Event: Wave Information releases 2024 semi-annual report. In 2024H1, the company achieved operating income of 42.064 billion yuan, a year-on-year increase of 68.71%; net profit to mother of 0.597 billion yuan, a year-on-year increase of 90.56%; realized net profit deducted from non-mother of 0.422 billion yuan, reversing losses year-on-year. In line with previous performance forecasts.
Comment:
Revenue growth in Q2 exceeded expectations. The company achieved revenue of 24.457 billion yuan in 2Q24, up 58.84% year on year and 38.9% month on month. Revenue growth is mainly due to increased Internet capital expenditure, general-purpose server upgrades, increased demand for AI servers, and remarkable results in overseas expansion. Q2 net profit to mother was 0.291 billion yuan, up 152.61% year over year. In addition, the company's overseas business achieved revenue of 12.264 billion yuan in the first half of the year, an increase of 171.54% over the previous year, with remarkable results in international expansion.
The scale effect was evident, and the cost rate decreased significantly. Looking at the breakdown, the company's Q2 gross profit margin was 7.50%, down 0.58pct from month to month, mainly due to changes in revenue structure and an increase in the share of revenue in the Internet industry with low gross profit. The company's Q2 sales/management/R&D expense rates were 1.74%/0.74%/3.02%, and qoq-0.62/-0.61/-2.07pct, respectively. The decline in cost rates was mainly due to faster revenue growth and amplification of scale effects. Previously, the market feared that an increase in the share of Internet customers would put pressure on the company's gross profit, but this impact could be effectively offset by lower cost rates.
Inventories and accounts receivable continue to grow, and orders are sufficient. The company's inventory and accounts receivable in Q2 were $31.9 billion and $13.6 billion, respectively, up 31.3% and 24.1% from Q1. The company stated in investor relations records that for H20 servers, it is expected that Q2 and Q3 may be mass-produced and delivered. We believe that Q2's AI servers have begun to be shipped in batches, generating a large amount of accounts receivable; the increase in inventory also reflects the rapid growth in AI server orders. We expect Q3 to still be the peak period for companies to deliver AI servers in batches, and performance growth is expected to continue.
Internet companies' capital expenses have increased, and the company's annual performance growth is guaranteed. The capital expenditure of the three major domestic Internet companies (Baidu, Ali, and Tencent) increased by more than 60% year-on-year in 2Q24, reflecting the high demand for servers. As an important customer for Inspur server products, the Internet industry's growing demand will drive the company's GM and AI server shipments to continue to increase.
Investment advice: We expect the company to achieve revenue of 83.1/92.6/104.7 billion yuan and net profit to mother of 22.9/2.72/3.27 billion yuan in 2024-2026, corresponding PE of 20x/17x/14x respectively. Maintain a “buy” rating.
Risk warning: There is a shortage of upstream chip supply; downstream customer capital expenditure falls short of expectations; industry competition intensifies; and there is a risk that the company's market share will decline due to fluctuations in upstream AI chip shipment share.