The company expanded its sales staff on a large scale, leading to a short-term decline in profitability. In 2023, the company achieved revenue of approximately RMB 1,793 billion, an increase of 7.8% over the previous year. Among them, equipment subscription revenue was about RMB 348 million, up 9% year on year, IT service revenue was about RMB 159 million, up 2.4% year on year, and recycling business revenue was RMB 1,286 million, up 8.1% year on year.
In 2023, the company's gross margin was 8.2%, down about 3.8 percentage points from '22. Among them, the gross margin of equipment subscriptions was 20.7%, the gross margin of IT services was 65.1%, and the gross margin of the recycling business was -2.2%. The main reason for the decline in gross margin on equipment subscriptions and IT services was the increase in the company's personnel. In '23, the company bought a 300-person sales company, and labor costs rose. At the same time, the company raised employee wages, leading to a decrease in gross margin. The decline in gross margin of the recycling business was mainly affected by fluctuations in purchase prices.
In 2023, the company's adjusted EBITDA was RMB 241 million, and the adjusted net loss was 67.4 million yuan. Revenue deceleration and a sharp increase in personnel, and a decline in gross margin were the main reasons for the expansion of losses.
The number of customers has increased dramatically, laying the foundation for business acceleration. Although the company's revenue growth rate slowed in 2023, the total number of customers increased dramatically. The number of customers in the equipment subscription, IT service, and recycling business was 2,6028, 24,699, and 1980, respectively, up 52.8%, 63.4%, and 86.8% from 2022. It takes a process for customers in the device subscription business from holding inventory to transferring subscriptions incrementally. The number of customers has increased dramatically, laying the foundation for business growth over the next three years. Also, by the end of 2023, the total number of devices the company could subscribe to had exceeded 590,000. According to reports, in March of this year, the company's customer demand was strong. We expect that starting this year, the subscription and IT service business lines will accelerate.
Investment advice: We expect the company to achieve total revenue of 20.27 (-16.1%)/23.96 (-28.1%)/RMB 2,958 billion in 2024-2026 (recycling business will maintain medium to low development, and rapid growth in equipment subscriptions and IT service subscriptions); adjusted EBITDA of 3.67 (-34.7%) /5.02 (-41.7%)/RMB 630 million, and adjusted net profit of -20 million/13 million/ 75 million yuan. Considering that the company's expected performance growth in 2023 was far lower than expected, and the labor force increased drastically (sales force of 300 people), leading to rising costs, we lowered the company's performance indicators due to prudential principles and the current market economy environment. It is expected that the company will develop subscriptions and IT services at a growth rate of 20% to 40% over the next three years.
We refer to comparable companies in the IDC industry (cabinet leasing). Using the EV/EBITDA valuation method, the target market value is RMB 3.58 billion (originally 12 times) of EV/EBITDA in 2024, the target market value is RMB 3.58 billion, corresponding to HK$3.88 billion, and the target price is HK$11.0 per share (-22.26%).
Risk warning: The growth rate of the company's monetization business (equipment subscription+IT services) fell short of expectations, which in turn affected the EBITDA level; the customer monetization conversion rate was lower than expected.