2023&1Q24 results slightly lower than market expectations
Runjian Co., Ltd. announced 2023&1Q24 results: revenue for 2023 increased 8.2% year on year to 8.83 billion yuan, net profit to mother increased 3.4% year on year to 400 million yuan, and net profit after deducting non-net profit increased 4.9% year on year to 430 million yuan, which was slightly lower than market expectations due to impairment losses of goodwill of subsidiaries. In the fourth quarter of a single year, revenue remained flat at 2.07 billion yuan, net profit decreased 36.9% year over year to 38 million yuan, and net profit after deducting non-net profit fell 33.4% year on year to 35 million yuan. In 1Q24, revenue fell 6.8% year on year to 2.14 billion yuan, net profit to mother fell 8.7% year on year to 127 million yuan, and net profit after deduction fell 8.6% year on year to 125 million yuan. The slow progress of some projects led to a decrease in revenue recognition, and performance was slightly lower than market expectations.
Development trends
Energy and computing power networks are growing rapidly. In 2023, by business, the company's communication/information/energy/computing power network business revenue was +4.2%/-12.6%/+36.5% to 45.6/21.1/18.5/310 million yuan. The communications infrastructure business grew steadily, the energy and computing power network business grew rapidly, and the decline in information business revenue was mainly due to the company's customer and product restructuring, and the information business growth rate is expected to recover in 2024. On the gross margin side, the company's gross margin for the full year of 2023 was -1.2ppt to 17.9%. Among them, the gross margin of communications/information/energy/computing power networks decreased by 0.6/1.2/2.1/0.4ppt to 20.0%/16.7%/14.6%/16.1%, respectively. The energy business was affected by the implementation of some large-scale projects, and gross margin decreased. 1Q24 consolidated gross margin -1.3ppt to 17.1% yoy, +1.6ppt month-on-month. The company insists on technological innovation to drive development, and the cost investment is skewed towards technology research and development. The R&D expenditure rate in 2023 increased by 0.3ppt to 3.8% year-on-year. Excluding the impact of impairment of goodwill (approximately $0.2 billion), the company's adjusted net profit in 2023 was approximately RMB 460 million, an increase of 8% over the previous year. The company's net operating cash flow in 2023 was 193 million yuan, down 250 million yuan; accounts receivable increased by about 1 billion yuan year on year as of the end of 2023. According to the company's announcement, due to customer budgets, most of the 4Q23 revenue was not repaid in the current quarter. Continued attention should be paid to the company's repayments and cash flow in the future.
Breakthroughs have been made in computing power layout, AI commercialization progress, and integrated energy management and maintenance. The company continues to develop its computing power business, and has implemented computing power management and maintenance services at various supercomputing centers such as the National Supercomputing Center in Shenzhen and the China-ASEAN Artificial Intelligence Supercomputing Center; it continues to promote the construction of intelligent computing centers and build a good cooperative ecosystem with Internet vendors, vertical industries, and operator customers such as Alibaba Cloud and Baidu. AI commercialization is progressing, and the company has signed cooperation agreements with Baidu, Guangzhou Institute of Electronics of the Chinese Academy of Sciences, Dahua, etc., to actively promote the commercial application of AI models based on the “ruler” platform. In the energy business, as the price of photovoltaic modules drove up the speed of connecting new energy sources to the grid, the total installed capacity of the company's services and reserve projects exceeded 10GW by the end of '23.
Profit forecasting and valuation
Considering the uncertainty of order delivery, the 2024 revenue/net profit was reduced by 6.6%/11.4% to 10.75/6.3 billion yuan, and 2025 revenue of 13.25 billion yuan and net profit of 870 million yuan was introduced. Considering the valuation flexibility of the computing power business, it maintains an outperforming industry rating and target price of 50 yuan (based on 22/16x 2024/25e P/E). The current stock price corresponds to 16/12x 2024/25e P/E, with 41% upside.
risks
Major customers depend on risk; market competition increases risk; cross-regional management risk.