Main points of investment
Transform into a software and hardware integrated solution service provider, SSG into a new business growth engine.
The company began to plan in 2018, and formally established the Programme Services Business Group (SSG) in April 2021, formally transforming into an overall program service provider with a combination of software and hardware. Solution service mainly includes three types of business content: support service, operation and maintenance service and project-solution service. According to the prediction of IDC, the scale of new IT services will exceed US $1 trillion by 2025, of which the market size of equipment services is US $67 billion, which is much higher than that of pure hardware devices in terms of space and growth. The company's SSG business revenue and profit growth of 25% and 27% respectively in the mid-fiscal year 23, with a profit margin of 21.9% close to three times that of the IDG business, has become a new growth engine for the company's sustainable performance.
Cloud and digital, AI, edge computing drive, ISG target domestic server first.
The company's Infrastructure Solutions Business Group (ISG) focuses on server and storage products. According to IDC statistics and forecasts, global server sales will be $99.22 billion in 2021, an increase of 6.4% over the same period last year, and is expected to grow to $102.691 billion by 2026. Global server sales will grow at an annualized rate of 10.73% in the next five years.
Procurement by super-large cloud service providers is the main driver of growth, while traditional industries accelerate the transformation of digital intelligence, and emerging workloads such as artificial intelligence and edge computing continue to grow rapidly. The company's ISG business revenue grew by 24% to a record high of US $4.7 billion in the mid-fiscal year 2022x23, shifting its business focus to China while laying out innovative technologies such as comprehensive products and edge computing, with the goal of being number one in China's server market within five years.
IDG business is resilient, and high-end and mobile products are growing waiting for PC to bottom out and pick up.
The company's smart device business group (IDG) mainly includes products such as personal computers, tablets, smartphones and smart devices. According to IDC data, global PC shipments continued to decline in 2022, falling 15.3 per cent in the second quarter and 15 per cent in the third quarter. The company's IDG revenue fell 7% year-on-year and operating profit fell 8% in the middle of fiscal year 2022, significantly better than the market level. PC's market share of 26% continues to widen the gap with its competitors, ranking first in the world, with revenue from high-end products growing by 6% and smart collaboration solutions by 50%.
Profit forecast and valuation
We forecast that the company's FY22/23 to FY24/25 will achieve operating income of US $668.50, US $691.03 and US $73.839 billion respectively, with year-on-year growth rates of-6.66%, 3.37% and 6.85% respectively, and estimated net profit of US $18.95,19.44 and 2.103 billion respectively, with year-on-year growth rates of-6.63%, 2.59% and 8.16%, respectively. It is estimated that the realization of EPS (the latest dilution) is US $0.16,0.16,17 respectively. The current share price corresponds to five times PE in 2022-2023, which is significantly lower than the average valuation of comparable companies. Cover for the first time, giving a "buy" rating.
Risk hint
The risk of market competition caused by the downstream demand of the global economic recession and the upgrading of product technology.