Incident: Shenzhou Digital released its 2024 quarterly report. In 2024Q1, the company achieved operating income of 29.272 billion yuan, +7.95% year on year; net profit to mother of 235 million yuan, +12.35% year on year; deducted non-net profit of 203 million yuan, -14.73% year on year.

The share of strategic business revenue continues to rise, and independent brands have performed well. In 24Q1, the company's cloud and digital business revenue reached 1.68 billion yuan, of which high-value digital cloud business (MSP+ISV) achieved revenue of 366 million yuan, an increase of 127% over the previous year. The independent brand business achieved revenue of 1.25 billion yuan, of which the Xinchuang business achieved revenue of 1,138 billion yuan, an increase of 166% over the previous year; the AI computing power-related business achieved explosive growth, and the revenue scale in a single quarter was close to that of last year. The company's business structure was further optimized to drive continuous improvement in profitability, and 24Q1 gross margin increased by 0.89pct year-on-year.

Demand for computing power is growing rapidly, and independent brands are expected to continue to benefit. Since this year, China Mobile and China Unicom have successively issued tenders for AI server collection, and the number of purchases reached 1,250 units and 2503 units respectively. Recently, China Mobile once again issued a tender notice for the procurement of a new intelligent computing center from 2024 to 2025, and plans to purchase up to 7,994 AI servers. Benefiting from the capital expenses of the three major operators actively investing in AI computing power construction, the company's own-brand computing power server and all-in-one computer products are expected to expand.

Lay out overseas markets and develop the automotive industry. The company's international business headquarters settled in the Greater Bay Area of Shenzhen and signed a Memorandum of Understanding (MOU) with Thailand's Ministry of Digital Economy and Social Affairs, opening a new chapter in international layout. At the same time, the company set up an automotive industry team to create a data asset listing case with its subsidiary Hi-Tech Shuju and Shenzhen Data Exchange; launched a full-link operation service for the first comprehensive NEV live streaming base in China to create a differentiated competitive advantage with data as the core.

Investment advice: The company's revenue for 2024-2026 is estimated to be 1259.39/1328.19/140.372 billion yuan, respectively, net profit to mother of 14.05/16.89/19.39 billion yuan, and EPS of 2.10/2.52/2.90 yuan respectively, giving it a “buy” rating.

Risk warning: Localization of computing power falls short of expectations, Xinchuang's progress falls short of expectations, demand for computing power has fallen short of expectations, and industry competition has intensified.