Incidents:

Runjian Co., Ltd. released its 2024 semi-annual report. 24H1 achieved operating income of 4.424 billion yuan, a year-on-year decrease of 3.70%, and realized net profit to mother of 0.236 billion yuan, a year-on-year decrease of 17.21%. Q2 achieved operating income of 2.285 billion yuan, a year-on-year decrease of 0.66%, and realized net profit to mother of 0.108 billion yuan, a year-on-year decrease of 25.39%.

The company's Q2 revenue was basically flat year on year. The revenue side showed upward momentum. The Q2 company achieved revenue of 2.285 billion yuan, and the year-on-year decline narrowed. By business, the communication network business achieved revenue of 2.077 billion yuan, yoy +0.85%; the information network business was 1.341 billion yuan, yoy -4.08%; the energy network business was 0.78 billion yuan, yoy -19.28%; and the computing power network business was 0.225 billion yuan, yoy +32.82%.

The company's revenue growth rate gradually recovered in the second quarter. Overall revenue was still under pressure due to base figures and the failure of some projects to confirm revenue. Among them, the energy network declined due to some projects not meeting the revenue recognition requirements, which dragged down overall revenue growth.

Gross profit margin is under pressure in the short term

The company achieved a gross profit margin of 16.76% in the first half of the year, a year-on-year decrease of 1.87pct. By business, the communication/information/energy/computing power business was -0.54 pct/-5.00 pct/-2.52pct/+4.62 pct, respectively. The gross margin of the computing power business has increased markedly, and we expect the energy network business to be mainly affected by delays in the pace of revenue confirmation. In terms of expenses, the company continued to invest in AI and computing power applications, and R&D expenses increased significantly, and net profit declined. The sales, management, finance, and R&D expense ratios for the first half of the year were 2.85%/3.18%/-0.19%/3.76%, respectively. The total cost rate remained flat for the entire period.

Reserve orders are abundant, and growth is expected to resume in the second half of the year

1. Communication network business aspects. The company won bids for important projects in Guangdong, Jiangsu, Hubei and other provinces in the first half of the year, and we expect to continue to maintain steady business development.

2. Information network business aspects. The company's information network business is gradually improving, and the customer expansion results of key groups are good. We expect growth to resume in the future.

3. Energy network business aspects. Currently, the total installed capacity of the company's services and reserves for wind power, photovoltaic, and energy storage projects exceeds 15 GW. As subsequent projects gradually confirm revenue, it is expected to maintain rapid growth.

4. Computing power network business aspects. In terms of intelligent computing cloud services, the company continues to promote the construction of Runjian Co., Ltd.'s intelligent computing center. It has built leading intelligent computing cloud services in China, and has continued to invest in various supercomputing center projects such as the National Supercomputing Shenzhen Center and an operator's largest single computing power center project. At the same time, it has also reached cooperation with Internet vendors, vertical industries, and operator customers such as Alibaba Cloud and Baidu to build a good cooperative ecosystem.

Profit forecast and investment advice: Due to the company's overall revenue pressure in the first half of the year and the gross margin showed a year-on-year decline due to the market environment. In addition, the company increased R&D investment and R&D expenses increased significantly. We adjusted the 24-26 profit forecast to 0.46/0.57/0.7 billion yuan (0.63/0.82/1.04 billion yuan). The corresponding valuations were 16/12/10 times, respectively, maintaining the “buy” rating.

Risk warning: increased competition affects profit margins, problems with the pace of project confirmation revenue, risks that computing power progress falls short of expectations, etc.