Key points of investment:
Event: On April 30, 2024, the company released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 77.308 billion yuan, a year-on-year increase of 4.39%, and realized net profit of 2.03 billion yuan to mother, a year-on-year decrease of 2.54%. In the first quarter of 2024, the company achieved operating income of 17.06 billion yuan, a year-on-year increase of 2.89%, and realized net profit of 414 million yuan to mother, a year-on-year decrease of 5.76%.
Incident analysis:
Revenue grew steadily, and R&D efforts continued to increase. As a global leader in next-generation cloud computing infrastructure construction and smart application services in the industry, the company provides full-stack ICT infrastructure and services such as intelligent networks, computing, storage, cloud computing, security, and smart terminals. In 2023, the company achieved revenue of 77.308 billion yuan, up 4.39% year on year. Among them, the ICT infrastructure and service business achieved revenue of 51,506 billion yuan, up 10.15% year on year, accounting for 66.63% of revenue, realized net profit to mother of 2.03 billion yuan, down 2.54% year on year, realized deducted non-net interest rate of 1,675 billion yuan, down 4.80% year on year, and gross profit margin 19.60%. In the first quarter of 2024, the company achieved operating income of 17.06 billion yuan, a year-on-year increase of 2.89%, and realized net profit of 414 million yuan to mother, a year-on-year decrease of 5.76%. The holding subsidiary Xinhua 3's revenue in 2023 reached 51.939 billion yuan, an increase of 4.27% over the previous year, and achieved net profit of 3.411 billion yuan. The company continues to step up product and solution research and development efforts. In 2023, it invested 5.643 billion yuan in R&D, an increase of 6.50% over the previous year, with 7,693 R&D personnel, accounting for 40% of the company's total number of employees. The total number of patent applications exceeded 14,000, of which more than 90% were invention patents, and participated in 3 issued international standards, 65 national standards, and 115 industry standards.
Build Yunzhi's native digital platform and seize the high ground of AI computing power. In 2023, the company launched the “AIGC Open Strategy”, comprehensively laid out the AIGC field, and released a series of products such as the “Baiye LinSeer” private domain model, the Baiye LinSeer large model enabling platform, and the Baiye Ling Xi AI assistant. The company launched various switch products such as the world's first single-chip 51.2T 800GCPO silicon optical data center switch, 800G standard switch, and next-generation intelligent computing AI core switch to fully meet the three requirements of intelligent computing networks: high throughput, low latency, and green energy saving. The all-optical network 3.0 solution was released, enabling users to use a single architecture to solve various needs. The company launched routers such as the CR16005E-F and CR16010E-F and continued to break through in the field of operators, winning bids for several important projects and advancing implementation in China Telecom, China Mobile, and China Radio and Television. A variety of GPU servers and corresponding liquid-cooled models, the H3C UniServer R5350 G6, and an AI one-stop development platform for AIGC scenarios were launched to help enterprises implement AIGC applications. The next-generation Oasis Platform 3.0 was released to form product+solution+service integration capabilities to help customers continue to innovate their business. Launch a cloud-native full-link observation platform to create superior capabilities for cloud-native application operation and maintenance. Security solutions such as a new generation of M9000-X flagship firewalls, application delivery security gateway products, AIGC large model security solutions, data security solutions, and vehicle networking security solutions were launched to fully enable various security application scenarios.
Deepen the digital transformation of the industry and accelerate international business expansion. In 2023, the company ranked second in China's Ethernet switch, enterprise network switch, data center switch, campus switch market, enterprise network router market, X86 server market, GPU server market, and hyperconverged market with a market share of 32.9%, 34.2%, 36.8%, 30.9%, 15.8%, 19.7%, and 18.8% respectively; the Chinese enterprise WLAN market and blade server market ranked first with a market share of 27.4% and 51.7% respectively. The company serves the digital transformation of more than 10,000 enterprises, including more than 300 Fortune 500 companies, more than 400 Chinese Fortune 500 companies, and more than 90% of central enterprise customers. In 2023, Xinhua 3 will continue its global layout, accelerate overseas market expansion, and release a new overseas strategy. Cooperation with local governments, education, healthcare, operators, enterprises, etc. in Southeast Asia, the Middle East, and Central Asia is more extensive and deepening in the field of digital transformation. Participate in projects such as Saudi NEOM Xincheng to provide high-performance products and solutions for local operators in Thailand and Kazakhstan. The overall sales scale of Xinhua's three international businesses continued to expand, with revenue reaching 2.02 billion yuan, an increase of 19.70% over the previous year.
Investment advice: We believe that the company will directly benefit from the digital economy and market growth brought about by the explosion of computing power, and will maintain high growth for a long time, but due to the external environment, we will adjust the company's profit situation and forecast the company's 2024-2026 revenue of 896.77/1013.35/109.442 billion yuan, up 16.0%/13.0%/8.0% year on year. The company's net profit to mother was 25.87/33.92/36.36 billion yuan, respectively, up 23.0%/31.1%/7.2% over the previous year, corresponding to EPS 0.90/1.19/1.27 yuan, the current market value corresponds to PE of about 23.2/17.7/16.5 (assuming 100% results of Xinhua 3 in 2024, the company's net profit for 2024-2026 is estimated to be about 42.53/50.58 billion yuan, PE 14.1/11.8/11.3); considering the company's leading position in the industry and business development, we believe that the company is currently in the underestimated stage and maintains a “buy-B” rating.
Risk warning: New product development falls short of expectations; market competition continues to intensify; accounts receivable are not collected in a timely manner; and the acquisition of shares in the three Xinhua companies falls short of expectations.