Event Overview: On March 29, 2024, the company released its 2023 annual report. In 2023, the company achieved operating income of 11.624 billion yuan, up 3.23% year on year; net profit to mother was 1,172 billion yuan, up 16.66% year on year; net profit after deducting non-return to mother was 1,263 billion yuan, up 37.22% year on year.
The strategic layout of software and hardware is generative AI, and the integration of cloud computing creates a new growth point. 1) Software side: Release the “Shenzhou Learning” AI platform product. Shenzhou Wenxue was officially upgraded from the company's artificial intelligence product Jarvis. It has connected with dozens of mainstream big models, helped enterprises put into production and operation of their own big model applications, successfully helped customers in the pharmaceutical, retail and other industries implement generative AI application scenarios; and joined hands with more than 10 industrial ecosystem partners to launch the “Generative AI Learning Co-Creation Program”. 2) Hardware side: Continuously promote the development and promotion of AI servers. Completed the R&D, production and delivery of a variety of next-generation AI servers, launched new products such as the Shenzhou Kuntai Learning All-in-One, and obtained Huawei's “Kunpeng + Shengteng” dual leading certification for the first time; the Shenzhou Digital Shenzhen Artificial Intelligence Computing Center project has also been officially launched.
The high-margin digital cloud integration business is growing rapidly, and strategic investments are further expanding the business landscape. 1) The digital cloud integration business grew by nearly 70%. In 2023, digital cloud integration business (MSP and ISV) revenue was $1,116 billion, up 68.25% year over year, and gross margin was 42.23%. 2) Strategic investment focuses on scenarios such as automobiles. Shenzhou Digital and Hi-Tech Digital have joined forces to give full play to their respective resource advantages and professional technical advantages, focus on the implementation of “digital cloud integration” scenarios in vertical industries such as automobiles, and jointly create “digital cloud integration” product solutions to help the digital upgrading of automobiles and more industries. 3) Cooperate with Shanshi Network Technology in the field of cybersecurity and other fields.
Shenzhou Yunke, a subsidiary of the company, became the largest shareholder of Shanshi Netke and carried out in-depth business cooperation. This is conducive to strengthening upstream and downstream resource collaboration and industrial collaboration between Shenzhou Digital and Shanshi Netke, and expanding the breadth of application of both products in the cloud computing, innovation and cybersecurity markets.
The recognition of Xinchuang's business continues to increase, and going overseas opens up a new value space. 1) Xinchuang's business has achieved remarkable results.
Shenzhou Kuntai products successfully achieved comprehensive coverage of customers in the operator industry; won bids for major state-owned and joint-stock bank projects such as China Construction Bank and Bank of Communications; won bids for all-electric invoicing projects in Fujian Province, Xiamen City, etc.; and shortlisted for China Southern Power Grid's 2023 information software and hardware equipment collection project. 2) The official announcement “Go Overseas” opens an international layout. Shenzhou Digital and Thailand's Ministry of Digital Economy and Social Affairs signed a Memorandum of Understanding (MOU) to launch a new international layout, empower overseas customers with digital transformation, and open up a new value space.
Investment advice: The company is a leading domestic server manufacturer, seizing the industry opportunities brought by the AI wave, actively promoting strategic transformation, deepening the AI computing power market, and launching the “Shenzhou Knowledge” AI platform product; strategically investing in Hi-Tech Digital Cluster and Shanshi NetTech to further expand the digital cloud business scenario, and continues to gain strength in the fields of Xinchuang and overseas. The company is expected to usher in a period of accelerated development in the future. Net profit due to mother for 2024-2026 is estimated to be RMB 14.3/17.03/1,875 billion, respectively, and the corresponding PE is 14X, 12X, and 11X, respectively, maintaining the “recommended” rating.
Risk warning: the risk that AI technology will not advance as expected; business expansion such as Xinchuang will not be anticipated; and competition in the industry will intensify.