Incident: On April 25, 2024, the company released its 2024 quarterly report. 24Q1 achieved operating income of 30.58 billion yuan, up 4.9% year on year; net profit to mother of 2.74 billion yuan, up 3.7% year on year; net profit after deducting non-return to mother of 2.65 billion yuan, up 7.9% year on year.
Performance has maintained steady growth, and government, enterprise and consumer businesses have returned to a rapid growth trajectory. In the operator market, the country is affected by the overall investment environment, and the company's growth is under pressure; the company is accelerating the shift from full connectivity to “connection+computing power” to fully expand the market space. The international community continues to break through major powers and continue its growth trend. At the same time, the company increased its expansion of government, enterprise and consumer businesses, and both business revenues returned to a rapid growth trajectory.
Operations continued to be optimized, and net interest rates increased month-on-month. Q1 achieved a gross profit margin of 42.0%, up 6.0pct month-on-month, and is still at a historically high level (gross margin base was high last year); some results were achieved in terms of cost control. The Q1 three-fee rate ratio was 31.2%, down 1.1 pct year on year, down 1.3 pct month on month; Q1 net interest rate achieved 9.03%, up 0.1 pct year on year, and 4.8 pct month-on-month increase. In terms of cash flow. The company's net operating cash flow in Q1 reached 2.98 billion yuan, an increase of 28.3% over the previous year, and the cash flow was relatively healthy.
In the field of connectivity, we will continue to empower 5G-A/all-optical network/6G. For 5G-A, the company continues to cultivate core technologies such as chips and algorithms, and is deeply involved in the formulation of global 5G-A standards. It has cooperated extensively with domestic operators to carry out commercial deployments in several major scenarios, such as 10 gigabit experience, industrial field networks, REDCap, and ubiquitous intelligence, and further expand verification scenarios and use cases in the fields of global sensing and NTN. The joint operator completed application experiments in various scenarios, such as low-altitude economy, waterway management, etc., and collaborated with Unicom to complete 5GA adaptation in Shenzhen's core business district. In all-optical networks, the company seizes market opportunities such as gigabit optical access upgrades and 400G OTN optical transmission through self-developed chips and full-scenario solutions, and also launched the industry's first 800G pluggable solution.
In the field of computing power, enhance the ability to provide full-stack solutions. The company already has the ability to provide full-stack solutions such as hardware infrastructure, software platforms, large model capabilities, and industry AI application adaptation. At the hardware level, it provides a full range of full-scene intelligent computing products, adapts to mainstream GPUs at home and abroad, and provides diverse choices. In terms of software and engineering capabilities, it provides an efficient and easy-to-use AI platform to solve engineering challenges in the training process, and greatly improve GPU computing power utilization and large model training efficiency. The company is committed to building an open ecosystem, actively promoting software and hardware decoupling, model decoupling, training and deduction, and actively cooperating with the entire industry chain. The company's Q1 R&D expenses were 6.38 billion yuan, and the R&D cost rate was 20.9%, continuously empowering product innovation. On April 11, the company launched the high-performance AI server R6900 G5, the edge training all-in-one AiCube, a full range of network cards, and the high-end multi-control magnetic array KF8810.
Investment advice: The company connects the main business to enhance operational resilience, and the full stack deployment of computing power is expected to stimulate the company's growth potential. We expect the company's net profit to be 108/125/13.9 billion yuan in 2024-2026, respectively, with a PE ratio of 13/11/10X. Maintain a “Recommended” rating.
Risk warning: risks such as new product & technology development falling short of expectations; downstream demand falling short of expectations; 5G construction falling short of expectations.