Matters:

The company released the 2024 semi-annual results report:

1) 24H1 achieved operating income of 3.578 billion yuan (yoy +95.51%); net profit due to mother of 0.358 billion yuan (yoy +216.58%); net profit of 0.354 billion yuan (yoy +227.49%) after deducting non-return to mother.

2) 24Q2 achieved operating income of 1.819 billion yuan (yoy +75.92%, qoq +3.43%); net profit to mother of 0.196 billion yuan (yoy +191.38%, qoq +20.52%); net profit without return to mother of 0.192 billion yuan (yoy +185.25%, qoq +18.00%).

Commentary:

24Q2 performance increased steadily, and the business structure continued to be optimized. 24Q2's revenue of 1.819 billion yuan (yoy +76%, qoq +3.4%); gross profit margin of 18.54% (yoy+4.52pct, qoq+2.21pct); net profit to mother of 0.196 billion yuan (yoy +191%, qoq +21%). Various business results are steadily rising, mainly: 1) In terms of smart storage business, demand for storage capacity, speed and efficiency continues to increase in AIPC, data centers, enterprise storage, edge computing equipment, etc. It has brought huge market opportunities, and the company's revenue performance in storage products has increased significantly; 2) In terms of intelligent IoT terminals, the company continuously optimizes the product layout and business model, increases the sales share of high-value-added products, develops new business models, strengthens the development of new customers and research and application of emerging products, and enhances the company's overall profitability; 3) In terms of cloud services, the company's V-SaaS video cloud continues to advance; at the same time, the company relies on its own server remanufacturing business, and is expected to form a good collaboration with the company's server remanufacturing business. Effects; 4) Prices of some raw materials have declined and the effects of the digital construction of intelligent manufacturing have been shown, leading to continuous optimization on the cost side and an increase in gross margin.

Servers are being removed faster in North America, and the refurbishment and remanufacturing business continues to improve. Iron Mountain 24Q2 related business (ALM), a leader in IT asset processing (ITAD) in North America, exceeded expectations, achieved 111% year-on-year revenue growth and 30% organic growth in a single quarter, and the 24H2 guidance growth rate was higher. The increase in performance is mainly due to a sharp increase in volume and price. 2/3 of this is due to increased sales. Large-scale computing power companies are speeding up the sale of old devices that have been removed from the shelves and speeding up server updates in order to introduce GPUs with more advanced performance; 1/3 comes from price increases, and product pricing is expected to continue to rise. The company's 24Q2 server remanufacturing capabilities continue to break through. As AI servers enter the update cycle one after another, industrial logic continues to catalyze.

Important agreements with leading customers have been implemented one after another, and computing power cloud services have ushered in a landmark development. In addition to the V-SaaS video security cloud, the company's computing power cloud service has added: 1) Cross-border e-commerce cloud services: providing social matrices and overseas live streaming services for domestic and foreign SME users such as MCN agencies, foreign trade companies, overseas brands, etc.; 2) Cloud mobile phone business: for Internet customers, providing intelligent computing power based on ARM SoC array servers; 3) Cloud computing services: including flexible computing services with unrestricted GPU models such as V100, A10, and T4 deployed in the Asia-Pacific - Bangkok, US - Virginia, Asia Pacific - Singapore and other regions. Scenarios mainly include cloud services for artificial intelligence training and inference, cloud services dedicated to video rendering, and cloud services dedicated to cloud game rendering. Recently, the company has successively signed three cloud business cooperation agreements with a number of leading customers, laying a solid foundation for the next global strategy to co-create data cloud services: 1) the “Cloud Computing Power Service Framework Agreement” signed between Metax (the company's holding subsidiary) and Customer A; 2) the “Cloud Business Cooperation Agreement” signed between the company and Ubida; 3) the “Cloud Business Cooperation Agreement” signed between the company and China Mobile International. The signing of contracts with leading customers is expected to continuously optimize the business model and profitability. It will also become an important milestone in the development of the company's cloud service business, marking another key step for the company in the field of AI and data services.

Investment advice: The company's operating trend has been increasing for 6 consecutive quarters. We expect the company's revenue to be 8.199/10.955/13.503 billion yuan in 2024-2026, net profit to mother 0.806/1.142/1.484 billion yuan, and the corresponding EPS is 3.29/4.66/6.05 yuan. For reference, comparable companies each gave the storage business/IoT smart terminal business 30/25x PE in 2024, corresponding to a target price of 90.72 yuan, maintaining a “strong promotion” rating.

Risk warning: Technological innovation falls short of expectations, global business risk, raw material price fluctuation risk, cloud service business development falls short of expectations, server remanufacturing business development falls short of expectations.