Event Overview:
Recently, Inspur Information released the “2024 Semi-Annual Report”. In the first half of the year, the company achieved operating income of 42.064 billion yuan, an increase of 68.71% year on year; realized net profit of 0.597 billion yuan, an increase of 90.56% year on year; net profit after deducting non-return to mother 0.422 billion yuan. Net profit attributable to mother and net profit not attributable to mother are consistent with the previously published performance report range, and the revenue growth rate is higher than the preliminary estimate of 60% in the performance report.
The single-quarter results maintained a high growth trend, and the leading position in the server industry chain stabilized. Since the fourth quarter of 2023, the company's single-quarter results have maintained a high growth trend. Q4 2023 achieved operating income of 17.77 billion yuan (YoY +6.04%) and net profit of 0.996 billion yuan (YoY +86.52%); Q1 of 2024 achieved operating income of 17.607 billion yuan (YoY +85.32%) and net profit to mother of 0.306 billion yuan (YoY +64.39%); Q2 of 2024 achieved operating income of 24.457 billion yuan (YoY +58.49%). Net profit to mother 0.291 billion yuan (YoY +129.01%). We believe that continued high growth in a single quarter may lay the foundation for the company's high performance throughout the year.
By the end of the second quarter of this year, Inspur Information's inventory balance was 31.905 billion yuan, up 66.92% from the beginning of the year, mainly due to an increase in raw material preparation, accounting for more than 75%; the contract debt at the end of the second quarter was 7.725 billion yuan, an increase of 303.90% over the beginning of the year, mainly due to an increase in pre-received customer payments, which indicates that the company has sufficient orders in progress.
At the industry level, the company's leading position was further consolidated and recognized. According to the latest data released by Gartner and IDC, the company's server and storage product market share continues to be at the top of the world: in the first quarter of 2024, second in the world, number one in China; in the first quarter of 2024, the world's top three installed storage capacity and number one in China; in 2023, liquid-cooled servers ranked first in China; and in 2023, edge servers ranked first in China.
Demand for downstream AI computing power is strong, and the company's full-stack capabilities or support performance continue to deliver on the big model and generative AI boom that began in 2023, driving the booming development of intelligent computing power. Intelligent computing power became mainstream computing power, which in turn led to a continuous increase in market demand in the AI server industry. The company seizes upward opportunities in the industry, improves product line layout, continues to focus on product technology innovation and customer satisfaction, and vigorously expand domestic and foreign customers to achieve rapid business growth. In order to promote the rapid implementation of “AI+”, Inspur Information proposed the concept of “application-oriented, system-centered”. Through global optimization of algorithms, computing power, interconnection, liquid cooling, etc., the overall performance of the intelligent computing system is optimal, and the rapid implementation of “AI+” is promoted. According to the semi-annual report, in terms of algorithms, the “source” large model algorithm developed by the company has been filed and announced; in terms of computing power, the company and Intel jointly released an AI general-purpose server, which is the first time in the industry that supports a large model with 100 billion parameters; in terms of interconnection, the super AI Ethernet switch X400 launched by the company is the first in China based on the NVIDIAspectrum-X platform, and has advantages such as high throughput, low latency, and high reliability. RoCE optimization is carried out for AI large model scenarios, compared to traditional ones RoCE network performance increased 1.6 times, providing leading AI network performance for large model training and inference.
In terms of liquid cooling, the company released full-stack liquid cooling products, so that all server products support cold plate liquid cooling, and continues to innovate such as full liquid cooling cold plate servers, full liquid cooling cabinets, and cabinet cooling capacity distribution units. Its liquid cooling products and solutions have been deployed in batches in many leading Internet companies, as well as in the fields of finance, communications, science and research. Up to now, Inspur Information has more than 500 core patents in the field of liquid cooling technology. It has participated in the formulation and publication of more than 10 design technical standards related to cold plate liquid cooling and immersion liquid cooling, led the formulation of the “General Specification for Modular Data Centers” national standards, and led the preparation of the first batch of domestic group standards for cold plate liquid cooling core components.
Investment advice
Inspur Information is a leader in the server field. In the short term, it may benefit from a new server growth cycle and a recovery in downstream demand, and is expected to increase investment value in the accelerated trend of computing power infrastructure in the future. The company is expected to achieve operating income of 77.906/90.086/106.353 billion yuan in 2024-2026, and realized net profit to mother of 2.285/2.896/3.64 billion yuan, respectively. Maintaining a buy-A investment rating, a 6-month target price of 46.57 yuan is given, which is equivalent to a dynamic price-earnings ratio of 30 times in 2024.
Risk warning:
Data center construction falls short of expectations; technology research and development falls short of expectations; demand from the Internet and other industries falls short of expectations; supply chain risks