Benefiting from the development of the innovation industry and the increase in demand for AI computing power, the company's computing industry products are expected to continue to increase in price and volume, opening the ceiling for growth.

Industry situation: Xinchuang+AI computing power two-wheel drive, beneficial to domestic intelligent computing power vendors 1) Xinchuang industry: Xinchuang has entered a new stage of “2+8+N” comprehensive promotion. The State Assets Administration Commission requires central enterprises in China to complete the innovation transformation of the information technology system in 2027. 2) Computing power demand: The big model drives the growth rate of computing power demand beyond Moore's Law, which favors computing power infrastructure such as AI server chips. We expect inference AI servers to account for over 60% of load in 2025, and the annual growth rate of AI chips in the Chinese market is about 40-50%. 3) Market estimates: We expect that in 2027, the domestic server, PC, and CPU market space will be about 1442/793/71.2 billion yuan, respectively, and the five-year CAGR will be 53%/33%/48%, respectively.

Company business: The company is deeply involved in autonomous secure computing and continuously expands its market influence 1) Computing industry: ① Computer server: In 2022, the company's computer server had the highest market share in the Party, Government, and Credit Innovation, and achieved a total breakthrough of 850 million in 24 major projects. ② Application terminal: Deeply involved in the field of financial instruments for more than ten years, leading the domestic financial industry for six consecutive years, with a market share of over 60%. ③ Power supply: In 2022, Great Wall Power's high-performance server power supply business will account for 70% of the Chinese market, and the PC power brand business will account for 39% of the Chinese market. Great Wall Power is one of the world's top ODM power supply foundries. 2) System equipment: Mainly communication, special computing, and marine informatization. In the future, advanced information technology such as intelligent technology and data information will increase equipment business demand.

Feiteng: Building a full set of AI solutions, ecological mergers bring complementary advantages in many areas 1) S5000 chips lead: Feiteng's S5000C and D3000 series products are expected to be mass-produced and marketed. At the same time, server products based on the S5000 series platform are being promoted at an accelerated pace, and new products are at the leading level in China. 2) AI solutions: Based on self-developed AI chips, Feiteng collaborates with ecological partners to create a full set of AI solutions to meet the needs of the innovation and computing power industry. 3) PKS and Huawei Kunpeng Ecological Merger: Feiteng is the core processor of China's electronic PKS system. In March 2023, Feiteng had more than 5,000 ecological partners. The company's servers and other products can be equipped with a PKS architecture. They all benefit from the merger of China Electronics PKS and Huawei Kunpeng's ecosystem, and will obtain complementary advantages in terms of products, applications, and resources.

Investment advice

We expect the company's revenue from 2023-2025 to be 148.25/174.42/199.69 billion yuan, net profit to parent is 0.96/5.43/718 million yuan, EPS is 0.03/0.17/0.22 yuan/share, and the current stock price corresponds to PS of 2.35/2.00/1.74X, respectively, covering the company for the first time and giving it a “buy” rating.

Risk warning: Macroeconomics affects downstream demand, increased market competition, increased supply chain uncertainty, product quality risks, technological innovation falling short of expectations, etc.