1Q24 Net profit to mother reached the upper limit of the performance forecast guidelines

Shanghai Electric Power Co., Ltd. announced its 1Q24 financial report: achieved revenue of 2.58 billion yuan (yoy: +38.3%), net profit of 520 million yuan (reaching the upper limit of the company's previous guidelines of 520 million yuan, yoy: +157.0%), and net profit of 50 million yuan after deducting non-return to mother (reaching the upper limit of 50 million yuan, yoy: +172.0%).

We believe that the company's strong profit growth in 1Q24 was mainly due to: 1) the increase in demand for AI-like high-layer PCBs; and 2) the year-on-year increase in exchange benefits of 95 million yuan. Looking ahead to 2024, we see that the trend of AI investment by tech giants will not change, and we are optimistic about the card position advantages of the company's leading overseas computing power/cloud computing customers. We expect the company's net profit to be RMB 21.8/26.2/2.87 billion for 24/25/26, respectively.

Considering that the company is the core beneficiary of the overseas computing power chain, the company was given 33.3 x 2024E PE (vs comparable company Wind, a consistent expected average of 16.9 x 2024E PE), with a target price of 38.00 yuan, maintaining a “buy” rating.

1Q24 review: Continued increase in high-end products drives continuous improvement in profit margins year-on-month. The company achieved revenue of 2.58 billion yuan (yoy: +38.3%) in 1Q24, mainly benefiting from the continuous increase in revenue share of high-layer AI servers and high-end PCB products related to HPC (AI PCB products accounted for 14% of total revenue in 2023. We expect the revenue share of AI PCB products to increase further to 25% in 2024). As a result, the company's profit margin continued to improve: gross profit margin of 33.9% (yoy: +8.2pp, qoq: +1.5pp) and net profit margin of 19.9% (yoy: +9.2pp, qoq: +0.3pp).

2024 outlook: AI demand continues to contribute to revenue growth. Waiting for mass production in the Thai factory to 2024. In terms of enterprise communication boards, considering the continued expansion of AI training and inference demand from global cloud giants, we continue to be optimistic about the company's card position advantages for overseas computing/cloud computing customers. With the implementation of the company's high-density high-speed interconnect PCB production line technology improvement project for computing power networks, we expect the company's enterprise communication board business to grow at an accelerated pace, and revenue may reach 7.82 billion yuan in 2024 (yoy:

+33.2%). Furthermore, in terms of overseas layout, the company has purchased land located in Thailand's Logana Ayutthaya Industrial Park. As the Thai production base construction process progresses, we expect the new plant to achieve mass production in 4Q24, helping the company increase its revenue in 25-26.

Maintain target price of $38.00 and “buy” rating

We forecast the company's 2024E/2025/2026E net profit to mother of RMB 21.8/26.2/2.87 billion, respectively.

Considering that the company is the core beneficiary of the overseas computing power chain, the company was given 33.3 x 2024E PE, maintaining the target price to 38.00 yuan and a “buy” rating.

Risk warning: Industry competition intensifies; raw material prices fluctuate; production capacity climbs and technology upgrades are slower than expected.