FY23&1Q24 results are in line with our previous expectations
Ziguang Co., Ltd. announced its 2023 annual report: in 2023, the company achieved operating income of 77.308 billion yuan, an increase of 4.39%; realized net profit to mother of 2.03 billion yuan, a year-on-year decrease of 2.54%, in line with our previous expectations. Corresponding to the single quarter of 4Q23, the company achieved operating income of 22.093 billion yuan, an increase of 9.55% over the previous year; net profit to mother was 562 million yuan, an increase of 8.50% over the previous year.
The company announced its 2024 quarterly report: In the single quarter of 1Q24, the company achieved operating income of 17.06 billion yuan, an increase of 2.89% over the previous year; realized net profit of 414 million yuan, a year-on-year decrease of 5.76%, in line with our previous expectations.
Development trends
As a leading ICT equipment manufacturer, the company is actively embracing the AI wave. In 2023, the company officially released the “AIGC Open Strategy” and launched a 51.2T 800G CPO silicon data center switch and various GPU servers. The intelligent computing flagship H3C UniServer R5500 G6, which serves large-scale model training, has been applied in Internet companies and multiple intelligent computing center projects. In addition, the company has deployed full-stack ICT liquid cooling products and solutions, and has released a full range of G6 liquid-cooled DC switches. By sector, in 2023, the company's ICT infrastructure and service revenue increased 10.15% year on year to reach 51,506 billion yuan, and gross margin fell 2.15 pct to 25.58% year on year. We believe that part of the reason is that IT equipment revenue with relatively low gross margin has increased; IT product distribution and supply chain service revenue fell 9.83% year on year to 29.132 billion yuan. We believe that as a leading manufacturer of ICT equipment, the company has one-stop integrated service capabilities and is expected to benefit from the wave of AI and growing demand for computing power.
The operator business has maintained rapid growth and is actively expanding overseas H3C brand products and services. In 2023, the core subsidiary Xinhua 3 achieved revenue of 51.939 billion yuan, a year-on-year increase of 4.27%; specifically, the domestic operator business maintained a rapid growth trend. The company won bids for a number of major collection projects including China Mobile, China Telecom and China Unicom, and steadily took the lead in data center switches, servers, firewalls, etc., participated in the construction of China Mobile's new intelligent computing center, and won the bid for China Telecom's AI computing power server procurement project. Revenue increased 11.75% year on year to 9.869 billion yuan; international business revenue increased by 11.75% year on year to 9.869 billion yuan; international business revenue increased year-on-year 19.70% reached 2.02 billion yuan, of which revenue from H3C brand products and services reached 1.41 billion yuan, up 62.04% year on year; domestic enterprise business progressed steadily, up 1.86% year on year to 39.868 billion yuan. We are optimistic about the company's business expansion in operators and international markets. At the same time, the digital/intelligent transformation of society supports the company's long-term scale expansion.
Profit forecasting and valuation
We basically kept our net profit of 2,691 billion yuan unchanged in 2024, and introduced net profit of 3.157 billion yuan in 2025 for the first time. The current stock price corresponds to 2024/2025 22.3/19.0 times P/E.
Maintaining an outperforming industry rating and target price of 28.33 yuan, corresponding to 2024/2025 30.1 times/25.7 times P/E, there is 35% room for growth compared to the current stock price.
risks
Equity acquisitions are uncertain, supply chains are at risk of being restricted, and digital transformation falls short of expectations.