, simplifying interactions between them.

Precisely because of its forward-thinking shift and open-source approach, HarmonyOS ultimately provides full-scenario online services such as mobile office, sports health, social communication, and media entertainment. Compared to iOS and Android, it has an advantage in full-scenario Internet of Everything. As a result, OpenHarmony attracts and brings together a vast ecosystem of partners.

According to data from Huawei's Developer Conference on June 21, 2024, the number of HarmonyOS ecosystem devices surpassed 900 million, with 2.54 million developers engaged in HarmonyOS ecosystem development. The official website of the Developer Alliance had 4.5 million monthly active users, and developer service calls reached 82.7 billion per month. All top 5000 apps, which account for 99.9% of consumer time, have initiated native HarmonyOS adaptation, with at least 1500 apps successfully launched.

At last night's launch event (October 22), Yu Chengdong announced the latest progress in the HarmonyOS ecosystem:

Currently, the number of HarmonyOS ecosystem devices has surpassed 1 billion, with 6.75 million registered developers and over 15,000 native HarmonyOS apps and meta-services available, marking significant growth from four months ago.

Supported by HarmonyOS, Huawei's flagship smartphone shipments increased by 71% year-on-year. In the first half of the year, Huawei led global shipments of wearable devices on the wrist. Huawei Health App had over 100 million monthly active users globally, and its general office apps covered more than 38 million enterprises nationwide, achieving a historic breakthrough in ecosystem expansion.

[Which HarmonyOS Concept Stock is the Strongest?]

Any super-species brings tremendous opportunities to the industry chain. The rapid development of Apple, Tesla, and NVIDIA has fueled a surge in A-share companies. Similarly, HarmonyOS undoubtedly presents valuable empowerment and development opportunities for its partners.

Within the HarmonyOS industry chain, upstream comprises hardware devices such as communication modules and controllers, midstream focuses on various software developments, and downstream encompasses various ecological applications. In terms of certainty, performance elasticity, and payoff timelines, midstream software development is likely the most beneficial sector.

Over 200 A-share listed companies are associated with HarmonyOS. The top-performing HarmonyOS concept stocks this year include Changshan Beiming, HopeRun, and iSoftStone, all primarily from the midstream software development sector. Although these companies have not fully disclosed their collaboration details with HarmonyOS or provided revenue data from HarmonyOS or Huawei, investors perceive them as the most authentic and highly beneficial HarmonyOS concept stocks.

All three companies have collaborated with Huawei for over a decade, considered significant strategic partners. iSoftStone, in particular, is Huawei's largest IT outsourcing service provider, enjoying a deeper partnership.

In 2023, iSoftStone's revenue from Huawei accounted for nearly 40% of its total, significantly higher than Changshan Beiming and HopeRun's largest customers, making it one of the most closely tied A-share listed companies to Huawei. This explains why iSoftStone's revenue and market value are significantly higher than the other two companies.

Leveraging the trust built through years of collaboration with Huawei, these three companies have played pivotal roles in HarmonyOS's development.

Apart from Huawei, iSoftStone, HopeRun, and Changshan Beiming are significant contributors to the main codebase of open-source HarmonyOS. In terms of code volume, iSoftStone ranks second, followed by HopeRun and Changshan Beiming, with Shenkaihong topping the list (not listed on the A-share market).

Notably, iSoftStone and HopeRun have successfully collaborated with Huawei's enterprise-focused operating system EulerOS, further strengthening their ties with HarmonyOS. Both companies were selected as the first four co-construction units of open-source HarmonyOS, alongside Shenkaihong and Jiulian Kaihong. Changshan Beiming was not included.

As one of HarmonyOS's most crucial strategic partners, iSoftStone pioneered interoperability with HarmonyOS in its product ecosystem, creating demonstrative cases of industrial HarmonyOS applications across multiple projects. Meanwhile, in December 2021, HopeRun launched HiHopeOS, China's first full-scenario smart IoT operating system based on OpenHarmony. Its subsidiary Runkaihong even received strategic investment from Huawei, making it one of the few software companies directly owned by Huawei.

To evaluate a software company's true strength and future potential, R&D investment and R&D intensity (as a percentage of revenue) are essential metrics.

In 2023, iSoftStone invested 957 million yuan in R&D, with an R&D intensity exceeding 5%. HopeRun invested 279 million yuan, with an R&D intensity approaching 10%. In contrast, Changshan Beiming invested only 264 million yuan, less than 3% of its 9 billion yuan in revenue.

Historically, Changshan Beiming has lagged behind the other two companies in performance, with its net profit after deducting non-recurring gains and losses having been in the red for eight consecutive years. In the first half of this year, the company's net profit after deducting non-recurring gains and losses continued to be in the red at 320 million yuan, almost doubling year-on-year and setting a record for the largest loss in nearly 20 years. In contrast, HopeRun, with the smallest revenue but the highest R&D intensity, demonstrated the most stable profitability.

Short-term performance in the capital market is often irrational. Due to its relatively small market capitalization, Changshan Beiming's share price has surged nearly threefold this year, making it the best-performing stock among the three. Particularly in the last two months, its share price has skyrocketed nearly fivefold, making it the most dazzling HarmonyOS concept stock.

However, in the long run, Changshan Beiming, with its unimpressive fundamentals, may struggle to remain competitive in the HarmonyOS industry chain. iSoftStone and HopeRun, with stronger R&D capabilities, closer ties to HarmonyOS, and more reliable past performance, are likely to be the most beneficial HarmonyOS concept stocks in the A-share market.

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