In 2023, the company achieved revenue of 77.31 billion yuan, a year-on-year increase of 4.4%, net profit to mother of 2.10 billion yuan, a year-on-year decrease of 2.54%; deducted non-net profit was 1.68 billion yuan, a decrease of 4.8% year-on-year. In the first quarter of 2024, the company achieved revenue of 17.01 billion yuan, an increase of 2.9% year on year; net profit to mother was 410 million yuan, a decrease of 5.8% year on year.
The ICT infrastructure and service business is growing rapidly, and the scale of overseas business continues to expand. In 2023, the company's ICT infrastructure and service business, IT product distribution and supply chain services, and other business revenue were +10.2%/-9.8%/-23.7% year-on-year, respectively; the revenue ratio was 66.6%/37.7%/0.2%, respectively. The company focuses on the core ICT infrastructure and service business, and its share of revenue continues to rise, corresponding to the relevant subsidiary Xinhua achieving revenue of 51.939 billion yuan in 2023, an increase of 4.27% over the previous year. Among them, domestic enterprise business progressed steadily, achieving revenue of 39.868 billion yuan, up 1.86% year on year; domestic operator business developed strongly, with revenue reaching 9.869 billion yuan, up 11.75% year on year; international business sales continued to expand, with revenue reaching 2.02 billion yuan, up 19.70% year on year. In the first quarter of 2024, Xinhuasan's revenue increased 14% year over year, and net profit increased 8.3% year over year.
Costs and expenses are well controlled. Competition in the industry is fierce, and the sales product structure changed slightly. The company's comprehensive gross profit margin in 2023 was 19.6%, a year-on-year decrease of 1.3 pct. The share of server revenue increased, and the gross margin of the ICT infrastructure and service business decreased by 2.15 pct year-on-year. As the share of AI-related high-value products increased, gross margin improved in the first quarter of 2024, rising 3.88pct to 35.63% year over year. Overall cost control is good. In 2023 and the first quarter of 2024, the company's R&D expenses rate and sales expenses rate were basically flat compared to the same period last year, and the management fee rate increased slightly, mainly due to the increase in personnel adjustments in the three new countries.
The company built a “cloud-network-security-computing-storage-end” full-stack business layout and proposed an “AI for ALL” industry empowerment strategy. The company's layout revolves around the AIGC private domain model, multiple heterogeneous computing power platforms, high-quality networks, cloud and intelligent products, active security solutions, intelligent energy consumption management, intelligent operation and maintenance, etc., and continues to lead the market share of many products. According to IDC data, the company's core ICT equipment such as switches, servers, and routers continued to maintain the second-highest competitiveness in the market in 2023. The company also released a series of products such as the “Baiye Lingxi LinSeer” private domain large model, large model enabling platform, and AI assistant, and built a full-link, end-to-end solution from data governance, training, and reasoning to application.
Risk warning: AI development falls short of expectations; demand for industrial digitalization is slowing down; deployment of computing networks falls short of expectations.
Investment advice: Lower the profit forecast. The net profit for 2024-2026 is expected to be 23/27/30 billion yuan (the previous forecast was 30/35/4.1 billion yuan), and the PE corresponding to the current stock price is 26/23/20 times; assuming that a wholly-owned holding of Xinhua 3 is completed this year, the net profit for exam preparation is 46/52/59 billion yuan, corresponding PE is 13/12/10X. I am optimistic that the company will benefit from the development of the AI industry and maintain a “buy” rating.