Core views

The company's performance continued to grow rapidly in 2023. Data center technology product solutions remain leading, intelligent computing business is being actively promoted, and operation and management capabilities are further improved; the smart power business is developing steadily, and product technology continues to be cultivated, and it is expected that AI can only benefit from the rapid growth in computing power demand; the new energy business is growing rapidly. The company has deployed in fields such as power generation side, power grid side, electricity consumption side and microgrid energy storage, and has a full range of full-scenario energy storage solutions, and rich practical experience.

occurrences

The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved revenue of 8.141 billion yuan, +44.13% year on year, and realized net profit of 508 million yuan, +104.36% year on year; in the first quarter of 2024, revenue of 1,184 million yuan, -20.54% year on year, realized net profit to mother of 74 million yuan, or -48.76% year on year.

Brief review

1. Performance was under pressure in the short term, and gross margin recovered to a high level.

In 2023, the company achieved revenue of 8.141 billion yuan, +44.13% year on year, realized net profit of 508 million yuan, +104.36% year over year, and achieved net profit of 463 million yuan after deduction, or +87.68% year on year. 23Q4 achieved revenue of 2,639 billion yuan, +31.57% year-on-year, and realized net profit of 62 million yuan, or +255.95% year-on-year. In terms of segments, in 2023, the company's new energy industry revenue was 4.294 billion yuan, +142.78%; data center industry revenue was 2,763 billion yuan, -1.94% year over year, of which data center product revenue was 1,474 billion yuan, +10.13% year over year, IDC service revenue was 1,289 billion yuan, -12.86% year over year; smart power industry revenue was 1,013 billion yuan, +1.68% year over year. In 2023, the company's revenue in the new energy industry grew rapidly, and other businesses remained steady.

In the first quarter of 2024, the company achieved revenue of 1,184 billion yuan, a year-on-year net profit of -20.54%, a net profit of 74 million yuan, or -48.76% year-on-year, and realized net profit of 60 million yuan after deduction, or -54.32% year-on-year. Due to asset impairment, 24Q1 profit declined significantly year-on-year.

2023 gross margin was 27.34% (-2.13pcts) and net profit margin 6.4% (+2.69pcts).

By business, the gross margin of new energy products is 21.94%, the gross margin of the data center industry is 31.07%, and the gross margin of the smart power industry is 35.98%. The cost rate for the period was 18.94% (-1.79pct), of which the sales rate was 9.07% (+0.09pct), mainly due to the simultaneous increase in the new energy business; the management rate was 3.21% (-0.78pct); the R&D rate was 5.76% (-0.4pct); and the financial rate was 0.9% (-0.69pct). The 24Q1 company's comprehensive gross margin was 32.26% (+2.54pcts), the net margin was 6.51% (-3.38pcts), and the period rate was 25.52% (+6.38pcts). The gross margin increased markedly in the first quarter, mainly due to the decline in the share of energy products. The increase in the cost side affected the decline in net interest rate.

2. Deeply involved in the data center industry for more than 10 years, we have accumulated rich experience in data center product development and service.

The company ranked first in terms of availability of large-scale retail data centers. The company's micromodule data center business has been in the leading position of domestic brands for many years, with the market share ranking first in the financial industry. The company's micromodule data center Huiyun 7.0 is based on intelligence, achieving 2.5-day high-speed delivery, with a comprehensive acceleration of 37.5%. The product plan has been successfully applied in the financial, channel, military and other industries; the cold plate liquid-cooled micromodule data center has a power density of up to 50kW in a single cabinet, and the PUE can be below 1.2. Tailor-made liquid-cooled+air-cooled hybrid refrigeration solutions for mobile cloud resource pools and mobile group IT level 1 resource pools have been created Officially launched; data center solutions have established model projects in Malaysia, Italy, Brazil and other regions. WiseMDC Smart Liquid Cooled Modular Data Center won the 23rd Outstanding Product Innovation Award; the liquid cooling project won the “Green Data Center Typical Demonstration Application Case”.

3. The company's smart energy continues to lead the industry for a long time and is expected to benefit from AI-driven development.

As a leading domestic smart power supply brand, Kehua UPS ranked second in the sales scale of the UPS market in China in 2023, ranking first in the financial, transportation, petrochemical, education and research industries, and has maintained a leading position in the overall UPS market in China for a long time. In 2023, the company provided a highly reliable industrial power protection solution for the “Haiji 2” project to achieve uninterrupted protection of heavy marine equipment; the first domestic “1E class charger/inverter and UPS” series products in China passed the authoritative certification and achieved substantial success. By the end of 2023, Kehua had provided electricity support for nearly 50 cities and more than 200 rail transit lines across the country, and provided a full range of power guarantees for more than 200 petrochemical companies and more than 100 high-end manufacturing enterprises such as integrated circuits, semiconductors, and panels.

4. Global layout of the new energy business, leading domestic shipments.

The company ranked first among Chinese enterprises in global energy storage PCS shipments and number one in Chinese user-side energy storage system shipments in 2023. In the domestic market, the company won the bid/delivered the largest user-side energy storage project in Zhejiang — Zhejiang Ningbo Wanhua 16MW/32MWH energy storage power plant, Guizhou Province's largest independent energy storage power station — Guizhou Ziyun 200mW/400MWh energy storage power plant, etc. In overseas markets, the company's iStorage series optical storage all-in-one machines are popular in overseas markets, helping Iraq's B9 oilfield optical fuel storage hybrid energy power supply project; a new generation of 250kW string inverters have also been successfully used in countries such as Italy, Vietnam, Poland and Brazil.

5. Investment advice and profit forecast.

Data center technology product solutions have maintained leadership, intelligent computing business has been actively promoted, and operation and management capabilities have been further improved; the smart power business is developing steadily and product technology continues to be deeply cultivated; the new energy business is growing rapidly. The company has deployed in the fields of power generation side, power grid side, electricity consumption side and microgrid energy storage, and has a full range of full-scenario energy storage solutions, and rich practical experience. We estimate that the company's net profit for 2024-2026 will be 730 million yuan, 901 million yuan, and 1,107 million yuan, respectively. The PE corresponding to the current market value will be 15 times, 12 times, and 10 times, respectively, to maintain the “increase in holdings” rating.

Risk analysis

Market competition has intensified. More and more companies are pouring into the data center and new energy industry, and the market competition has become extremely fierce. Although the company has a certain market share and brand influence in the industry, it still faces strong competitive pressure from domestic and foreign peers. Competitors may compete for market share through more flexible market strategies, lower prices, or more advanced technology, which may have a potential impact on the company's performance.

Liquidity risk. Due to fierce market competition or clients' own business problems, some customers may not be able to pay their payments on time, leading to an extension of the company's repayment cycle. This will not only affect the company's cash flow, but may also have a negative impact on the normal operation of the company.

Supply chain stability risks. The stability of the supply chain is key to the company's business operations. However, unpredictable factors such as politics, economics, and natural disasters around the world may disrupt the supply chain. For example, suppliers of raw materials may not be able to deliver on time for various reasons, or may experience delays during transportation, which can have a serious impact on the company's production plans and delivery capacity.