Key points of investment:

Event: On October 26, 2023, Kehua Data released its report for the third quarter of 2023. In the third quarter, the company achieved operating income of 2.105 billion yuan, an increase of 47.25% over the previous year; net profit of 123 million yuan, a slight increase of 0.96% over the previous year; and basic earnings per share of 0.26 yuan.

Incident analysis

Revenue is growing rapidly, and expense ratios have been significantly reduced. In the first three quarters, the company achieved total operating income of 5.502 billion yuan, an increase of 51.04% over the previous year; net profit of 445 million yuan, an increase of 54.39% over the previous year; and gross margin of 29.01%.

In the third quarter, the company achieved operating income of 2.105 billion yuan, a year-on-year increase of 47.25%; net profit of 123 million yuan, a slight increase of 0.96% year-on-year; profit was lower than expected, due to impairment losses; gross margin was 28.56%; the company's expense control was continuously optimized, and the cost rate was 25.14%, a decrease of 5.85% over the previous period; among them, sales/management expenses increased by 1.03/10 million yuan respectively over the previous period. The company continued to increase R&D investment by 14 million yuan over the previous period. During the reporting period, the company continued to increase R&D investment. R&D expenses were 99 million yuan, an increase of 44.66% over the previous year.

Lead high-end power supply research and development and lay out multiple computing power platforms. The company's smart power business is mainly high-end power supplies. The product power range covers 0.5kVA-1200kVA. In 2020, it independently developed an ultra-high power 1.2MVA modular UPS, with a single module power of 133kW/200kW. Furthermore, by building autonomous and controllable infrastructure in data centers in core first-tier cities and building high-performance GPU servers as computing power bases, and deploying efficient and professional computing power scheduling platforms, the company has created a multi-computing power platform in line with market trends. On October 25, the company announced the tenth large-scale self-built data center, the Beijing Yunzhu Data Center. The center will use many energy-saving technologies such as liquid cooling, modular power supplies, micromodules, and AI operation and maintenance to minimize energy consumption. The PUE value is below 1.2. At present, the company has a rich and diverse intelligent computing product system, launched computing power products such as AI bare metal, GPU server leasing, edge computing, hybrid cloud, local computing resource pools, and elastic computing power on the cloud, and provides computing infrastructure services such as high-power cabinets, high-power UPS, micromodules, efficient cooling, and intelligent computing center construction and operation, covering AI computing power deployment requirements in various industry scenarios such as AIGC, chip manufacturing, autonomous driving, and biomedicine.

Rapid expansion of domestic and foreign business based on business cooperation. The company and State Grid Integrated Energy Service Group Co., Ltd. signed a “Strategic Cooperation Agreement”. According to their own characteristics and development needs, the two sides cooperated in the fields of photovoltaic inverters, energy storage converters and system integration, new energy project cooperative development, disposal of existing new energy power plants, integrated energy service business, data centers, smart power, etc., and promoted the ultimate equity cooperation between the two sides based on business cooperation. The company also signed cooperation agreements with China Investment Corporation and Dongfang Electric, and reached a cooperation agreement with Shanghai Electric to continue to strengthen the overall competitiveness of the new energy business. Furthermore, the company actively lays out the overseas household storage market, which is expected to contribute on a large scale. In September 2022, the company signed an agreement with Juniper of the United States for the annual supply of 10,000 iStorage series household storage systems, and signed an iStorage system supply agreement with customer L for over 70 MWh in the first year.

Strengthen cloud-based services to support the future of 5G. Kehua Data has more than 10 years of experience in the construction and operation of cloud data centers. Currently, it has built and operated 8 major data centers in the north, more than 20 data centers in more than 10 cities across the country, more than 30,000 cabinets, and a total construction area of more than 250,000 square meters of data centers, forming four major data center clusters in North China, East China, South China, and Southwest China. According to a report by CCW (CCW), an authoritative ICT research and information agency, Kehua Data ranked first in overall market share in the 2019-2021 China micromodule data center market and UPS market share rankings. Kehua Data provides users with high-security data center cloud infrastructure services, supports informatization construction in finance, Internet, operators, government, education, medical and other industries, helps enterprises achieve cloud migration, invigorates new momentum in the deep integration of the digital economy, and supports the future of 5G connectivity.

Investment suggestions: The company has been deeply involved in the UPS field for more than 30 years, leading the research and development of high-power and intelligent UPS power supplies in China. The product range covers a wide range of products, and customers cover various fields such as finance, transportation, and nuclear power. We believe that in the future, the company will maintain high growth for a long time. It is predicted that the company's revenue for 2023-2025 is 88.68/ 119.72/15.803 billion yuan, up 57.01%/35.00%/32.00% year on year. The company's net profit is 7.42/ 9.95/1,291 billion yuan, up 198.8%/34.10%/29.7% year on year, corresponding to EPS 1.61/2.16/ 2.80 yuan, PE 17.3/ 12.9/10.0, giving a “buy” rating.

Risk warning: New product development falls short of expectations; market competition continues to intensify; collection of accounts receivable is not timely, and overseas market expansion falls short of expectations.