Events:
The company released its quarterly report of 2022, with operating income of 2.95 billion yuan, an increase of 53.72% over the same period last year, net profit of 120 million yuan, an increase of 202.88% over the same period last year, and 99.4658 million yuan of non-net profit, an increase of 462.21% over the same period last year.
Our comments are as follows:
1. Revenue and profit reached an all-time high in the first quarter, and the increase in the share of network products continued to drive the growth of revenue and profit. The company's income and profit showed obvious seasonal fluctuations. The first quarter was the weak season for the annual performance. 22Q1 achieved an income of 2.95 billion yuan and a net profit of 120 million yuan, both of which reached a record high in the first quarter. The main reason is that the company continues to maintain a sound operation, and sales orders and shipments increase more than the same period last year. We expect the share of Ruijie network data center switches to maintain the growth trend. Customers in the Internet of things and operator industries continue to make breakthroughs to promote the rapid growth of the company's data center switch revenue, and other business lines are expected to grow steadily. We believe that as the demand of cloud computing customers continues to release and the company's market share in operators increases in the future, network products are expected to maintain a rapid growth trend in the future.
2. Cost control is effective, and profitability is expected to continue to improve.
On the cost side, 22Q1 achieved a gross profit margin of 34.20%, an increase in 0.99pp compared to 21Q1 (33.21%) and 0.1pp over the whole of 21 years. On the expense side, 22Q1 achieved a net interest rate of 6.30%, a significant increase in 4.33pp compared with the same period last year (1.97%), mainly due to the scale effect of the company. The rate of sales expenses decreased from 16.75% to 13.14%, and the rate of management expenses decreased from 4.56% to 3.84%. We believe that the company's cost control is effective, and profitability is expected to continue to improve under the scale effect.
3. Strong driving force for future growth, continue to pay attention to cloud computing / ICT main products and look forward to the future:
1) the growth of domestic data traffic and the demand of cloud computing development drive the sustained and rapid growth of the company's data center switch business; according to IDC, the global data volume will grow to 175ZB by 2025, and we believe that the domestic digital economy and the policy of calculating the number of the east and the west are also expected to stimulate and drive the demand for network equipment; 2) the localization trend of Xinchuang drives the purchasing demand of the company's network equipment, cloud desktops and other products. According to the data of forward-looking Industrial Research Institute, the localization rate of Xinchuang in 2020 is higher than that in 2019, and the trend of domestic substitution continues. We believe that the localization development of Xinchuang is expected to drive the procurement demand of the company's related products.
3) the penetration of domestic cloud desktops is expected to accelerate. IDC forecasts a compound growth rate of 7.2% and 8.2% for the market size of China's lean airliner and desktop cloud terminal VDI in 2021-2025, respectively. The market share of the company's desktop cloud terminal VDI is the first in China (20.3%), and the market share of thin clients is the first in the Asia-Pacific region (34.8%). As a leader in the field, we believe that the company may benefit deeply from increased desktop cloud penetration.
Profit forecast and investment advice:
On the whole, the company belongs to cloud computing + Xinchuang with strong ICT competitiveness on cloud management, and will benefit from traffic growth, white-box trend and domestic development of Xinchuang in the long run. The company's 22-24 net profit is expected to be 700 million yuan, 850 million yuan and 1 billion yuan, corresponding to the 22-year pe of 18x, reiterating the "overweight" rating.
Risk tips: cloud desktop penetration is not as fast as expected, network traffic growth is not as expected, industry competition affects profitability, etc.