Token monetization and expansion into high-barrier industries support Xunce's growth; Deutsche Bank maintains Buy

Overview

The report focuses on Xunce's 1H26 results, commercialization of its Token business, its domestic enterprise AI infrastructure platform, and cross-industry expansion. Deutsche Bank believes Token revenue, improved customer monetization, and replication across high-barrier industries are driving the company from rapid revenue growth toward profitability, and maintains its positive view, Buy rating, and HKD351.00 target price.

Core views

Xunce's 1H26 results were in line with Deutsche Bank's expectations. The company generated revenue of RMB967 million, up 389% YoY; adjusted net profit was RMB67 million, compared with a loss of RMB105 million in 1H25, and the adjusted net margin reached 6.9%. Growth was primarily driven by enterprise AI infrastructure deployments, replication of solutions across more industries, and Token commercialization. Gross margin declined from 66.7% in 1H25 to 60.1%, which the report attributes to changes in the product revenue mix and the impact of entering new industries. The revenue mix has moved markedly away from concentrated dependence on the asset management industry. The asset management revenue contribution declined from 47.3% in 1H25 to 12.4%, while the contribution from diversified industries increased from 52.7% to 87.6%. Transaction-based professional technology products remained the core revenue source, generating RMB875.3 million in 1H26, up 478.6% YoY; revenue from subscription-based professional technology products was RMB91.7 million, up 96.9% YoY. Customer monetization also strengthened, with ARPU increasing 240% YoY to RMB5.56 million and customer retention remaining above 90%, indicating that growth came not only from broader industry coverage but also from higher contributions per customer. Greater scale is beginning to translate into operating leverage. Sales, R&D, and administrative expenses as a percentage of revenue declined from 110.1% in 1H25 to 55.3%, while revenue per employee increased 379% YoY. These changes corroborate the return to positive adjusted profit: as revenue expanded rapidly, expenses grew more slowly than revenue, allowing fixed investments to be spread across a larger business scale. However, the new product mix and expansion into new industries placed temporary pressure on gross margin, and further profitability improvement will still require balancing scale expansion against delivery costs. The Token business is the new growth engine emphasized in the report, contributing approximately 11% of total revenue in 1H26. TokenOS converts enterprise data from different internal sources into standardized, measurable, and priceable real-time "scenario Tokens." Its end-to-end architecture covers data governance and model invocation, enabling AI models and agents to use enterprise data directly. The report believes this mechanism supports the establishment of scenario Token factories across different industries and enhances the commercial value of data. Token model deployments in 1H26 already covered high-value scenarios such as biopharmaceuticals, energy dispatching, and industrial quality inspection. TokenCloud integrates computing power scheduling, data tokenization, and the training, tuning, and deployment of enterprise small models on a single platform. The company is collaborating with domestic hardware vendors such as MetaX, Iluvatar CoreX, and Biren Technology to broaden hardware compatibility and strengthen its product value for enterprise customers seeking domestic AI infrastructure alternatives. TokenOS focuses on Token production, governance, and auditing, while TokenCloud focuses on computing power, training, and inference deployment; together, they form the infrastructure of the Token business. The company plans to launch a global Token trading platform in 2H26, and its future monetization model may gradually shift from Token invocation fees to platform ecosystem fees. Commercialization continues to expand into high-barrier industries. In 1H26, the company's AI data infrastructure and solutions covered 11 industries, with intelligent vehicles and the low-altitude economy newly added; existing coverage also included finance, telecommunications, electric power, energy, urban operations, high-end manufacturing, biopharmaceuticals, robot training platforms, and commercial spaceflight. Management plans to enter two to three new high-barrier industries each year, with a long-term goal of serving more than 20 vertical industries. Deutsche Bank believes cross-industry replication can expand the potential customer base and reduce dependence on any single industry. Overseas revenue grew 264% YoY in 1H26, and the company has established subsidiaries in Japan and Singapore, although its near-term focus remains TokenOS product validation, regulatory adaptation, and the deployment of benchmark projects rather than pursuing short-term overseas revenue scale. Deutsche Bank expects 2H26 growth momentum to continue to be driven by demand for high-value data and broader adoption across vertical industries, and broadly maintains its earnings forecasts. The model forecasts revenue of RMB2,426 million, RMB4,315 million, and RMB6,945 million in 2026E, 2027E, and 2028E, respectively; DB net profit of RMB168 million, RMB803 million, and RMB1,698 million; and EPS of RMB0.52, RMB2.49, and RMB5.26. Free cash flow over the same period is forecast at RMB-85 million, RMB533 million, and RMB1,503 million, respectively, indicating that the model expects cash flow to turn significantly positive from 2027 onward. The valuation uses a DCF methodology with a WACC of 7.8%, including assumptions of a 1.8% risk-free rate and a 6% equity risk premium, and a terminal growth rate of 3%. The report maintains its 12-month target price of HKD351.00 and Buy rating; the share price was HKD122.50 as of August 24, 2026. Forecast P/E declines from 201.6x in 2026E to 42.2x in 2027E and 20.0x in 2028E, while EV/EBITDA declines from 159.3x to 27.8x and 12.3x. The valuation thesis depends on revenue expansion, profit realization, and free cash flow improvement materializing as expected. The report explicitly highlights risks related to the macroeconomy, development of China's real-time data infrastructure and analytics market, competition, strategic execution, technological changes, customer relationships, and regulation.

Analysis framework

Deutsche Bank first assesses whether 1H26 revenue, profit margins, and gross margin were in line with expectations, then evaluates growth quality and operating leverage through the revenue mix, ARPU, customer retention, expense ratios, and revenue per employee. It subsequently analyzes the products and monetization mechanisms of TokenOS, TokenCloud, and the Token trading platform, and assesses growth sustainability based on industry coverage, overseas deployments, and management's expansion targets. Finally, it incorporates earnings and cash flow forecasts into a DCF valuation to derive the target price and risk assessment.

Methodology notes

• Valuation MethodDCF Discounted Cash Flow

  DCF Valuation

  The report discounts the company's future cash flows to present value and derives a target price of HKD351.00 using a WACC of 7.8% and a terminal growth rate of 3%; the WACC assumptions include a 1.8% risk-free rate and a 6% equity risk premium.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Operating Leverage Analysis

  Based on the decline in the combined sales, R&D, and administrative expense ratio from 110.1% to 55.3%, the 379% YoY increase in revenue per employee, and the return to positive adjusted profit, the report concludes that revenue scale expansion is diluting expenses and releasing profit.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of Customer Base Stability and Per-Customer Monetization

  By combining a customer retention rate above 90%, a 240% YoY increase in ARPU, and the revenue growth rates of transaction-based and subscription-based products, the report distinguishes the effects of customer base stability, higher per-customer contributions, and product mix changes on revenue growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Xunce（03317.HK）

  The report believes the company benefits from demand for enterprise AI data infrastructure, Token monetization, and expansion into high-barrier industries, and maintains a Buy rating.

  Strengths

  Real-time data infrastructure capabilities, an integrated TokenOS and TokenCloud strategy, customer retention above 90%, rapid ARPU growth, and continuously expanding industry coverage.

  Weaknesses

  Product mix changes and expansion into new industries caused 1H26 gross margin to decline from 66.7% to 60.1%; the near-term focus of the overseas business remains product validation, regulatory adaptation, and benchmark deployments.

  Comparison

  The report does not provide a direct comparison with specific peer companies.

  Risks

  Macroeconomic conditions, development of the real-time data infrastructure market, competition, strategic execution, technological changes, customer relationships, and regulatory risks.

Key data

• 1H26 RevenueRMB967mnUp 389% YoY
• 1H26 Adjusted Net ProfitRMB67.0mnCompared with a loss of RMB105.0mn in 1H25
• 1H26 Adjusted Net Margin6.9%Scale expansion drove a return to profitability
• 1H26 Gross Margin60.1%66.7% in 1H25; the decline was due to product mix changes and expansion into new industries
• ARPURMB5.56mnUp 240% YoY
• Customer Retention RateAbove 90%The customer base remained stable
• Token Business Revenue ContributionApproximately 11%Share of total 1H26 revenue
• Transaction-Based Professional Technology Product RevenueRMB875.3mnUp 478.6% YoY
• Subscription-Based Professional Technology Product RevenueRMB91.7mnUp 96.9% YoY
• Revenue Contribution from Diversified Industries87.6%52.7% in 1H25
• Sales, R&D, and Administrative Expense Ratio55.3%110.1% in 1H25
• Revenue per Employee Growth+379% YoYReflects improved operating efficiency
• Overseas Revenue Growth+264% YoY1H26 performance; subsidiaries have been established in Japan and Singapore
• Industry Coverage11 industriesThe long-term target is more than 20 vertical industries
• 2026E/2027E/2028E RevenueRMB2,426mn/4,315mn/6,945mnDeutsche Bank forecasts
• 2026E/2027E/2028E DB Net ProfitRMB168mn/803mn/1,698mnDeutsche Bank forecasts
• 2026E/2027E/2028E Free Cash FlowRMB-85mn/533mn/1,503mnExpected to turn positive in 2027 and grow rapidly
• Core DCF AssumptionsWACC 7.8%; terminal growth rate 3%Risk-free rate 1.8%, equity risk premium 6%

Impact & implications

The report believes Token revenue has progressed from a product concept to an actual revenue contribution, and that the combination of TokenOS and TokenCloud could connect enterprise data governance, model invocation, and domestic computing power deployment into a unified commercial platform. Broader industry coverage, higher ARPU, and lower expense ratios collectively support profit realization, but achievement of the value implied by the target price depends on the Token platform launch, replication across vertical industries, overseas regulatory validation, and realization of forecast cash flows.

Risks

• Macroeconomic changes may affect enterprise customer demand and project deployments.
• Development of China's real-time data infrastructure and analytics market may fall short of expectations.
• Intensifying market competition may affect project acquisition, pricing, or profitability.
• The company's business strategy and cross-industry expansion involve execution risks.
• Rapid technological changes may weaken the competitiveness of existing products or architectures.
• Changes in customer relationships may affect retention, ARPU, and revenue growth.
• The Token business, data usage, and overseas expansion face regulatory risks.

What to watch

• Monitor whether demand for high-value data and adoption across vertical industries can sustain growth momentum in 2H26.
• Monitor the global Token trading platform planned for launch in 2H26 and whether its monetization model shifts from invocation fees to ecosystem fees.
• Monitor TokenOS's progress in product validation, regulatory adaptation, and benchmark project deployment.
• Monitor whether the company can achieve its goal of entering two to three high-barrier industries annually and covering more than 20 vertical industries over the long term.
• Monitor whether gross margin can stabilize during product mix adjustments and expansion into new industries.
• Monitor whether free cash flow can turn positive in 2027 as forecast.