Incidents:
On August 25, the company released its semi-annual report for 2023. The company achieved revenue of 4.831 billion yuan in 2023, an increase of 6.82% over the previous year; realized net profit of 140 million yuan, a year-on-year decrease of 46.39%; realized net profit of 119 million yuan after deducting non-return income of 119 million yuan, a year-on-year decrease of 49.92%.
Revenue and gross margin are steady, moderate and positive, and increased R&D investment is putting pressure on short-term profits.
The company's revenue increased in the first half of the year. Among them, revenue from network devices/cloud desktop solutions/network security products increased 9.02%/11.78%/1.26% year on year, corresponding gross margin increased 1.04/9.07/1.83 pcts year on year, comprehensive gross margin was 39.33%, up 2.39 pcts year on year, and revenue and gross margin were steady, moderate and positive. In the first half of the year, the company's R&D investment increased by 211 million yuan compared to the same period last year. Affected by factors such as the expansion of the operating scale, the increase in labor management costs, and the increase in R&D investment, the company's net profit was under pressure in the short term.
The switch business has a leading share in the domestic market and continues to expand overseas business.
According to IDC statistics, in the first quarter of 2023, the company's data center switch ranked second in the market share of the Chinese Internet industry and third in the operator market share. The company's Ethernet switch ranked first in the market share of the general education industry and the wholesale/retail industry, respectively.
The company continued to strengthen overseas market expansion. In the first half of the year, it achieved overseas sales revenue of 488 million yuan, an increase of 16.36% over the previous year, and expanded its business scope to more than 70 countries and regions including Asia, Europe, America, and Africa.
Continued investment in product innovation for AI intelligent computing is expected to fully benefit domestic AI demand:
In the first half of 2023, the company's R&D expenses rate reached 19.57%, and R&D personnel accounted for 56.18%. In response to AI computing power requirements, the company has launched a series of high-performance computing power carrying and access network product solutions, which can be applied to 10,000 card AI-GPU cluster networks. Aiming at building a data center network for next-generation AI cloud services, the company launched an AI Fabric intelligent computing center network solution that includes a variety of core products, which can improve bandwidth utilization, reduce dynamic latency, and improve transmission reliability. As a mainstream supplier of data center switches for leading Internet companies such as Alibaba, Tencent, and ByteDance, the company is expected to fully benefit from customers' AI data center construction needs.
Investment advice:
As a leading domestic data center switch manufacturer, the company is expected to fully benefit from the data center construction needs brought about by AI. We expect the company's revenue from 2023 to 2025 to be 139.3 billion, 167.3 billion yuan, and 19.40 billion yuan, respectively, and net profit of 48,750 million yuan, and 14.01 billion yuan respectively. In line with the current boom in the industry, 70 times PE in 2023, corresponding to a target price of 58.80 yuan, was given an investment rating of Buy-A.
Risk warning: R&D progress falls short of expectations, AI demand falls short of expectations, risk of falling gross margin, risk of falling market share