Incidents:
The company released its 2023 annual report, achieving operating income of 3.53 billion yuan, an increase of 20.7% year on year; net profit to mother of 340 million yuan, up 22.7% year on year; net profit after deducting non-return to mother 320 million yuan, an increase of 24.3% year on year.
The company released its report for the first quarter of 2024, achieving operating income of 750 million yuan, an increase of 41.4% year on year; realized net profit of 60 million yuan, an increase of 146.9% year on year; net profit after deducting non-return to mother of 50 million yuan, an increase of 169.7% year on year.
1. Revenue side: Demand for computing power and energy storage was released, and revenue and profit reached a new high. The company's revenue in 2023 continued to double growth for more than 10 years. Revenue reached 3.53 billion yuan, an increase of 20.7% over the previous year. The main reason was that demand related to computing power and energy storage accelerated, driven by revenue growth in computer room and cabinet temperature control products.
By product, computer room temperature control/cabinet temperature control/bus air conditioning/rail transit air conditioning and services achieved revenue of 16.4/14.7/0.9/110 million yuan respectively, +13.8%/+33.0%/+35.5%/-25.0% compared with the same period last year. Among them, the computer room temperature control business continued to win bids and successively delivered data center computer room air conditioning collection projects, including operators; energy storage demand and business grew rapidly, with annual revenue from energy storage applications reaching 1.22 billion yuan, an increase of about 44% over the previous year, and revenue contributions continued to increase; there was no substantial improvement in market demand for traditional new energy buses, but demand in dominant regional markets has rebounded; cyclical fluctuations in the rail transit industry and delays in project implementation have begun to pick up again in 2024.
24Q1 revenue reached 750 million yuan, up 41.4% year on year; net profit to mother was 60 million yuan, up 146.9% year on year.
2. Cost and expense side: Gross margin has increased, and the results of cost reduction and efficiency have significantly increased gross margin and increased profitability. In 2023, the company's gross sales margin/net sales margin was 32.4%/9.9%, respectively, +2.5/0.4 pct. The main reason was that the company adopted a series of cost reduction and efficiency measures, compounded by factors such as changes in product sales mix and relative stability in raw material costs.
In terms of cost ratio, the company's overall cost ratio of 19.5%/7.5%/4.4%/0.2%/7.5% in 2023 was +1.6/+0.3/+0.4/+0.1/+0.8pct, mainly due to a decrease in exchange earnings and an increase in wage and equity incentive expenses.
Continue to increase investment in research and development. The company established INVIC New Technology Research Institutes in Shenzhen and Beijing respectively. In 2023, the company invested a total of 260 million yuan in R&D expenses, +34.5%; R&D expenses accounted for 7.5%; the total R&D personnel were 1,279, accounting for 33.2% of the total number of people, an increase of 2.4% over the previous year.
3. Steady cash flow, increased investment strategies, continuous improvement of shareholder returns, steady management quality, and asset preservation and appreciation. The company's net cash flow from operating activities in 2023 was 450 million yuan, +135.5% year on year, maintaining steady operation; total assets reached 5.09 billion yuan, +25.9% year over year, achieving value preservation and appreciation; net cash flow from investment activities was 90 million yuan, -507.4% year over year, mainly due to the company increasing fixed asset investment and construction in 2023 and continuing to invest in the construction of the South China headquarters base for precise temperature control and energy saving equipment.
Equity incentives were implemented in 24Q1, and shareholder returns continued to increase. The company achieved net profit of 340 million yuan in 2023. It plans to distribute a cash dividend of 2.0 yuan for every 10 shares to all shareholders, with a total dividend amount of 110 million yuan; no bonus shares will be sent; at the same time, 3 shares will be transferred to all shareholders for every 10 shares by transferring capital from the capital reserve fund, for a total increase of 170 million shares. Starting February 5, 2024, the company will grant a total of 9.16 million stock options to 305 incentive recipients at a price of 19.6 yuan/share.
4. Leading liquid cooling technology layout, full chain platform advantages are obvious
The company's full-chain platform advantages in the field of liquid cooling technology are obvious. Related products and technologies are widely used in computing power and energy storage industries, and have become an important driving force for the company's performance growth.
In August 2022, the company launched the Coolinside full-chain liquid cooling solution adapted to various data center scenarios; in October 2023, the company innovatively launched the 3DTVC zero-power phase change liquid cooling solution to meet the cooling challenges of 5G base station equipment; in November 2023, the company launched the xSpace micro-module liquid cooling solution to simplify complex liquid cooling projects into modular products; as of March 2024, it has delivered a total of 900 MW in the liquid cooling chain.
In the field of energy storage, the company launched the BattCool Energy Storage Full Chain Liquid Cooling Solution 2.0 in November 2022, and SoLuKing liquid cooling 2.0 products in March 2023 further enriched the company's product line.
We believe that the application of new technology such as AI is driving the rapid maturity of the liquid cooling ecosystem. Most mainstream server manufacturers have built standardized production lines for cold plate liquid cooled servers, and operators and leading Internet companies are actively experimenting with the deployment of liquid cooling technology. As the industry enters a period of accelerated penetration, the company, as a leader in the application of liquid cooling technology, is expected to continue to benefit from long-term deep cultivation of temperature control equipment technology, and its market share will increase at an accelerated pace.
In addition, in the field of lithium battery energy storage, the company is also actively deploying liquid cooling systems. As energy storage system integrators become more aware of the multi-chain complexity and long-term reliable operation and maintenance of liquid cooling systems, it will further improve the perfect configuration of liquid cooling systems and optimize the division of labor in the industrial chain.
5. Investment suggestions:
As a leading layout enterprise in the field of liquid cooling, the company is actively developing AI computing power and lithium battery energy storage application sectors, considering the company's streamlining business volume, actively expanding the high-end market with liquid cooling technology iteration opportunities, driving overall gross margin increase, and adjusting profit forecasts. The company's estimated 2024-2026 revenue of 52.9/70.4/N/A 100 million yuan will be adjusted to 43.5/54.8/7.01 billion yuan. Earnings per share were adjusted from 0.93/1.26/N/A yuan to 0.89/1.17/1.47 yuan, corresponding to 2024 On April 22, 30.15 yuan/share, the company's PE was 33.9/25.7/20.5 times, respectively. Considering the company's industry position and performance growth, the company's valuation is currently low, and it maintains an “gain” rating.
6. Risk warning:
Risk of falling gross margin due to increased competition in the industry; liquid cooling technology iteration falls short of expectations; downstream demand falls short of expectations; risk of fluctuating raw material prices; systemic risk.