What happened: the company recently released a semi-annual report for 2023, with operating income of 4.831 billion yuan in the first half of the year, net profit of 140 million yuan for YoY+6.82%;, and gross profit of 39.33% for YoY-46.43%;, up 2.39 pct over the same period last year. In a single quarter, the company achieved operating income of 2.679 billion yuan for 2023Q2, 20 million yuan for YoY+7.18%;, and YoY-86.41%. Gross profit margin 36.91%, an increase in 0.89pct compared with the same period last year. The revenue end achieves steady growth, while the expense side growth puts pressure on the profit end.
Comments: the gross profit margin of the product has increased steadily, and the growth at the expense side is a drag on profit performance. In terms of business, in the first half of the year, the company's network equipment business achieved revenue of 3.656 billion yuan and YoY+9.02%, gross profit margin of 42.23%, up 1.04 pct from the same period last year; cloud desktop solution business achieved revenue of 271 million yuan and YoY+11.78%, gross profit margin of 34.55%, up 9.07 pct over the same period last year; network security products business achieved revenue of 388 million yuan, YoY+1.26%, gross profit margin of 36.30%, an increase of 1.83pct over the same period last year The main business has achieved higher revenue and gross profit margin, and the cloud desktop business has performed better. The decline in the company's profit performance compared with the same period last year is mainly due to the increase in labor and other management fees and R & D investment caused by the expansion of business scale. On the expense side, the company's sales / management / R & D expenses in the first half of 2023 were 7.32 RMB 2.34 / 945 million respectively, and YoY+15.90%/+25.39%/+28.71%, grew faster than revenue, mainly due to the increase in labor costs due to the expansion of sales / management / R & D personnel.
In the era of AIGC, the demand for data center computing power has surged, the network equipment industry has ushered in a new round of growth cycle, and the market share of company operators' data center switches has further increased. Driven by ChatGPT, the number of global AI models is springing up like bamboo shoots after a spring rain. The training and application of AI models bring huge demand for iterative upgrading of computing power and network equipment, and the scale of the cloud computing market is also growing rapidly. China's cloud computing market is worth 455 billion yuan in 2022, an increase of 40.91% over the same period last year, and is expected to exceed trillion yuan in 2025, according to data from the China Institute of Information and Communication. In 2023, operator computing network investment plans to grow by 34.31% compared with the same period last year, and Internet cloud manufacturers will gradually increase AI computing-related spending.
The company has launched AI Fabric intelligent computing center network solutions in the data center field, including a variety of core products, and actively expand the operator data center market and overseas business market. According to IDC, 2023Q1 has the third market share of Ethernet switches in China and the third market share of data center switches in China. In terms of industry segments, the company's data center switches have the second market share in China's Internet industry, and operators have the third market share (24.2% from 17.3% in the same period last year). Ethernet switches rank first in the market share of general education and wholesale / retail industries.
Profit Forecast: Ruijie Network is the first ICT equipment enterprise in China, which is optimistic that the company will continue to expand and consolidate the network equipment business such as switches with the help of the digital economy and AI development tide. It is estimated that the revenue of 2023-2025 is 134.52 million yuan, the net profit is 6.86 million yuan, and the net profit is 9.10 billion yuan, corresponding to 2.31 yuan of EPS 1.21 pound, maintaining the "buy" rating.
Risk tips: market expansion / demand is not as expected, R & D risk, chip supply fluctuation risk.