Matters:

The company announced its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 5.712 billion yuan, a year-on-year increase of 5.77%, achieved net profit of 0.563 billion yuan, a year-on-year increase of 3.38%, and achieved net profit deducted from non-mother of 0.366 billion yuan, an increase of 20.00% over the previous year.

Ping An's point of view:

The company achieved steady growth in the first half of the year. In the first half of 2024, the company achieved operating income of 5.712 billion yuan, a year-on-year increase of 5.77%, achieved net profit of 0.563 billion yuan, a year-on-year increase of 3.38%, achieved net profit deducted from non-mother 0.366 billion yuan, a year-on-year increase of 20.00%, and the company achieved steady growth in the first half of the year. By business, in the first half of 2024, the company's IT equipment business and software development, system integration and technical service business achieved revenue of 5.126 billion yuan and 0.584 billion yuan respectively, with year-on-year growth rates of 3.98% and 24.77% respectively. On the cost side, in the first half of the year, the company's expense ratio was 19.04%, up 0.98 percentage points from the same period last year. Among them, sales/management/R&D expenses increased 0.56/0.03/0.12 percentage points over the same period of the previous year, respectively. In the first half of the year, the company achieved gross profit margin of 26.25%, an increase of 0.21 percentage points over the same period of the previous year, and achieved a net profit margin of 9.86% to mother, down 0.23 percentage points from the same period last year.

The company's technological research and development and ecological construction will continue to advance, which will further enhance the company's market competitiveness.

The company focuses on R&D investment, and has always focused on research and development of core products such as high-end computers. It has mastered a large number of core technologies in the fields of high-end computers, storage, system software, cloud computing, and big data. In the first half of 2024, the company's R&D expenses were 0.625 billion yuan, an increase of 6.93% over the previous year. The R&D expenses rate was 10.94%, an increase of 0.12 percentage points over the same period last year. In the first half of the year, the company released FlashNexus, a full-stack, self-developed centralized storage system to meet the high-performance storage requirements of key business systems such as finance and telecommunications, and upgrade distributed all-flash storage to meet artificial intelligence storage requirements. At the same time, the company focuses on elements such as computing power, software, and platforms to continuously improve the software and hardware capabilities of intelligent computing. In the first half of the year, the company developed an AI technology software stack DAS platform to enhance AI full-stack optimization capabilities. The platform provides multi-level computing services from basic operators and framework tools to help the migration, development and iteration of AI applications; at the same time, it launched an AI model warehouse based on a domestic computing power platform, which supports the download and use of more than 100 refined models. The company vigorously developed the computing ecosystem, established an OpenDAS open source space in the developer community to meet the open requirements of software and hardware; held a number of ecological cooperation conferences, held the 5th “Pilot Cup” computing application competition, and released the “White Paper on the Development of the Intelligent Computing Power Industry” with the National Information Center and other organizations to accelerate the construction of an artificial intelligence software ecosystem. We believe that as the company continues to advance technology research and development and ecological construction, the company's market competitiveness will continue to improve.

The company continues to deepen the layout of the computing industry and actively seize industrial development opportunities in the big model era. 1) Product side: The company continues to pay attention to industry trends and develops high-end computer products such as submerged liquid-cooled blades and artificial intelligence workstations according to upstream product iterations and downstream customer needs; accelerates the introduction of domestic core components, explores best cluster networking practices, and optimal high-performance storage ratios, and enhances system stability. 2) Marketing side: The company grasps the localization needs of key industries, enhances sales team building, strengthens industry technical exchanges, cooperates with industry ISVs, and expands market share. 3) Project side: The company uses the new idea of “three-dimensional computing” to participate in the construction of local intelligent computing centers, providing computing power infrastructure solutions integrating planning consulting, system design, engineering construction, operation and maintenance services, and energy consumption management. Through various operating models such as computing power operation, platform operation, and ecological operation, the company promotes a virtuous cycle of data, computing power, models, and applications, and enhances the commercial operation capabilities of intelligent computing centers. In the first half of the year, the company helped launch public service platforms and scheduling platforms for computing power in Chongqing, Qingdao and other places. Currently, under the wave of big models, big models require large computing power, and the computing industry has ushered in development opportunities. The company's continued deepening of the layout of the computing industry will provide strong support for the company to seize industrial development opportunities.

Investment suggestions: According to the company's 2024 semi-annual report, we adjusted our performance forecast. The company's net profit for 2024-2026 is estimated to be 2.219 billion yuan (previous value was 2.303 billion yuan), 2.697 billion yuan (previous value was 2.908 billion yuan), and 3.297 billion yuan (previous value was 3.743 billion yuan); EPS was 1.52 yuan, 1.84 yuan, and 2.25 yuan, respectively. The PE corresponding to the closing price on August 26 is 23.5x, 19.4x, 15.8x The company is a leading provider of ICT infrastructure solutions in China. It continues to promote technology research and development and ecological construction, and achieved steady growth in performance in the first half of 2024. The company continues to deepen the layout of the computing industry and actively seize industrial development opportunities in the big model era. We are optimistic about the future development of the company and maintain the “Recommended” rating.

Risk warning: 1) The risk of AI business development falling short of expectations. Facing large-scale construction needs such as intelligent computing centers, the company continues to improve the comprehensive capabilities of intelligent computing center solutions, but if the comprehensive capabilities of the company's intelligent computing center solutions do not meet expectations, then there is a risk that the company's AI business development will fall short of expectations. 2) The risk that the liquid cooling business will fall short of expectations. Currently, the company's liquid cooling technology is in a leading position in China, but if the company cannot continue to iterate liquid cooling technology or the technology iteration is not timely, there is a risk that the company's liquid cooling business will not develop as expected. 3) The risk of increased competition in the market. The company's high-end computer sector faces many competitors. Under the wave of big models, if the company fails to seize market opportunities, it may be left behind by competitors.