The company released its 2024 mid-year report and achieved revenue of 42.06 billion yuan (YoY +68.7%), net profit due to mother 0.6 billion yuan (YoY +90.6%), and 0.42 billion yuan (YoY +3779.5%) in the first half of the year. The performance achieved significant growth and maintained the buy rating.

Key points to support ratings

The 2024 mid-year report was released, returning to high growth. Market demand in the server industry gradually picked up in the first half of 2024. The company seized the opportunity to achieve rapid business growth, and the growth rate reached a new high in recent years. Among them, Q2 achieved revenue of 24.46 billion yuan (YoY +58.5%), net profit due to mother of 0.29 billion yuan (YoY +129.0%), and 0.18 billion yuan (YoY +213.5%) in a single quarter, maintaining the Q1 development trend.

Demand for AI servers is increasing, and the market prospects are broad. With the advancement of China's digital infrastructure and the growth in the scale of computing power, the AI server market is developing rapidly. According to a report by the China Business Industry Research Institute, the domestic server market size in 2023 is about 49 billion yuan, up about 17% year on year, and is expected to reach 56 billion yuan in 2024; domestic server shipments in 2023 are 0.354 million units, up 24.65% year on year, and are expected to reach 0.421 million units in 2024.

Leading domestic AI server, liquid cooling technology continues to lead. According to Gartner statistics, in the first quarter of 2024, the company's server shipments accounted for 11.3% of the global market, ranking second in the world and number one in China.

At the same time, the company adheres to the “All in Liquid Cooling” strategy and technological innovation, leading the Chinese liquid cooling server market with a market share of 40.9% in 2023. Currently, the company has more than 500 liquid cooling technology patents, and its liquid cooling servers have successively been deployed in batches in many leading Internet companies, as well as in the fields of communications, finance, science and research, etc., which will accelerate the industrialization process of liquid cooling in the future.

valuations

The estimated net profit for 24-26 is 21.2, 25.9, and 3.05 billion yuan (considering the impact of the 23-year low base, a reduction of 42%-49%), EPS is 1.44, 1.76, and 2.07 yuan, and corresponding PE is 22X, 18X, and 15X, respectively. Market demand in the server industry gradually rebounded in the first half of the year, and the company's business grew rapidly and maintained its purchase rating.

The main risks faced by ratings

Demand in the server industry falls short of expectations; business development falls short of expectations; technology research and development falls short of expectations.