Incidents:
On April 26, 2024, the company released its 2024 quarterly report: 2024Q1. The company achieved revenue of 29.272 billion yuan, +7.95% year-on-year; net profit to mother was 235 million yuan, +12.35% year-on-year.
Investment highlights:
2024Q1's profit margin increased year on year. R&D investment helped Wenxue+ Kuntai product iteration 2024Q1. The company's gross margin was 4.57%, +0.89pct year on year, net interest rate was 0.85% and +0.04pct year on year; sales/management/finance expenses were 1.54%/0.28%/0.76% year over year, respectively, -0.01/0.02/0.61 pct year on year. The increase in financial expenses was mainly due to the cessation of capitalization of financial expenses and changes in foreign currency business exchange profit and loss after completion of the Shenzhen Bay headquarters base.
2024Q1, the company's R&D expenses were 87 million yuan, +23.76% year-on-year. Supported by R&D investment, Shenzhou Kunxue products accelerated iteration; a series of own-brand products such as the Shenzhou Kuntai All-in-One Machine and Shenzhou Kuntai Self-developed Server were launched; 14 Shenzhou Kuntai servers passed the “General Server Government Procurement Requirements Standard Special Assessment”; various data security products were successfully listed in the Security Bull, FreeBuf, Cloud Security Alliance reports and maps in nearly 10 segments.
AI is driving the acceleration of digital cloud integration, and the share of strategic business broke double digits for the first time in 2024Q1. The company is actively developing layout in the intelligent computing and pan-AI industries. By business: 1) Distribution business: revenue of about 26.34 billion yuan.
2) Independent brand: 2024Q1, independent brand business revenue of 1.25 billion yuan, of which Xinchuang business revenue was 1,138 billion yuan, +166% year-on-year, laying a solid foundation for rapid growth throughout the year. Shenzhou Kuntai's AI computing power business is growing rapidly, and the revenue scale in a single quarter is close to the full year of 2023. The Shenzhou Digital Shenzhen Artificial Intelligence Computing Center project was also officially launched in the first quarter and will be put into operation in the near future.
3) Cloud business: 2024Q1, cloud and digital business revenue of 1.68 billion yuan, of which high-value digital cloud business (MSP+ISV) revenue was 366 million yuan, +127% year-on-year, accounting for an increase of 11 pcts in the overall cloud and digital business compared to 2023Q1. The business structure was further optimized and profitability increased. The revenue share of the two major strategic businesses of cloud, digitalization, and independent brands surpassed double digits for the first time.
4) Going overseas+automobile business: 2024Q1, the company officially announced “going overseas” for the first time. The international business headquarters settled in the Greater Bay Area of Shenzhen and signed a Memorandum of Understanding (MOU) on cooperation with Thailand's Ministry of Digital Economy and Social Affairs, opening a new chapter of international layout. In addition, the company set up an automotive industry team to test and develop asset listing practices with its subsidiaries Hi-Tech Digital Exchange and Shenzhen Data Exchange.
Domestic intelligent computing policies help autonomy and control. On April 25, China Mobile's AI server procurement exceeded expectations. On April 25, Beijing issued the “Beijing Computing Infrastructure Construction Implementation Plan (2024-2027)”, which proposes that the supply of intelligent computing in Beijing will reach 45 Eflops in 2025, that the full stack of intelligent computing infrastructure software and hardware products will be autonomous and controllable in 2027, with the ability to build 100% autonomous and controllable intelligent computing centers. We believe that Shenzhou Digital is a leading partner of Huawei Ascend and is expected to continue to benefit from policies that promote autonomous and controllable intelligent computing.
China Mobile's AI server procurement frequency and volume have exceeded expectations, and demand for AI computing power is strong. On April 18, China Mobile Procurement and Bidding Network issued an announcement stating that it will launch procurement tenders for the new intelligent computing center from 2024 to 2025, and will purchase 8054 devices, including 7,994 artificial intelligence servers and supporting products, and 60 white box switches.
Profit forecast and investment rating: The company adheres to the three-in-one strategic layout of “digital cloud+intelligent computing+generative AI” and is committed to becoming a leading digital transformation partner. We expect that in 2024-2026, the company's net profit will be 1,437/17.30/2,034 billion yuan, EPS will be 2.15/2.58/3.04 yuan/share, respectively, and the PE corresponding to the current stock price will be 14.49/12.04/10.24X, respectively, maintaining the “buy” rating.
Risk warning: Big models fall short of expectations, macroeconomic downturn affects downstream demand, market competition intensifies, Xinchuang's progress falls short of expectations, computing power investment falls short of expectations, etc.