occurrences
The company released FY 24/25 Q1 results, with revenue of 15.447 billion US dollars, up 20% year on year; operating profit margin of 3.2%, up 0.18 pct year on year; net profit excluding profit and loss of minority shareholders of 0.243 billion US dollars, up 38% year on year. Based on non-Hong Kong financial reporting standards, net profit was USD 0.315 billion, up 65% year over year.
reviews
The overall situation
Since FY 23/24 Q3's revenue growth rate turned positive, the revenue growth rate continued to increase. The revenue growth rates for the three quarters were 3%, 9%, and 20%, respectively. Although the company's gross margin decreased by 0.9 pct year over year, thanks to rapid revenue growth that diluted expenses, the profit side performed well, and net profit excluding profit and loss of minority shareholders achieved a 38% increase.
The growth rate of high-end smartphones is growing rapidly, and AI PCs are expected to drive the average price increase
(1) IDG's smart device business revenue was $11.422 billion (up 11% year over year), mainly benefiting from a recovery in commercial PC sales and a shift in demand to high value-added products. High-end sales of personal computers and smartphones increased by 21% and 142%, respectively, higher than the overall growth rate. Operating profit was US$0.828 billion (up 27% year over year), and the division operating profit margin was 7.3% (up 0.92 pct year over year), which is the upper limit of the historical range.
(2) By segment, PC sales account for 77% of IDG's revenue, of which 70% of PC sales come from the commercial segment. The share of high-end computer portfolios increased by 3.4%, which had a positive impact on average sales prices. The company also unveiled an AI PC with ARM architecture in Q1. Non-PC sales (smartphones, tablets, etc.) account for 23% of IDG's revenue, and smartphone sales in all major geographic markets have grown by double digits.
Demand for AI computing power construction is strong, and liquid cooling solutions show advantages
(1) ISG Infrastructure Solution's business revenue was $3.16 billion (up 65% year over year), benefiting from AI infrastructure investment, increased AI image processor supply driving AI demand, and inference demand generated by AIGC driving general-purpose computing server upgrades. The operating profit of the segment was -0.037 billion US dollars, which reduced the loss by 0.023 billion US dollars compared to the same period last year (-0.06 billion US dollars last year).
(2) By segment, non-computing sales, including storage and high-performance computing, maintained a strong growth trajectory, accounting for 34% of the infrastructure solutions business group's revenue. Some new products in the storage business have made significant progress, and revenue has achieved double-digit annual growth for the tenth consecutive quarter. High performance computing achieved the highest revenue since operation. Liquid cooling solutions recorded a record high quarterly revenue, up 55% year over year.
Digital transformation continues to drive SSG revenue, and the group receives big digital orders
(1) SSG Solution Service business revenue of 1.885 billion US dollars (10% year-on-year increase) continues to benefit from the trend of enterprise digital transformation and AI empowerment. Operating profit was 0.396 billion US dollars (up 10% year over year), and the division operating margin was 21.0%, ranking first among the three major business groups, accounting for one-third of the combined operating profit of the three business groups.
(2) By segment, support service revenue growth slowed to 2% due to past hardware sales. In terms of orders, support service orders have been growing for three consecutive quarters. Revenue from operation and maintenance services increased 16% year over year. The total contract value of equipment as a service and infrastructure as a service solutions increased by nearly 40%, thanks to the Group signing the largest service contract for digital workplace solutions in Europe, the Middle East and Africa, and more multinational companies adopting green equipment as a service solutions for asset recovery services and carbon dioxide offsetting services. Revenue from project and solution services increased 18% year over year, thanks to AI-driven solutions, including smart factory IoT and smart warehousing solutions.
Overall cost growth has been steady, and investment in R&D and promotion has increased
The company's sales, administrative, and R&D expenses were USD 0.836, 0.65, and 0.476 billion, respectively, up 5%, 9%, and 6% year-on-year. The growth rate of R&D expenses was corrected for the first time since FY 22/23 Q4. The company increased R&D investment to support artificial intelligence innovation; in terms of sales, the company increased investment in advertising and promotion by 0.227 billion yuan, an increase of 30% over the previous year.
Profit forecasting and valuation
Due to strong demand from leading cloud vendors and emerging customers, which has driven growth in computing and storage demand, we have increased the revenue growth rate of ISG infrastructure solutions. We forecast the company's revenue from FY24/25 to FY26/27 to reach 62.058, 68.327, and 73.323 billion dollars (previously forecast was 60.363, 66.455, 71.313 billion dollars, up 2.81%, 2.82%), year-on-year growth rates of +9.13%, +10.1%, and +7.31%; net profit to mother was 1.216, 1.81, and 2.064 billion dollars, respectively (previously forecast was $12.21, 17.44, and 1.988 billion dollars, down -0.38%, up 3.77%, and 3.81%, respectively), with year-on-year growth rates of +20.36%, +48.77%, and +14.05%. The closing price on August 15, 2024 was selected, corresponding to 13, 9, and 8 times PE. Maintain a “buy” rating.
Risk warning
Upstream chip supply falls short of expectations, risk of upstream component price fluctuations, increased competition risk, downstream AI PC or AI server business demand or gross margin falls short of expectations, risk of international situation, etc.