Introduction to this report:
Due to cost forecasting, 2024Q1 performance is under pressure in the short term. Considering that the energy storage temperature control business will continue to benefit from the high downstream boom, superimposed IDC liquid cooling temperature control will start rolling out in 2024, which will have a limited impact on the annual performance.
Key points of investment:
Maintaining the “Overweight” rating, the target price was lowered to 42.64 yuan. The company rapidly expanded its energy storage temperature control business and achieved net profit of 170 million yuan (YoY +60.86%) after deduction in 2023. The performance was in line with expectations. Considering the slowdown in downstream growth of traditional businesses such as CNC machine tools, EPS was lowered to 1.64 (-0.47) /2.16 (-0.64) yuan respectively, and EPS was added by 2.74 yuan in 2026; as the share of more valuable liquid cooling products increases, companies with cost advantages will fully benefit, giving the company 26xPE in 2024, which is slightly higher than the industry average valuation (25xPE), and lowering the target price to 42.64 yuan to maintain the “gain” rating.
The pre-fee schedule will affect 2024Q1 results. Subsequent orders will be confirmed at an accelerated pace, and the impact on full-year results will be limited. Since the first quarter was a low point for confirming energy storage orders, combined sales team expansion led to sales expenses of 16 million yuan (YoY +65%), and 2024Q1 achieved net profit of 0.04 billion yuan (-83.46%) after deducting non-return to mother. As orders are confirmed at an accelerated pace, we don't think full-year results will be affected.
Energy storage installations are booming, and the company will continue to expand customers based on the advantages of liquid cooling products. In 2023, the domestic energy storage capacity was about 48.7 GWh (YoY +260%). The company's energy storage temperature control products had obvious advantages in environmental adaptability and sealing, and expanded leading customers such as the Ningde Era. In 2023, the energy storage temperature control business achieved 904 million yuan (YoY +472.15%). Liquid cooling temperature control is expected to account for 50% of energy storage in 2024, and the company will continue to expand customers with product advantages.
With the launch of liquid cooling and temperature control products for servers, the company will benefit from an increase in the share of liquid-cooled servers. AI servers are 50%-150% more powerful than traditional servers. Liquid cooling will replace air cooling as the mainstream cooling method. The domestic liquid cooling server market size in 2023 is US$1.55 billion (YoY +52.6%).
As the proportion of liquid-cooled servers increases (currently about 5.7%), the PUE of the company's liquid cooling products for server products is below 1.2 in the leading industry, and is expected to achieve rapid release.
Risk warning: 1) Increased competition affects order acquisition; 2) Liquid cooling cost reduction falls short of expectations affecting demand.