Core views
Facing the complex external environment, the company operates accurately and pragmatically, steadily, and continues to improve its business quality and profitability. In 2023, on the operator side, the increase in the company's share of wireless and wired products led to revenue growth. Server growth was under pressure due to differences in the launch time of the company's intelligent computing server and the pace of intelligent computing construction. The government, enterprise side and consumer side experienced a decline due to pressure on demand, influence on the pace of customer investment, and increased competition. The company drives profits through continuous cost optimization, and the gross margins of the three major businesses have increased. Expenses have increased, mainly reflected in larger R&D investments. Overall profitability has increased, operations are healthier and more resilient, and cash flow performance is better. The company continues to advance the implementation of the “hyperbola” strategy. In the context of intensive R&D investment in “connection+computational power+capacity+intelligence” technology, continuous innovation in underlying core technology, artificial intelligence development and self-reliance and self-improvement in technology, computing power and innovation are expected to bring new market opportunities to the company.
occurrences
The company released its 2023 annual report. In 2023, the company achieved revenue of 124.25 billion yuan, up 1.05% year on year; achieved net profit of 9.33 billion yuan, up 15.41% year on year; realized net profit after deduction of 7.40 billion yuan, up 19.99% year on year; achieved net operating cash flow of 17.41 billion yuan, an increase of 129.7% year on year.
Brief review
1. Steady operation, improved profitability and cash flow.
Facing the complex external environment, the company operates accurately and pragmatically, steadily, and continues to improve its business quality and profitability. In 2023, the company achieved revenue of 124.25 billion yuan, up 1.05% year on year; achieved net profit of 9.33 billion yuan, up 15.41% year on year; realized net profit after deduction of 7.40 billion yuan, up 19.99% year on year; and in 2023, the company's comprehensive gross profit margin was 41.53%, up 4.34 pct year on year. In 2023, the company achieved net operating cash flow of 17.41 billion yuan, an increase of 129.7% over the previous year. The total cash dividend that the company plans to distribute in 2023 accounts for 35% of net profit attributable to mother, and the dividend intensity has increased markedly.
In the fourth quarter of 2023, the company's revenue growth recovered. In the fourth quarter of 2023, the company achieved revenue of 34.86 billion yuan, an increase of 14.68% over the previous year; realized profit due to mother of 1.49 billion yuan, an increase of 17.80% over the previous year; and realized net profit after deduction of 300 million yuan, a year-on-year decrease of 620 million yuan.
2. Carrier networks: The share of wireless and wired products has increased, and servers are under pressure in the short term.
In 2023, the company's operators' network business revenue was 82.76 billion yuan, an increase of 3.40% over the previous year. The increase was mainly driven by revenue growth in wireless products and wired products. The company launched the 9900X series data center switches. The core components have been fully self-developed, and the winning share of domestic operators' procurement projects has increased significantly. According to the IDC2023Q3 report, the domestic market share of the company's data center switches has the highest year-on-year growth rate. In 2023, the company's cloud computer domestic operator ranked first in the cloud terminal market share. The server business is under pressure due to differences in the launch time of the company's intelligent computing server and the pace of intelligent computing construction. Overseas operator market companies have made significant progress in their strategy of deepening the Dagongda T Big Network focus strategy. Wireless and wired products have achieved many key breakthroughs in the Big T value region, and revenue has achieved double-digit growth.
In 2023, the gross margin of the company's operator network business was 49.11%, an increase of 2.89pct over the previous year, mainly driven by changes in revenue structure and continuous cost optimization.
3. Government business: Increased self-research capabilities. Short-term impact on industry investment and the pace of key customer construction, revenue growth is under pressure.
In 2023, the company's government and enterprise revenue was 13.59 billion yuan, a year-on-year decrease of 7.14%, mainly due to a decrease in revenue from domestic integrated projects, data centers, and international markets. The company continues to improve product competitiveness, strengthen self-developed products and solutions based on underlying core technologies such as chips, databases, and operating systems. The strategic customer layout of main products such as servers, data center switches, data centers, and distributed databases continues to be optimized in key industries such as the Internet and finance. In the short term, due to industry investment and the pace of key customer construction, revenue growth is under pressure. Continued stock management strategies for overseas government and enterprise client companies. In 2023, the gross profit margin of corporate government and enterprise services was 34.94%, an increase of 9.59pct over the previous year, mainly driven by continuous cost optimization.
4. Consumer business: Overseas demand and competition led to a decline, and domestic mobile phones and household bandwidth both increased.
Consumer business: Industry demand declined in 2023. The company's consumer business revenue was 27.91 billion yuan, down 1.33% from the previous year, mainly due to a decrease in revenue from international home terminals and international mobile phone products. The decline in overseas markets was mainly due to falling demand and increased competition. Home broadband products such as FTTR and WiFi continued to strengthen their competitiveness in the domestic market, and differentiated management of mobile phone products all achieved growth. In 2023, the company's consumer gross profit margin was 22.26%, an increase of 4.50pct over the previous year, mainly driven by the increase in gross margin of international home information terminals and mobile phone products.
5. Computing power and Xinchuang are expected to bring new market opportunities.
In the context of artificial intelligence development and technological self-reliance, the computing power and innovation market has broad scope for future growth. The company actively lays out and continues to invest heavily in R&D on “connection+computational power+capacity+intelligence” technology. The underlying core technology continues to innovate, keep up with the pace of customer business transformation and investment structure changes, and accelerate the deepening expansion from connectivity to computing power. Computing power and Xinchuang are expected to bring new market opportunities to the company. In response to the needs of diverse scenarios such as AI and high-performance computing, and deployment differences at different levels from center to edge, the company launched a series of products and solutions including integrated computing servers, intelligent computing servers, high-performance storage, and all-in-one training. The company's next-generation high-performance 400GE/800GE data center switch supports single-slot 14.4T and uses intelligent lossless technology to achieve zero packet loss and low latency; the innovative frame-type single-layer multi-track networking scheme can flexibly and efficiently build kilocals/10,000 card computing power clusters.
6. Accurate cost allocation, R&D investment forms a technical moat.
In 2023, the company invested 25.29 billion yuan in R&D expenses, up 17.07% year on year, accounting for 20.35% increase of 2.78 pct year on year. Mainly driven by the company's continuous investment in 5G and 5G-A, chips, servers and storage, innovative business, etc., high R&D investment consolidated the company's technical moat, consolidated the core competitiveness of innovation, and increased the company's profitability. In 2023, the company's sales expenses were 10.17 billion yuan, an increase of 10.89% over the previous year, mainly due to the increase in the company's investment in marketing. In 2023, the company's management expenses were 5.63 billion yuan, up 5.61% year over year. The company's financial expenses in 2023 - RMB 1.1 billion, compared to RMB 160 million for the same period last year, mainly due to exchange earnings generated by fluctuations in the company's exchange rate in 2023 and losses in the same period last year.
7. Profit prediction and investment advice.
The company continues to advance the implementation of the “hyperbola” strategy. The first curve (which mainly includes communication services such as wireless access, wired access, and core networks) is developing relatively steadily, and the second curve (mainly including emerging businesses such as servers, storage, and data center switches, driven by the growth of computing power) is expected to achieve good growth based on the company's continuous improvement in product strength and the construction of domestic computing power networks. We expect the company's revenue for 2024-2026 to be 13.53 billion yuan, 137.14 billion yuan, and 144.44 billion yuan, respectively, and net profit to mother will be 10.56 billion yuan, 11.66 billion yuan, and 12.83 billion yuan, respectively, corresponding to PE 13X, 12X, and 11X. Maintain a “buy” rating.
8. Risk warning. Supply is limited and development is limited due to changes in the international environment; the company is the world's leading 5G communication equipment provider. If the global and Chinese 5G development falls short of expectations, it will have a great impact on the company's main business; if the company's revenue share in the operator market falls rapidly, it will have a certain impact on the company's performance; market competition intensifies, gross margin declines rapidly; the company's market share falls short of expectations; the second growth curve. These new businesses are the company's key business development. Computing power and innovation businesses are expected to bring new flexibility to the company, such as servers, storage, automotive electronics, etc. The development fell short of expectations, which had a certain impact on the company's future development, etc.