Event: On October 27, 2023, the company released its three-quarter report for 2023. Q1-Q3 achieved revenue of 7.951 billion yuan, an increase of 5.9% over the previous year, net profit of 279 million yuan, a year-on-year decrease of 45.9%, and net profit of 252 million yuan deducted from non-return mothers, a year-on-year decrease of 46.7%. Q3 achieved revenue of 3.120 billion yuan in a single quarter, a year-on-year increase of 4.6%, a month-on-month increase of 16.5%, net profit of 139 million yuan, a year-on-year decrease of 45.3%, a year-on-year increase of 584.1%, and a net profit deduction of 134 million yuan, a year-on-year decrease of 43.4%, and an increase of 2099.0% over the previous year.
The global layout is once again facing new opportunities, and we are waiting for demand to recover at an accelerated pace. In 23Q3, revenue increased both month-on-month, which we believe is mainly due to the company strengthening overseas platform construction and maintaining the lead in the domestic market. 23H1's overseas business sales revenue reached 488 million yuan, an increase of 16.36% over the same period last year. Overseas business has expanded to more than 70 countries and regions including Asia, Europe, America, and Africa. We believe that with the gradual digestion of Internet data center switch inventories, the recovery of market demand in education/finance/energy, etc., and the gradual expansion of the company's overseas markets, future performance is expected to accelerate. 23Q3 profit was under pressure year-on-year and increased month-on-month. In the future, it is expected to gradually increase with the recovery of downstream demand and the upgrading of product structure.
Continuously increase R&D investment to consolidate product competitiveness and adapt to the wave of AI and digitalization. The comprehensive gross margin of the 23Q3 company was 37.75%, a year-on-year decrease of 1.63pct, an increase of 0.84pct; the 23Q3 company's sales/management/R&D/financial expense ratio was 5.61%/2.70%/9.06%/0.05%, respectively, an increase of 0.17pct/1.49pct/1.99pct/0.32pct, respectively. The company maintained high R&D investment and consolidated product competitiveness. According to data released by the company in October, in the 23H1 domestic market, Ruijie Wireless ranked first in the service, education, and communications industry markets, and switches ranked first in the education industry market; 23H1 IDV ranked first in the cloud desktop market, and ranked third in the Ethernet switch, data center switch, and wireless WLAN markets.
In data center networks, the data center switches and 400G data center switches launched by the company based on silicon light and liquid cooling technology have been applied in Internet vendor data centers. The AI Fabric Intelligent Computing Center network solutions and intelligent DDC high-performance network solutions and related products launched by the company help build AI cloud services and ultra-high computing power data center networks. In the park network, the company's minimalist Ethernet all-optical solutions and related products promote the digital transformation and informatization construction of industry users in the fields of education, medical care, manufacturing, transportation, etc. In the SMB field, the company helps small manufacturing enterprises and small and micro enterprises such as hotels, restaurants, entertainment, scenic spots, supermarkets, etc. build networks with a rich product line that is easy to use, easy to install and deploy, and efficient and convenient online services. In the field of cloud office, at present, the company has launched three cloud office solutions, cloud office light cloud solutions, and high-performance GPU cloud desktop solutions to meet the needs of digital offices in various scenarios in government, healthcare, education, manufacturing and other industries.
Investment advice: The wave of computing power is speeding up the construction of digital infrastructure. As a leader in ICT infrastructure, the company is expected to benefit fully. Considering that the recovery in Internet demand falls short of expectations and the company's increased cost investment and adjusted profit forecasts, we expect the company's net profit from 23-25 to be 588 million yuan/782 million yuan/901 million yuan, respectively. The current market value corresponding to PE is 36x/27x/23x. Maintain a “Recommended” rating.
Risk warning: ICT equipment market demand uncertainty; increased market competition; exchange rate fluctuations