Incident: The company released results for the third fiscal quarter of the 2021/2022 fiscal year, achieving revenue of 128.7 billion yuan in a single quarter, an increase of 16% over the previous year; it achieved net profit of 4.09 billion yuan in the single quarter, an increase of 62% over the previous year, with both revenue and profit reaching record highs; R&D investment in a single quarter was 3.51 billion yuan, an increase of nearly 40% over the previous year; net cash flow was 5.2 billion yuan, the first correction in five years. Due to the rise in the average PC sales price, the gross margin for the third quarter alone increased 0.5% to 16.7% year on year, and the sales expense rate/management expense rate/R&D expense ratio for the third quarter alone was 5.03%/3.62%/2.73% respectively, up 0.02% /down 1.36%/0.42%, respectively.
The market space for “new IT” solutions is broad, and services and solutions will build the company's core growth point in the future. According to Gartner research, global IT spending is expected to reach $4.5 trillion in 2022, an increase of 5.5% over the previous year; of this, IT service spending will reach $1.3 trillion, and enterprise-grade services will maintain a high growth trend. The Corporate Services Business Group (SSG) maintained high revenue growth while its profitability continued to increase. It achieved revenue of 9.58 billion yuan in a single quarter, an increase of 25% over the previous year, accounting for 7.12% of total revenue; operating profit was 2.1 billion yuan, an increase of 44% over the previous year. Among them, support services grew 21%, operation and maintenance services grew 50%, and solutions and services grew 23%. Continuing to invest in building TruScale's “Everything Works” product portfolio, our self-developed solutions have received large orders.
The Infrastructure Solution Business Group (ISG) turned a loss into a profit and actively deployed “count east to west”.
ICT infrastructure continues to upgrade, and IDC predicts that the global ICT infrastructure market will reach $250 billion by 2025, of which the edge infrastructure market will exceed $41 billion.
The company achieved revenue of 12.3 billion yuan in ISG in the third quarter alone, an increase of 19% over the previous year, accounting for 9.15% of total revenue; operating profit was 108 million yuan, achieving the first profit since acquiring IBM's x86 business in 2014. Among them, cloud IT infrastructure revenue increased 38% year over year, and enterprise IT infrastructure business increased 7% year over year. In terms of the “Eastern Digital and Western Computing” project layout, the company has now initially completed the deployment of data center resources in western regions such as Ningxia, Gansu, and Inner Mongolia through cooperation with domestic data center companies, while actively deploying Beijing, Tianjin, Shanghai, Jiangsu, Zhuhai, Shenzhen and other regions.
Digital demand and changes in office models in the post-pandemic era have led to a continuous increase in the profitability of the Smart Device Business Group (IDG). According to the IDC report, the total number of global PC market shipments reached 348.8 million units in 2021, an increase of 14.8% over the previous year, the highest level since 2012. The company shipped 81.93 million units throughout the year, once again winning the global PC market with a 23.5% market share. IDG's business achieved revenue of 112.6 billion yuan in a single quarter, up 16% year on year, accounting for 83.73% of total revenue; operating profit was 8.64 billion yuan, up 21% year on year. Among them, in the personal computer sector, high-end segment products achieved rapid growth, with workstations growing 40% year over year and game books growing 27% year over year; revenue from the non-personal computer sector increased 64.2% year over year; and smartphone business revenue increased 46% year over year, achieving rapid growth. Also, new products such as the ThinkBook Plus third-generation notebook with two screens, the ThinkPad Z series, and the Savior and Yoga series products were released in January '22.
Investment advice: In the long run, the software and service business is expected to improve the anti-cyclical nature of the company's performance, and all lines of the company's business will continue to maintain a good development trend. The company's performance continues to exceed our expectations, and we expect the company's EPS to be $0.15 and $0.18 respectively in the 2021-2022 fiscal year, maintaining the buying rating.
Risk warning: PC market competition intensifies; mobile phone business progress falls short of expectations; solution service implementation falls short of expectations