Event Overview:
1) Recently, Inspur Information released the “2024 First Quarter Report”. In the first quarter, the company achieved operating income of 17.607 billion yuan, up 85.32% year on year; net profit to mother was 306 million yuan, up 64.39% year on year; net profit after deducting non-return to mother was 240 million yuan, up 62.96% year on year.
2) Recently, Inspur Information released the “2023 Annual Report” (updated). In 2023, the company achieved operating income of 65.867 billion yuan, a year-on-year decrease of 5.41%; net profit to mother was 1,783 billion yuan, a year-on-year decrease of 14.54%; net profit after deducted from mother was 1,118 billion yuan, a year-on-year decrease of 35.87%.
Single-quarter results continued to recover, or lay the foundation for a steady increase in this year's performance in 2023. By business, ① server and component revenue was 65.240 billion yuan (YoY -5.53%). ② IT terminal and component revenue was $393 million (YoY +29.77%).
③ Other business revenue was $234 million (YoY -14.73%). In 2023, the company's sales/management/ R&D expenses ratio was 2.21%/1.16%/4.66%, respectively, +0.04/+0.11/+0.07pct. The net cash flow from operating activities was $520 million (YoY -71.30%), mainly due to increased operating preparation and increased procurement payments.
According to the annual report, in 2023, the company continued to focus on smart computing represented by cloud computing, big data, and artificial intelligence, and continued to innovate in R&D, production, delivery, and service models. According to the latest data released by Gartner and IDC, the company's market share of servers and storage products continues to be at the top of the world: second in the world in 2023, number one in China; in 2023, top three in the storage world, number one in China; and number one in liquid cooled servers in China in 2023.
Since the fourth quarter of 2023, the company's performance has continued to recover. Q4 2023 achieved operating income of 17.77 billion yuan (YoY +6.04%) and net profit of 996 million yuan (YoY +86.52%); Q1 2024 achieved operating income of 17.607 billion yuan (YoY +85.32%) and net profit of 306 million yuan (YoY +64.39%). The continued increase in single-quarter results was mainly due to increased customer demand and increased server sales; contract liabilities for the first quarter of 2024 increased by 116.47% compared to the beginning of the period, mainly due to an increase in pre-received customer payments.
There is an urgent need for computing power infrastructure construction at home and abroad, and industry expectations are optimistic about the domestic market. On January 4, 2024, 17 departments including the National Data Administration jointly issued the “Data Factor ×” three-year action plan, which aims to use the amplification, superposition, and multiplication effects of data elements to build a digital economy with data as the key element; on April 25, the Beijing Municipal Bureau of Economy and Information Technology and the Beijing Communications Administration jointly issued the “Beijing Computing Power Infrastructure Construction Implementation Plan (2024-2027)”, which aims to respond through systematic strategies and clear implementation steps Increasing demand for computing power. On the other hand, generative artificial intelligence has opened the door to cognitive intelligence for humans, leading a new round of technological revolution and industrial transformation around the world. Since entering 2024, the AI craze has moved from literature, literature, and maps to the field of Wensheng video. The development of AI has shifted from perceptual intelligence to generative intelligence, and demand for AI computing power will increase dramatically.
In overseas markets, the latest three-quarter report of the North American computing power supplier Ultra Micro Computer shows that the profit for the three fiscal quarters ending March 31, 2024 was US$855 million, up 91.61% year on year; total revenue was US$9.635 million, up 95.09% year on year. Four of the world's leading cloud vendors, Microsoft, Google, Amazon, and Meta, have released financial reports one after another. CapEx continued to grow in the first quarter of 2024. AI computing power is a key investment direction for these companies. We believe that the high performance of AI server manufacturers, combined with the increase in capital expenditure of cloud vendors in terms of AI computing power, reflects the current and future accelerated development of the global artificial intelligence industry, and the strong demand for AI computing power will continue to increase, and AI computing power may become the AI industry chain segment with the strongest investment certainty. The company is expected to benefit from high demand for computing power at home and abroad with its smart computing products and services, and achieve continuous improvement in performance throughout the year.
Investment advice
Inspur Information is a leader in the server field. In the short term, it may benefit from a new server growth cycle and a recovery in downstream demand, and is expected to increase investment value in the accelerated trend of computing power infrastructure in the future. The company is expected to achieve operating income of 779.06/900.86/106.353 billion yuan in 2024-2026, and realized net profit to mother of 22.85/28.96/3.64 billion yuan, respectively. Maintaining the buy-A investment rating, a 6-month target price of 54.33 yuan is given, which is equivalent to a dynamic price-earnings ratio of 35 times in 2024.
Risk warning:
Data center construction falls short of expectations; technology research and development falls short of expectations; demand in industries such as the Internet falls short of expectations; supply chain risks.