24Q1 revenue also increased 85%, benefiting from the high prosperity of the computing power industry
Inspur Information released its quarterly report. In Q1 of 2024, revenue of 17.607 billion yuan (Yoy +85.32%), net profit to mother was 306 million yuan (Yoy +64.39%), and non-net profit of 240 million yuan was deducted (YoY +40.15%). We believe that the rapid growth in the company's revenue reflects the high level of prosperity in the computing power industry. Driven by AI, large manufacturers may maintain a high level of capital expenditure, thereby driving the high growth of the computing power industry, and the company is expected to continue to benefit as an AI server leader. We expect the company's 2024-2026 EPS to be 1.45, 1.72, and 1.99 yuan respectively. Comparable to the 2024 Wind, the average PE is expected to be 23.4 times. Considering that the company is a leading global AI server with deep technology and channel accumulation, it will be given 35 times PE in 2024, with a target price of 50.67 yuan, a “purchase”.
Downstream demand is strong, with leading domestic servers benefiting from AI demand, which unleashed rapid revenue growth in 24Q1, an increase of 85.3% over the same period, mainly due to increased customer demand and server sales growth. The company's contract debt at the end of 24Q1 reached 4.14 billion yuan, an increase of 116.47% over the beginning of the period, mainly due to an increase in pre-received customer payments. Looking at downstream demand, the combined capital expenditure of CY24Q1, Google, Microsoft, and Meta was 29.4 billion US dollars, an increase of 49.1%, and a 3.5% increase. Downstream companies' capital expenditure grew rapidly, and capital expenditure related to AI boosted the prosperity of the computing power industry chain. According to Gartner and IDC, the company's market share of artificial intelligence servers in 2022 was number one in the world for 3 consecutive years, and the market share was number one in China for 6 consecutive years, making it the leading AI server market in the world. We believe that as a global leader in AI servers, the company is expected to continue to benefit from the release of downstream AI-related computing power requirements.
Actively prepare goods to seize industry opportunities, improve R&D and delivery efficiency, accelerate order conversion, companies actively prepare goods, and seize opportunities to release downstream demand. Monetary capital at the end of 24Q1 decreased by 40.76% compared to the beginning of the period, and net cash flow from operating activities was 3.485 billion yuan, a year-on-year decrease of 6000.37%, mainly due to the expansion of business scale and increase in procurement payments. The company actively prepared stocks. At the end of 24Q1, inventory was 24.29 billion yuan, an increase of 27.1% over the beginning of the period. The company actively promoted intelligent research and development. The average cycle of new product development was reduced from 1.5 years to 8 months, built an intelligent engine for supply chain planning, and shortened the order delivery cycle from 15 days to 5-7 days. We believe that the company will actively seize AI opportunities, continuously improve the speed of product iteration and delivery, and that revenue is expected to continue to grow rapidly as orders gradually transform into revenue.
Focus on AI industry trends, AI may drive revenue
In 24Q1, the company's net profit margin was 1.7%, -0.5pct year on year, and the overall gross margin was 8.08%, a year-on-year change of -4.60pct. The sales/management/ R&D expenses rate was 1.53%/0.72%/3.59%, -0.84pct/-0.90pct/-3.22pct year-on-year. The company continues to promote technological innovation. In 2023, it will release products such as a new-generation G7 computing power platform and the latest generation AI training server NF5688G7 with integrated architecture. Future orders may gradually be converted to revenue. Furthermore, due to strong demand for AI servers, Wave's ability to bargain downstream is expected to increase, which is expected to drive a gradual restoration of profitability.
Risk warning: risk of macroeconomic fluctuations; increased market competition; supply chain risk.