Incident: On April 29, 2024, the company released its annual report for the year 23. The company achieved revenue of 77.308 billion yuan, +4.39% year over year; realized net profit of 2.03 billion yuan, -2.54% year over year; net profit after deducting non-return to mother was 1,675 billion yuan, -4.80% year over year. 1Q24 achieved revenue of 17.06 billion yuan, +2.89% year over year; net profit to mother of 414 million yuan, -5.76% year over year; net profit after deducting non-return to mother of 342 million yuan, +1.75% year on year.
The performance is steady, and the operator and international business are gaining momentum. The company's performance increased steadily in '23. Among them, the ICT infrastructure and service business achieved revenue of 51,506 billion yuan, an increase of 10.15% over the previous year, accounting for 66.63% of revenue, and continued to increase.
Xinhua's revenue for the year 23 reached 51.939 billion yuan, an increase of 4.27% over the previous year; net profit of 3.411 billion yuan was achieved. (Xinhua 31) Domestic enterprise business progressed steadily, achieving revenue of 39.868 billion yuan, an increase of 1.86% over the previous year. 2) The domestic operator business showed a strong momentum of development, with revenue reaching 9.869 billion yuan, an increase of 11.75% over the previous year. 3) The overall sales scale of the international business continued to expand, with revenue reaching 2.02 billion yuan, up 19.70% year on year; revenue from H3C brand products and services was 1.41 billion yuan, up 62.04% year on year. In 23 years, the company achieved double-digit revenue growth in mature markets such as Japan; in key markets such as Southeast Asia, Central Asia, the Middle East, and Africa, cooperation with customers in the government, education, medical care, operators, enterprises and other industries was more extensive and deepened, achieving rapid growth; and investment in potential markets such as Europe continued to increase. 1Q24's various businesses progressed steadily, showing a good trend; 1Q24 Xinhua achieved revenue of 12.132 billion yuan, an increase of 14% over the previous year; net profit of 754 million yuan, an increase of 8.27% over the previous year.
The overall profit level is healthy and manageable. The company's consolidated gross margin in '23 was 19.60%, down 1.04pct year on year; among them, the gross margin of the ICT infrastructure and service business was 25.58%, down 2.15 pcts year on year. In terms of cost ratio, the company's 23-year sales/management/ R&D expense ratio was 5.55%/1.80%/7.30%, respectively. The year-on-year change was -0.19/+0.50/+0.14pct, and overall cost control was good. The company's 1Q24 comprehensive gross margin was 19.97%, up 1.14pct year-on-year, and sales/management/R&D expense ratios were 6.20%/1.42%/7.31%, respectively, with a year-on-year change of -1.13/+0.01/-1.14pct.
Deepen the “AI for ALL” strategy and strengthen the “cloud-network-security-computing-storage-end” full-stack business layout. According to IDC, the company continued to lead the market share of many products in 23 years. The company ranked second in the Chinese Ethernet switch, enterprise network switch, data center switch, and campus switch market with a market share of 32.9%, 34.2%, 28.4%, and 36.8% respectively; China's enterprise network router market share was 30.9%, continuing to rank second; China's enterprise WLAN market share was 27.4%, ranking first in the market; China's X86 server market share was 15.8%, maintaining second place in the market; China's GPU server market share was 19.7%, ranking second in the market. Xinhua News Agency 3 released a variety of innovative products and solutions, such as Aofei Computing Power Platform 3.0, G7 series modular heterogeneous computing power servers, next-generation AI storage Polaris series, intelligent computing network solutions, S12500AI computing power cluster switches, next-generation M9000-X flagship firewall, smart power consumption management solutions, and energy cloud solutions.
Investment advice: As a leader in the ICT sector, the company is expected to achieve rapid growth along with the digital economy and AI wave. We expect the company's net profit to be 26/31/3.7 billion yuan in 2024-2026, respectively, and the PE multiples corresponding to the current market value are 23x/19x/16x. Maintain a “Recommended” rating.
Risk warning: Overseas business expansion falls short of expectations; downstream demand falls short of expectations.