Introduction to this report:
Overall demand from downstream customers in the domestic market was weak, and performance fell short of expectations. Products such as switches, wireless networks, and cloud desktops have a stable market position, and are actively expanding the operator data center market and overseas business markets.
Key points of investment:
Lower profit forecasts to maintain target prices and holdings growth ratings. Considering the impact of weak downstream demand, the net profit forecast for 2023-2024 was lowered to 5.25/7.80 million yuan (previous value: 861/10.74) million yuan, an additional 2025 forecast was 997 million yuan, and the corresponding EPS was 0.88/1.31/1.68 yuan. Considering the gradual improvement of the company's full-link product system and leading position in the cloud network, referring to the valuations of comparable companies in the same industry, maintain a target price of 25.76 yuan and increase in ratings.
Overall demand from downstream customers in the domestic market was weak, and performance fell short of expectations. In the first half of the year, the company achieved revenue of 69.70 yuan, +4.09% year-on-year, net profit of 198 million yuan, or -36.37%, net profit after deducting 138 million yuan, -51.94% year-on-year; gross margin increased 1.28 pct year on year, and net interest rate fell 2.28 pct year on year. By sector, enterprise-grade network devices and network terminals increased year on year, while communication products declined slightly.
The AI wave has brought new development opportunities to the company, and R&D investment continues to increase. The subsidiary Ruijie Network had revenue of 4.831 billion yuan in the first half of the year, +6.82% year on year. Management expenses and R&D investment increased, and net profit to the parent company was 140 million yuan, or -46.39% year on year. In the data center field, we launched an AI Fabric intelligent computing center network solution that includes a variety of core products.
Products such as switches, wireless networks, and cloud desktops have a stable market position, and are actively expanding the operator data center market and overseas business markets. According to IDC data 2023Q1, the company's share of data center switches in China increased from 17.3% last year to 24.2%. By improving compliance systems, increasing capital investment, and strengthening cooperation with local channel partners, etc., the scope of overseas business has been expanded to more than 70 countries and regions, including Asia, Europe, America, and Africa.
Risk warning: The risk of increased competition, and cloud vendors' or operators' capital expenses fall short of expectations.