Incident: The company released its annual report for 2002 and the first quarter report for 2023. In 2022, the company achieved operating income of 4.742 billion yuan, YoY +10.35%; net profit of 367 million yuan, YoY -28.75%; gross profit margin of 27.55%, a year-on-year decrease of 3.04 pct.

Comment: Performance was marginally positive in the first quarter of '23, and R&D investment continued to increase. Looking at a single quarter, 2022Q4 achieved operating income of 997 million yuan, YoY -38.11%; net profit of -32 million yuan, YoY -120.88%; gross profit margin was 30.66%, an increase of 4.04pct over the previous year; 2022Q4's losses were mainly due to a year-on-year decline in revenue and a slight year-on-year increase in expenses in a single quarter. The 2023Q1 company achieved operating income of 1,393 million yuan in a single quarter, YoY +3.93%; the net profit of the mother was 108 million yuan, YoY +9.91%; and the gross profit margin was 22.25%, an increase of 1.07pct over the previous year. There was a marked marginal recovery in the performance of 2023Q1 companies, and the profit side improved month-on-month from losses in Q4 in 2022 to the best Q1 level in history. On the cost side, the company's sales expenses in 2022 were 236 million yuan, YoY -5.14%; management expenses were 101 million yuan, YoY +0.50%; financial expenses were 185 million yuan, YoY +11.68%; R&D expenses were 205 million yuan, YoY +40.46%, mainly due to increased investment in R&D of energy storage and charging piles.

The rapid growth in data traffic has brought about demand for liquid cooling, and the company's data center business prospects are broad. The continuous increase in demand for computing power from AI and cloud computing is compounded by the continuous increase in the size of the data center market due to the construction of China's Eastern and Western Computing Project. According to data from the China Academy of Information and Communications Technology, China's data center market will reach 15.02 billion yuan in 2021, with YoY +28.50%. Under space and environmental restrictions, the power density of a single cabinet has increased rapidly, and liquid cooling may replace air cooling as the mainstream cooling technology, ushering in rapid development. According to data from the SEDI Research Institute, China's liquid-cooled data center market will increase from 35.7 billion yuan in 2020 to 128.3 billion yuan in 2025, with a compound annual growth rate of 29%. During the reporting period, the company's industry-first mobile submerged liquid-cooled box-type energy storage system successfully passed verification, and the prospects for data center business are broad.

Construction in various fields has contributed to strong demand for high-end power supplies. Processes such as information infrastructure construction, 5G data center and base station construction, and digital grid construction have all led to an increase in demand for high-end power supplies. The reliability, consistency and versatility of the company's high-end power products lead the industry, and the momentum for future growth is clear.

Profit forecast: Eishite is an industry-leading provider of smart power supplies, data centers and new energy solutions. We are optimistic that the company will grow rapidly with its leading edge in core technology. The company's revenue for 2023-2025 is estimated to be 54.33/62.33/7.062 billion yuan, and the net profit returned to the mother is 654/738/831 million yuan, corresponding to EPS 0.28/0.32/0.36 yuan. It was covered for the first time, giving it an “increase in holdings” rating.

Risk warning: industry competition intensifies, the pace of downstream demand falls short of expectations, R&D risks.