Event: The company released its 2024 mid-year report: The company achieved revenue of 42.064 billion yuan (yoy +68.7%) and net profit of 0.597 billion yuan (yoy +90.6%) in the first half of the year.

Comment:

Revenue increased significantly in the first half of the year, and sales orders were strong. In the first half of 2024, the company achieved revenue of 42.064 billion yuan, a year-on-year increase of 68.7%. Its revenue in China was 29.8 billion yuan, up 46.9% year on year, and overseas revenue was 12.264 billion yuan, up 171.5% year on year. The sharp year-on-year increase in the company's revenue in the first half of the year was mainly due to increased demand for customer servers. According to the company's semi-annual report, as of the end of June, the amount of revenue corresponding to the company's performance obligations that have signed a contract but has not yet been fulfilled or not fulfilled was 13.957 billion yuan, of which 13.743 billion yuan is expected to confirm revenue in 2024. The company has plenty of sales orders and is expected to maintain a relatively rapid growth trend in the second half of the year.

Gross margin declined in the first half of the year, and cost control was good. In the first half of 2024, the company's operating cost was 38.807 billion yuan, and the gross profit margin was 7.74%, down 3.6 percentage points from the previous year. The decline in gross margin in the first half of the year was mainly due to the low gross margin of domestic AI servers. Sales expenses were 0.694 billion yuan, sales rate 1.7%, down 1.1 percentage points year on year; management expenses were 0.309 billion yuan, management rate 0.7%, down 0.9 percentage points year on year; R&D expenses were 1.369 billion yuan, R&D rate was 3.3%, down 2.5 percentage points year on year; net profit to mother was 0.597 billion yuan, net profit margin 1.4%, up 0.2 percentage points year on year. The increase in the company's profit margin was mainly due to a sharp increase in revenue and good control of expenses.

Company profit forecast and investment rating: The company will benefit from this round of global AI industry trends. We expect the company's revenue for 2024-2026 to be 82.667 billion yuan, 96.619 billion yuan, and 109.209 billion yuan, respectively, and net profit to mother of 2.323 billion yuan, 2.816 billion yuan, and 3.393 billion yuan, respectively. The corresponding PE is 20, 17, and 14 times, respectively, to maintain the “recommended” rating.

Risk warning: AI server sales fall short of expectations, high dependence on core device vendors, decline in the domestic real economy, etc.