Incident: The company released its 2024 semi-annual report on the evening of August 22. In the first half of 2024, the company achieved revenue of 3.575 billion yuan, a year-on-year increase of 112.47%; a gross profit margin of 34.57%, a year-on-year decrease of 17.06pct; realized a net profit of 0.967 billion yuan, an increase of 35.87% year-on-year, and achieved rapid growth in revenue and profit in the first half of 2024.

Comment: The results for the second quarter of 2024 maintained a rapid growth trend, and the rapid increase in AI computing power demand and related capital expenses led to the rapid development of AIDC's data center business. On a quarterly basis, in the second quarter of 2024, the company achieved revenue of 2.333 billion yuan, a year-on-year increase of 166.86%; gross profit margin of 27.77%, a year-on-year decrease of 21.73 pct; realized net profit due to mother of 0.492 billion yuan, an increase of 32.18% year on year; realized net profit without return to mother of 0.479 billion yuan, an increase of 27.60% year on year.

The company continues to expand IDC's scarce resources, and AI data center business customers have achieved major breakthroughs. As of the first half of 2024, the company has deployed 61 intelligent computing centers across the country, totaling 0.32 million cabinets. Currently, it has planned 7 AIDC intelligent computing power infrastructure clusters in the six core regions of Beijing-Tianjin-Hebei, Yangtze River Delta, Greater Bay Area, Cheng-Chongqing Economic Zone, Gansu, and Hainan Free Trade Ports. The company's energy consumption indicators continued to grow significantly during the reporting period, increasing by about 60% compared to the end of 2023. The company successfully developed a number of leading Internet customers during the reporting period and received large-scale AIDC orders from many leading AI customers. In the first half of 2024, the company's AIDC business achieved revenue of 2.054 billion yuan, YoY +1147.85%.

The company's liquid cooling IDC has gained a first-mover advantage, deeply binds leading customers, and actively lays out AIDC's high-growth business. With its unique model of “self-investment, self-construction, self-maintenance, self-operation and maintenance”, the company has industry-leading stability, self-evolution capabilities, and network security advantages, and has won the deep trust of leading domestic Internet, cloud computing and terminal models. During the reporting period, the company applied self-developed liquid cooling technology to new intelligent computing center projects in multiple parks across the country; completed the infrastructure design of a high-power high-power high-computing network intelligent computing cluster, which can achieve a single construction area of 0.22 million square meters, IT power exceeding 200 MW, support 0.13 million computing power card clusters, and continue to enhance the company's competitiveness in the liquid cooling industry.

Profit forecast and investment advice: Runze Technology is a leading IDC operator in China, with the advantages of core IDC resources and major customer resources. We are optimistic that the company will benefit from high downstream AI computing power and growing demand, which will drive the company's IDC business and AIDC business to achieve rapid development. The company is expected to achieve revenue of 6.052/8.04/10.291 billion yuan and net profit to mother of 2.27/3.159/4.163 billion yuan in 2024-2026, corresponding to EPS 1.32/1.84/2.42 yuan/share, maintaining a “buy” rating.

Risk warning: The development of the IDC industry falls short of expectations, and downstream customer demand falls short of expectations.