Matters:

On August 23, the company disclosed its 2024 semi-annual report. With 2024H1, the company achieved operating income of 42.064 billion yuan, up 68.71% year on year; net profit to mother 0.597 billion yuan, up 90.56% year on year; after deducting non-net profit of 0.422 billion yuan, an increase of 3779.50% year on year.

Commentary:

Revenue set a record, and net profit to mother increased significantly. In the 2024Q2 single quarter, the company achieved operating income of 24.457 billion yuan, an increase of 58.49% year on year; net profit to mother was 0.291 billion yuan, an increase of 129.01% year on year. 2024H1, the company's server sales were +70.02% year-on-year, and the company's main business revenue reached a record high, mainly due to increased customer demand and server sales growth. Net profit to mother increased year-on-year, but compared with 2022, it still declined by 37.42% during the same period. During the reporting period, the company achieved a gross sales margin of 7.74%, a year-on-year decrease of 3.66 pct, a net sales margin of 1.37%, and a year-on-year increase of 0.11 pct.

Demand for computing power is booming, and the leading server position is stable. According to Gartner, 2024Q1's global server market sales were 40.75 billion US dollars, up 59.9% year over year. Inspur Information ranked in the top two in the world and the leading position in China. Server shipments accounted for 11.3% of the global market, an increase of 50.4% over the previous year, ranking first among the TOP5 manufacturers. During the reporting period, the company continued to focus on smart computing represented by cloud computing, big data, and artificial intelligence, and continued to innovate in R&D, production, delivery, service models, etc., and maintained a rapid growth trend in various businesses.

Go overseas faster and open up new space for business growth. During the reporting period, the company achieved overseas revenue of 12.264 billion yuan, up 171.54% year on year; overseas revenue accounted for 29.16%, up 11.04 pct year on year; gross margin of overseas business was 7.20%, a decrease of 1.65 pct year on year, and overseas business revenue increased significantly. According to Gartner data, in terms of 2024Q1 shipments, Greater China led the world with 30.3% growth; mature Asia Pacific increased 12.5% year over year; emerging Asia Pacific increased 6.5% year over year; and Latin America increased 3.9% year over year.

Inspur Information has all leading AI servers, and overseas business is expected to further accelerate and open up new growth space.

Investment advice: As the world's leading smart computing enterprise, the company actively embraces open source and continuously improves and strengthens the technical layout of intelligent computing products. We expect revenue for 2024-2026 to be 80.525/93.76/105.538 billion, corresponding growth rate of 22.3%/16.4%/12.6%; net profit to mother of 2.156/2.716/3.202 billion yuan, corresponding growth rate of 20.9%/26.0%/17.9%; and corresponding EPS of 1.46/1.84/2.17 yuan. Considering that the company is expected to continue to benefit from the development opportunities of AI and the digital wave, referring to comparable company valuations and the company's historical PE situation (the historical PE center is around 31.3x), we gave the company a 2024 25xPE valuation, with a target price of 36.5 yuan, maintaining a “strong” rating.

Risk warning: Trade frictions have intensified, the construction of intelligent computing centers has fallen short of expectations, and market competition has intensified.