Key points of investment
The company announced FY23/24 results, with revenue of $56.864 billion (-8.21% YoY), gross profit margin of 17.24% (YoY +0.29pct), net profit excluding minority shareholders' profit and loss of US$1.01 billion (YoY -37.15%), FY23/24Q4 (natural year 24Q1) revenue of US$13.833 billion (+9.48% YoY), gross profit margin of 17.55% (+0.59pct YoY), net profit excluding minority shareholders' profit and loss of US$248 million (YoY +118.05%).
IDG's smart device business recovered in 24Q1, and the PC and mobile phone market share increased (1) IDG's FY23/24 revenue was US$44.599 billion (-10% YoY), with operating profit of US$3.181 billion (-12% YoY). The main reason was that the channel inventory was high at the beginning of the fiscal year; the 24Q1 revenue reached US$10.463 million (+7% YoY), and operating profit reached US$773 million (+17% YoY), and operating profit increased by 0.64pct to 7.4% year-on-year. At the upper end of the historical range, it mainly benefited from the rebound in industry demand and steady growth in market share; (2) By segment, commercial personal PCs grew strongly. The company's 24Q1 share increased to 27%. Europe, America, the Middle East, and Africa became growth points, achieving double-digit growth throughout the year, and the company released a number of new AIPC products; smartphone business revenue also achieved double-digit growth in the latest quarter;? AI servers and storage contributed to growth drivers in ISG's infrastructure solutions business (1) ISG business FY23/24 revenue of US$8.922 billion (-9% YoY), operating profit of -248 million US dollars (year-on-year change from positive to negative). The main reason was the shift in IT budgets from general-purpose servers to AI servers, and AI server chips were relatively scarce, in addition to increased investment in new product R&D and slower than expected upgrades to old projects; naturally 24Q1 revenue reached US$2,533 million (+15% YoY), and operating profit reached -$97 million (year-on-year change from positive to negative), and AI servers began to contribute incrementally;
(2) By segment, the company focuses on new AI server products. 24Q1 cooperated with major GPU vendors to launch a series of new products using Neptune's warm water and liquid cooling technology; in the storage business, consolidated revenue from storage, services, and software exceeded 3 billion US dollars throughout the year and reached a record high, and its share continued to grow.
SSG Solution Services continued to maintain strong revenue growth and high profitability (1) SSG business FY23/24 revenue of US$7.472 billion (+12% YoY), operating profit of US$1,545 million (+11% YoY), operating margin reached 21% and ranked first among the three major businesses, mainly due to strong demand for digital transformation from enterprise customers; revenue reached US$1,820 million (+10% YoY), and operating profit reached US$389 million (+20% YoY);
(2) By segment, revenue from support services increased 4% year over year, mainly due to increased penetration rate due to PremierSupport and Sustainability products; revenue from operation and maintenance services increased 29% year over year due to rich service portfolios and multi-channel strategies; total contract value of equipment as a service and infrastructure as a service solutions increased by 50%, consolidating a strong long-term growth trajectory; revenue from project and solution services increased 13% year over year, mainly due to strong demand for integrated complex solutions in various vertical fields.
Profit forecasting and valuation
We forecast that the company's revenue for FY24/25 to FY26/27 will be US$603.63/664.55/ US$71,313 billion, respectively, with year-on-year growth rates of 6.15%/10.09%/7.31%, and net profit of US$12.21/17.44/ 19.88 billion, respectively, with year-on-year growth rates of 20.82%/42.83%/14% and PE of 14.73/10.32/9.05, maintaining the “buy” rating.
Risk warning
Upstream chip supply falls short of expectations, risk of upstream component price fluctuations, increased competition risk, downstream AIPC or AI server business demand or gross margin falls short of expectations, risk of international situation, etc.