Incidents:
In 2023, the company achieved operating income of 8.826 billion yuan, up 8.17% year on year, achieved net profit of 439 million yuan, up 3.38% year on year, realized deducted non-net profit of 427 million yuan, up 4.10% year on year; 2024Q1 achieved operating income of 2.119 billion yuan, down 6.75% year on year, and realized net profit of 127 million yuan, down 8.71% year on year.
The information network business is under heavy pressure, and new energy sources are affected by delays in project acceptance:
By business, 1) The communication network business reached 4.561 billion yuan, an increase of 4.23% over the previous year. The overall communications business has maintained steady growth. We believe that as the company's market share in the industry continues to increase, it is expected to maintain steady growth; 2) The information network business achieved revenue of 2.11 billion yuan, a year-on-year decrease of 12.60%.
The information network business continues to be under pressure, and we expect the business to be mainly affected by the macro environment. We believe that with the recovery of the overall macro environment, the information network business is expected to gradually recover; 3) The energy network business achieved revenue of 1,845 billion yuan, an increase of 61.71% over the previous year, showing rapid growth. 4) The computing power business achieved revenue of 308 million yuan, an increase of 36.54% over the previous year. Under the AIGC wave, the company continues to expand major customers and is expected to maintain rapid growth.
Expect a return in gross margin:
The company's gross margin declined under pressure in '23, and the overall gross profit margin was 17.92%. The gross margins of all four major businesses are under pressure. 24Q1 gross margin rebounded month-on-month, but there is still a certain gap compared to the previous quarter. We expect gross margin to continue to rise.
In-hand orders increased year over year:
The company disclosed that at the end of '23, “the amount of revenue corresponding to performance obligations that have been signed but have not yet been fulfilled or not fulfilled” was 16.97 billion yuan, an increase of about 38% over the previous year. In 24Q1, on-hand orders increased by more than 30% year-on-year, and the company will continue to step up new business expansion efforts to maintain the company's continued healthy development.
At the same time, it continues to break through major customer cooperation in computing power. Recently, it has reached cooperation with Alibaba Cloud, Baidu, and Huawei, enabling continued rapid growth in the future.
Continued layout towards computing power:
① Based on Wuxiang Cloud Valley, the company switched to a computing power service. The company launched a computing power business. In the first phase, the company invested 200 million yuan to purchase the top computing power server in the industry to build Runjian Co., Ltd. Intelligent Computing Power Center to provide 2533Pops (Int8) fixed-point computing power or 43 Pflops (FP32) single-precision floating point computing power; in addition, the layout of the computing power center and IDC provides one-stop service for the entire life cycle.
② In terms of data services, the company can provide customers with integrated AI models and data services, including data governance, training, tuning, algorithm toolboxes, etc.
③ In terms of AI applications, the company released a “curved ruler” platform, which can generate artificial intelligence algorithms in the fields of vision, speech, and text, and enable customers to build artificial intelligence model applications in vertical fields.
The company actively embraces domestic computing power. The company has maintained a good cooperative relationship with leading domestic computing power companies. The cooperation between the two sides covers the fields of computing power, IDC, communications, digitalization, new energy, etc. Among them, they have cooperated on projects such as the China-ASEAN Artificial Intelligence Supercomputing Center in the field of computing power. Wuxiang Cloud Valley has also purchased some of its equipment. The company will continue to deepen the cooperative relationship based on its original business.
Profit forecast and investment advice: Due to the company's operating pressure in 23 years, demand in the information network business industry is expected to gradually improve. The company's 24-25 net profit forecast is 6.3/82 billion yuan (original value was 7.9/1.03 billion yuan), and the estimated net profit to mother for 26 is 1.04 billion yuan, corresponding to the current PE valuation of 16/12/10 times, maintaining a “buy” rating.
Risk warning: the risk of increased competition in the industry, the risk of AI-related business falling short of expectations, the risk that the pace of order conversion into revenue falls short of expectations, etc.