Core views

The company's short-term growth rate is under pressure due to the effects of business strategy adjustments in the information network business field and delays in the implementation of some energy network business projects. The company currently has sufficient orders, with a year-on-year increase of more than 30%. The overall communication network business is growing steadily. Early adjustments to the information network business have been initially completed, the energy network business has good follow-up prospects, and future performance is expected to resume good growth. Facing AI opportunities, the company is expected to open up new growth space for the company based on early accumulation and comprehensive strategic upgrades.

occurrences

The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 8.826 billion yuan, an increase of 8.17% over the previous year, and realized net profit of 439 million yuan, an increase of 3.38% over the previous year. In the first quarter of 2024, the company achieved revenue of 2.119 billion yuan, a year-on-year decrease of 6.75%; realized net profit to mother of 127 million yuan, a year-on-year decrease of 8.71%.

Brief review

1. In 2023, the energy and computing power business grew rapidly, and the information business management strategy was adjusted.

In 2023, the company achieved revenue of 8.826 billion yuan, an increase of 8.17% over the previous year; achieved net profit of 439 million yuan, an increase of 3.38% over the previous year; realized net profit of 427 million yuan after deduction, an increase of 4.10% over the previous year. In 2023, the company calculated a goodwill impairment of 20.87 million yuan. In 2023, the company expects total cash dividends of 174 million yuan, accounting for 39.79% of net profit due to mother in 2023.

The decline in the company's revenue growth rate in 2023 was mainly due to adjustments in the company's information business management strategy. In 2023, the company's communications network business revenue was 4.561 billion yuan, up 4.23% year on year; information network business revenue was 2.11 billion yuan, down 12.60% year on year. The decline in information business was mainly due to the company actively adjusting its business strategy, strictly implementing the business development strategy of “focusing on customers, focusing on channels, focusing on products, and replicating models”, and adjusting customer structure and product structure; energy network business revenue was 1,845 million yuan, up 61.71% year on year; computing power network business revenue was 308 million yuan, up 36.54% year on year.

In 2023, the company's comprehensive gross profit margin was 17.92%, down 1.18 pcts year on year, including: gross profit margin of communication network business was 19.95%, down 0.58 pcts year on year; gross profit margin of information network business was 16.66%, down 1.20 pcts year on year; gross profit margin of energy network business was 14.64%, down 2.11 pcts year on year; gross profit margin of computing power network business was 16.11%, down 0.36 pcts year on year.

2. Increase investment in R&D, strengthen cost control such as sales and management expenses, and improve operating efficiency.

In 2023, the company's consolidated gross profit margin was 17.92%, a year-on-year decrease of 1.18pcts. Among them, the gross profit margin of the communication network business was 19.95%, a decrease of 0.58 pcts; the gross profit margin of the information network business was 16.66%, a decrease of 1.20 pcts; the gross profit margin of the energy network business was 14.64%, a decrease of 2.11 pcts; and the gross profit margin of the computing power network business was 16.11%, a decrease of 0.36 pcts year on year. The gross margin of the energy network business declined significantly, mainly due to the implementation of some large-scale important projects and a slight decline in gross margin.

In 2023, the company's three period expenses (sales expenses, R&D expenses, and management expenses) totaled 867 million yuan, an increase of 3.52% over the previous year. In 2023, the company's sales expenses were 274 million yuan, down 2.54% year on year, and management expenses were 260 million yuan, down 4.88% year on year, reflecting the company's cost control effectiveness. Further increase R&D investment to enhance competitive advantage. In 2023, the company's R&D expenses were 333 million yuan, an increase of 17.68% over the previous year.

3. Revenue and profit declined in the first quarter of 2024 in the short term, and on-hand orders increased by more than 30% year-on-year, supporting a return to better growth in future performance.

In the first quarter of 2024, the company achieved revenue of 2.119 billion yuan, a year-on-year decrease of 6.75%; realized net profit of 127 million yuan, a year-on-year decrease of 8.71%; realized net profit of 125 million yuan after deduction, a year-on-year decrease of 8.65%. The decline in the company's short-term performance in the first quarter was mainly due to a high base in the first quarter of 2023, early strategy adjustments in the information business, and delays in the implementation of some large-scale new energy projects in the energy network business. The company had sufficient orders in progress, with a year-on-year increase of more than 30%, supporting a return to better growth in future performance. In the first quarter of 2024, the company's comprehensive gross profit margin was 17.07%, down 1.34pcts year on year. The total cost of the three items (sales, management, R&D) was 196 million yuan, down 8.34% year on year.

4. Comprehensive strategic upgrade, AI and computing power are expected to open up new growth space for the company.

In 2023, the company released an artificial intelligence strategy and technological innovation strategy. Based on computing power services and data services, the company forges industry models, products, and solutions with core competitiveness through the “curve ruler” generative artificial intelligence industry model development platform independently developed by the company, empowering communication networks, information networks, energy networks, etc., and is committed to becoming an industry-leading artificial intelligence industry model and computing power service provider.

Among them, the company's computing power services mainly cover the operation and maintenance of computing power centers and intelligent computing cloud services. The company's computing power management and maintenance services have been implemented in various supercomputing centers such as the National Supercomputing Shenzhen Center and the China-ASEAN Artificial Intelligence Supercomputing Center, and launched the “One City, One Computing” computing power center service business development action strategy to further accelerate the rapid expansion of the computing power service business. In terms of intelligent computing cloud services, on the basis of the Wuxiang Yungu Cloud Computing Center, the company increased investment in upgrading computing power services, procured high-performance computing power servers, and continued to invest in domestic intelligent computing cloud services according to market demand. Currently, the company has reached cooperation with Internet vendors, vertical industries, and operator customers such as Alibaba Cloud and Baidu, to gradually generate revenue.

5. Profit forecasts and investment suggestions.

The company's short-term growth rate is under pressure due to the effects of business strategy adjustments in the information network business field and delays in the implementation of some energy network business projects. The company currently has sufficient orders, with a year-on-year increase of more than 30%. The overall communication network business is growing steadily. Early adjustments to the information network business have been initially completed, and the subsequent prospects for the energy network business are good, and future performance is expected to resume good growth. Facing AI opportunities, the company is expected to open up new growth space based on early accumulation and comprehensive strategic upgrades. We expect the company's 2024-2026 revenue to be 10.634 billion yuan, 12.531 billion yuan, and 14.522 billion yuan, respectively, and net profit to mother of 601 million yuan, 771 million yuan, and 964 million yuan respectively. Corresponding to the current stock price PE, it is 15X, 12X, and 9X, respectively, maintaining a “buy” rating.

6. Risk warning: Risk reliance on major customers. The company is the largest private enterprise in the field of communication network management and maintenance. The communication network management and maintenance business is the company's main source of revenue. China Mobile and its branches/subsidiaries are the company's main customers. If future developments in its business strategy, entry conditions, investment/expenditure scale adversely affect the company's communication network management and maintenance business, it may have a significant impact on the company's communication network management and maintenance business. The digital transformation of enterprises and the development of the cloud computing industry fell short of expectations. The company achieved rapid development in the field of enterprise digitalization and IDC management and maintenance. If the digital transformation and cloud computing development fall short of expectations in the future, it will adversely affect the company's business. Market competition has intensified. In the fields involved in the company's management and maintenance business, market competition incentives will adversely affect the company's performance if the level of competition in the industry in which the company is located increases in the future. The development of the AI industry and the progress of the company's AI and computing power business fell short of expectations.