[This Week's Gwan.Jong] Duzon Bizon, 'AI Software' Even in Directors... "AI Growth Fully Launched"

AI Software Blooming Next Year
Expecting Multiple Expansions with B2B AI Services
Attempting Sales Diversification by Pioneering Japanese Market

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The 'money move' of global investment funds flowing into the U.S. stock market is accelerating. On the 11th (local time), the Nasdaq index, composed of companies leading global technological innovation, broke through the 20,000-point mark, making new history. At the center of this is artificial intelligence (AI) software. In the first half of this year, AI hardware and semiconductors, represented by Nvidia, led a record rally, followed in the second half by AI software companies such as Salesforce and ServiceNow. At one point, there were concerns in the market that monetization through AI might be a distant future story, but with the emergence of high-performance inference models like OpenAI's o1 and the visible growth of AI agents, the industry is evaluating next year as the inaugural year for services derived from AI.

As AI services are about to blossom in earnest, a company attracting attention in the domestic stock market is Duzon Bizon, a specialist in enterprise resource planning (ERP) software development. So far, Duzon Bizon has experienced a cycle where new sales occur and profitability improves after a period of increased investment in product development and preparation for upselling (purchase of higher-tier products). Now, the market expects Duzon Bizon to replicate the 'big cycle' it experienced during the cloud transition phase in 2019 through the full-scale commercialization of AI sales.

Attention to Multiple Expansion of B2B AI Software Companies in Bubble Market Emergence

In the securities industry, there is speculation that if an AI narrative leads domestic and international stock markets and a bubble forms, the protagonists could be companies related to AI software. KB Securities researcher Eun-taek Lee said, "Until the first half of next year, a bubble market may intervene before a reverse financial market comes. During such a period, when large-cap stocks like semiconductors are not doing well and the overall market is not strong, there are opportunities in small and mid-cap individual stocks." He pointed out, "For example, during the 2021 bubble market, the KOSPI barely rose, but small and mid-cap growth stocks like the metaverse theme rallied."

Lee said that if a bubble market comes, investors should pay attention to companies expected to see valuation expansion, especially those connected to AI application fields. He said, "Similar to the dot-com bubble, valuation expansion is possible in software-related AI companies. However, it is not expected that these companies' profits will actually surge in such a bubble market. The belief that earnings could soar, the market's dreams and hopes, can drive valuation expansion." He added, "Among AI software, B2B (business-to-business) is preferred over B2C (business-to-consumer). As seen in the ChatGPT case, users must ask AI precise questions to get good answers. It seems more time is needed before the general public can universally access AI."

Among domestic AI software companies targeting B2B, Duzon Bizon is receiving attention. Mirae Asset Securities researcher Sujin Kim said, "Domestic software companies are launching generative AI solutions. If this year was the time for sales and marketing after launch, next year will be when direct results appear. The current leader is Duzon Bizon's ONE AI, which, after its release in June this year, succeeded in attracting 1,000 client companies by the end of October."

Kim said, "Next year, as the enterprise-targeted solutions that Duzon Bizon has prepared begin to be recognized as sales in earnest, it will leap forward as Korea's representative AI company. In the third quarter, the proportion of cloud sales increased, and by utilizing generative AI to reduce outsourcing costs, the operating profit margin on a separate basis reached 28%. If this trend continues, a full-scale stock price revaluation through margin improvement is possible." He added, "Especially as the cloud transition rate accelerates, the proportion of cloud sales in total revenue is expected to exceed 50% next year. The annual operating profit on a consolidated basis this year is expected to increase by 18.8% year-on-year to 82.1 billion KRW, and next year by 26.2% to 103.6 billion KRW, potentially exceeding market expectations."

Growth Expectations for AI-based ERP Service 'ONE AI'

There is anticipation that the ONE AI solution, which integrates the ChatGPT API (application programming interface) into ERP services to enable client companies to easily utilize generative AI technology, will drive sales growth. Hanwha Investment & Securities researcher So-hye Kim said, "Since the launch of ONE AI, active conversion among existing customers is underway. About 60% of these are existing customers using a product priced at 2 million KRW annually, but they are additionally adopting the AI product priced 50% higher at 3 million KRW annually, which is significant. Approximately 82,000 customers generating maintenance revenue remain as conversion targets." She analyzed, "Even if only 5% convert, it could contribute about 12 billion KRW in additional sales next year. Without significant additional expenses such as outsourcing or commission fees, profits could exceed 70%."

Kim explained that profitability will be maximized based on AI conversion of major clients, such as tax accounting offices. She said, "Among existing model users, tax accounting offices, expected to be the main target customers for ONE AI, usually have a heavy workload from March to May. The number of converted customers is expected to sharply increase in the first quarter of next year, the peak season. Despite almost no contribution from ONE AI in operating profit margin (OPM) in the third quarter, it rose to 28.4%, the highest in the past four years. Even in a new product expansion cycle, the cost structure has been optimized efficiently. Furthermore, if AI product sales contributions, which are currently being contracted, begin in earnest, operating leverage will be maximized," she predicted.

"Beyond Domestic Market, Diversifying Sales through Global Expansion"

There are also expectations that the company will move beyond a domestic-focused business structure and actively pursue global expansion. Duzon Bizon completed the establishment of its local subsidiary 'Xenolab' in Japan last June. The company plans to achieve results in Japan's digital transformation market, focusing on its ERP service 'OmniEsol.' OmniEsol is a core business solution platform for enterprises, including groupware, document creation, and document centralization, centered on the ERP product 'ERP10.' It consists of over 60 modules designed to meet the business needs of each company.

In particular, the company plans to localize cloud solutions in cooperation with Amazon Web Services (AWS). OmniEsol will be provided as Software as a Service (SaaS), using AWS for cloud services. AWS is regarded as the most popular public cloud in Japan and is building an extensive network.

A Duzon Bizon official said, "Japan has been a market we have continuously observed since 2005. We target a wide range of clients, from large corporate groups to public institutions and small and medium-sized enterprises. The platform to be launched has been custom-designed after researching Japan's corporate culture and peculiarities. We will provide solutions optimized for local conditions." He added, "We plan to achieve meaningful results in the Japanese market and lay the foundation for global expansion."