Profit increased sharply in 24Q1, and the growth of card AI computing power infrastructure is expected, Wangsu Technology released a quarterly report. In Q1 of 2024, it achieved revenue of 1,120 million yuan (yoy -4.13%), net profit of 138 million yuan (yoy +45.96%), net non-net profit of 98.344 million yuan (yoy +183.45%), and net operating cash flow was 244 million yuan, +354.97% year over year. We believe that in the short term, the company will benefit from the increase in overseas market traffic and drive revenue structure optimization. In the long term, it is expected that it will continue to benefit from the evolution of AI industry trends in the long-term. We expect the company's 2024-2026 EPS to be 0.25, 0.31, and 0.35 yuan respectively. Comparable to the company's 24E average PE 47.7x (Wind), the 24-year average PE was 47.7xPE, and the target price was 12.08 yuan, maintaining a “buy” rating.
Profitability remains at a high level, and overseas expansion is showing results
The gross margin of the company's overseas business is relatively high. In the past two years, the company has focused on optimizing platform resources around the Southeast Asian market, and results have gradually been shown. With the gradual release of CDN demand from overseas regions represented by Southeast Asia, the company's share of overseas revenue increased, and 1Q23/3Q23/4Q23/1Q24 gross profit margin in a single quarter was 28.9%/30.7%/32.4%/36.6%/33.3%, maintaining a high level; we restored the non-interest-related portion of financial expenses, 1Q23/2Q23/4Q23/4Q23/4Q23/1Q24, after deducting 0.68/0.58/1.40/0.95 million yuan in non-net profit Profits continue to be released. According to the company's announcement, it is estimated that the confirmed stock option cost in 2024 is 74 million yuan, so it is estimated that the 24Q1 core profit may exceed 100 million yuan after further recovery of equity incentive fees. The company's performance continues to be realized, and the overseas expansion logic has been verified.
Increased investment in R&D is expected to benefit from AI opportunities
24Q1 The company's sales/management/ R&D expenses rate was 8.39%/6.28%/11.56%, -0.15pct/+0.08pct/+1.70pct year-on-year. The company continues to increase investment in technology research and development and actively develop innovative businesses. In 2023, the company relied on edge computing node upgrades to launch a GPU computing power platform, which was implemented in scenarios such as AI large model training, edge rendering, edge inference, transcoding, cloud gaming, AIGC Wensheng Map, and virtual humans. Overseas CDN vendor Cloudflare launched Workers AI products to help customers build AI applications at the edge, and Akamai launched the Gecko program to promote the implementation of AI inference and other scenarios. We believe that the company has a good node, technical foundation, and card AI computing power infrastructure, and is expected to benefit from traffic growth and business value-added opportunities brought about by the iteration of AI technology.
Profitability is expected to continue to increase, and a new growth curve will gradually open up
The company has achieved “2+3” business diversification and “domestic+overseas” market linkage leapfrogging, providing strong support for the company's continuous development. We believe that overseas market demand, represented by Southeast Asia, is rising, and the company's revenue structure is expected to continue to be optimized to improve profitability; in terms of innovative business, the company is actively expanding its business boundaries and has a good layout in edge computing, cloud security, zero trust, and liquid cooling technology. We believe that in the medium term, the company is expected to continue to benefit from the increase in overseas traffic and the slowdown in domestic price competition. In the long run, the innovative business is expected to open up a new growth curve.
Risk warning: Overseas traffic growth falls short of expectations, and competition in the CDN industry deteriorates.