Core views

The company released the 2023 annual results report. It achieved full-year revenue of 14.354 billion yuan, a year-on-year increase of 10.35%, and realized net profit of 1,838 billion yuan, an increase of 19.00% over the previous year, which was slightly better than market expectations. The company and its incubated subsidiaries have achieved full coverage of the computing power field from chips, servers, storage, computing power centers, liquid cooling, and computing power scheduling. Domestic intelligent computing power infrastructure construction is advancing at an accelerated pace. In the context of restrictions on imports of advanced GPUs from overseas, domestic computing power is expected to gain more market space and achieve steady growth in performance. The recovery of the Xinchuang market and the gradual development of liquid cooling and computing power scheduling services will also further stabilize the company's operating level and maintain a “buy” rating.

occurrences

The company released the 2023 annual performance report. The full year of 2023 achieved operating income of 14.354 billion yuan, a year-on-year increase of 10.35%; realized net profit of 1,838 billion yuan, an increase of 19.00% over the previous year; and realized net profit without return to mother of 1,271 billion yuan, an increase of 10.43% over the previous year. In addition, the company issued an announcement that the proposed asset impairment provisions for 2023 totaled 176 million yuan, a year-on-year decrease of 12.50%, taking into account the impact of resale and transfers on net profit of 6.513,700 yuan in 2023.

Brief review

Steady growth in business performance, improvement in profitability and operating efficiency. In 2023, in the macro context of weak economic recovery and the pace adjustment of Xinchuang, the company achieved a 10.35% increase in revenue and a 19.00% increase in net profit for the whole year with its core competitive advantage of products and efficient management, and steady growth in performance. The company's net sales interest rate and return on net assets in 2023 were 12.80% and 9.84% respectively, up 0.40% and 0.77% year-on-year respectively, and profitability increased.

The company is a leading domestic computing power enterprise with a full industrial chain layout. As the core listed company of the Institute of Computing of the Chinese Academy of Sciences, the company has products such as high-performance computer solutions, high-performance storage, etc., and has participated in the construction of intelligent computing centers and the development and promotion of computing power scheduling platforms in various regions. The company has incubated many high-quality listed companies, including Haiguang Information, Zhongke Star Map, and Shuguang Digital Innovation. The business covers CPU & GPU chips, liquid cooling, geographic informatization, etc., and has achieved a full industry chain layout in the field of computing power through itself and incubated companies.

Artificial intelligence at home and abroad is developing rapidly, and domestic computing power is expected to fully benefit. Since 2023, AI applications such as ChatGPT have driven AI into the fast track of development. Countries and enterprises at home and abroad have increased their investment in AI infrastructure to develop large-scale models and applications. Various regions in China have increased their investment in intelligent computing power. The recent meeting of the State Assets Administration Commission requested central enterprises to increase investment in artificial intelligence, speed up the construction of a number of intelligent computing centers, and further promote the wave of domestic intelligent computing infrastructure investment and construction. Currently affected by relevant overseas policies, overseas high-performance GPUs, mainly Nvidia's H100 and H800, are limited in domestic supply. Chips such as the H20 that can be supplied are not cost-effective, and domestic computing power is expected to usher in a broad market space. Zhongke Shuguang and its subsidiary Haiguang Information are in the first tier in the field of domestic computing power. The GPU chip “Deep Computing 2” was released in the third quarter of 2023, and “Shenzhen Computing 3” is expected to be released in the second half of this year. The performance is significantly improved compared to the previous generation, which better serves the strong domestic demand for intelligent computing power.

The company has a multi-field layout, and businesses such as Xinchuang, liquid cooling, and computing power scheduling are also worth looking forward to. Affected by the economic environment and policies in 2023, the pace of development of the Xinchuang market has been adjusted. As Xinchuang gradually switches from party government to industry, the Xinchuang market is showing signs of recovery. The financial, operator, energy and other industries have recently publicly tendered Xinchuang terminals/servers. As a core participant in the Xinchuang field, the new product “Haiguang 4” is expected to participate deeply in the Xinchuang market.

In terms of liquid cooling, the company and its subsidiary Shuguang Shuchuang are in a leading position in the industry. According to CCID Consultants' “2023 China Liquid Cooling Application Market Research Report”, Shuguang Digital achieved an average market share of 58.8% in 2021-2023, ranking first in the liquid cooling data center infrastructure market in China. As the ratio of intelligent computing power gradually increases, there is a strong demand for liquid cooling applications due to its high power consumption and high heat generation, which is expected to drive a steady increase in the penetration rate of liquid cooling technology routes. In terms of computing power scheduling, the company has been actively exploring the development of computing power scheduling platform software since 2021. Since 2023, it has launched several computing power scheduling platforms. Currently, related business revenue exceeds 100 million yuan. With the rapid increase in computing power stock and the market space for computing power scheduling accelerates, the company actively invests in R&D in this field, which can achieve cross-regional and heterogeneous computing power scheduling, improve the efficiency of the utilization of local computing power centers, and implement the national “East Digital West” policy.

Investment advice: The company is a leading domestic computing power enterprise. It has a full industrial chain layout in the computing power field, and is expected to fully benefit from the development of AI+ Xinchuang. The company and its incubated subsidiaries have achieved full coverage of the computing power field from chips, servers, storage, computing power centers, liquid cooling, and computing power scheduling. Domestic intelligent computing power infrastructure construction is advancing at an accelerated pace. Against the backdrop of restrictions on imports of advanced GPUs from overseas, domestic computing power is expected to gain more market space and achieve steady growth in performance. The recovery of the Xinchuang market and the gradual development of liquid cooling and computing power scheduling services will further stabilize the company's operating level. We expect the company to achieve operating income of 16393/19.242 billion yuan in 2024-2025, and net profit of 2.88/2,656 billion yuan, corresponding to PE26/22 times, maintaining a “buy” rating.

Risk analysis

1) Xinchuang's progress falls short of expectations: the pace and scale of winning bids for products such as high-performance computers and distributed storage is influenced by the pace of promotion of the party, government and industry. If the technical capabilities of Xinchuang products are insufficient or the pace of Xinchuang's pace slows down, it will cause the company's revenue growth to slow down; 2) Macroeconomic recovery falls short of expectations: the overall macroeconomic recovery trend has been weak since 2023. If the subsequent macroeconomic recovery process is slow, it may lead to a reduction in government and enterprise procurement budgets for infrastructure such as computing power; 3) AI technology development and application scenarios fall short of expectations: Technology and products are in the early stages of development, and business models at home and abroad are still unclear. Domestic development needs to be verified urgently. The exploration and integration of downstream application scenarios still needs to be gradually implemented, and there is uncertainty about demand for computing power.