Incidents:
On April 25, 2024, the company released its 2024 quarterly report. During the reporting period, it achieved revenue of 30.578 billion yuan, up 4.93% year on year; net profit to mother of 2,741 billion yuan, up 3.74% year on year; net profit after deduction of 2,649 billion yuan, up 7.90% year on year.
Cost and period expenses are well controlled
The company's gross margin for 2024Q1 was 42.02%. Although the year-on-year decrease was 2.47 pct, compared with the full year of 2023, an increase of 0.49 pct and a month-on-month increase of 5.98 pcts, thanks to the company's strong cost control. 2024Q1's sales/management/R&D/finance expense rates were 6.67%/3.72%/20.85%/-0.21%, respectively, -0.79pct/-0.80pct/+0.49pct/+0.41pct, year-on-year, and -2.72pct/-1.51pct/+2.98pct/+0.40pct, respectively.
The company continues to invest in research and development, and has established a number of product lines, laboratories and other specialized organizations in the field of artificial intelligence to support the development of intelligent computing power and the research and development of diversified intelligent computing solutions. 24Q1 The company's financial expenses increased by 64.86% year-on-year, mainly due to exchange losses due to exchange losses due to exchange rate fluctuations in the current period, and hedge accounting for earnings and fair value hedging for the same period of the previous year was used. The company's net sales margin for 2024Q1 was 9.03%, up 0.06pct year on year, 1.59pct higher than the full year of 2023, and 4.77pct month-on-month. On the other hand, the 24Q1 company's other revenue increased 68.85% year over year, mainly due to the increase in revenue due to the current VAT credit policy.
The first curve “connectivity” grew steadily, and the second curve “computing power” accelerated expansion. In 2023, the company's 5G base station and 5G core network shipments ranked second in the world for four consecutive years. In terms of computing power, the company has launched AI servers such as R5300 G5 and R6500 G5 for different needs. In terms of consumer business, the company's mobile internet product 5G FWA & MBB continues to rank first in the global market.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 1339.27/1460.05/159.206 billion yuan, respectively, with year-on-year growth rates of 7.79%/9.02%/9.04%, net profit to mother of 108.70/126.99/14.842 billion yuan respectively, with year-on-year growth rates of 16.56%/16.83%/16.87%, EPS 2.27/2.65/3.10 yuan per share, respectively, and a 3-year CAGR of 16.75%. The company's first curve is growing steadily, and at the same time, it has launched a series of new products for AI, high-performance computing, etc., to stimulate second growth potential. We gave the company 16 times PE in 2024, with a target price of 36.32 yuan, which was raised to a “buy” rating.
Risk warning: Competition intensifies, industry demand falls short of expectations, and new product development falls short of expectations.