Incidents:

The company released its 2014 semi-annual report. In the first half of the year, the company achieved revenue of 3.731 billion yuan, a year-on-year increase of 9.83%; net profit to mother was 0.226 billion yuan, a year-on-year decrease of 29.88%.

The 24Q2 revenue side regained growth. After reverting to the effects of depreciation, the company achieved revenue of 2.547 billion yuan in 24Q2, an increase of 33.6% year on year; net profit to mother was 0.152 billion yuan, down 14.7% year on year. Among them, the company prepared 0.118 billion yuan for asset and credit impairment in the first half of the year. After adding back, 1H24's net profit growth rate corrected year-on-year.

The company's new energy business continued to develop rapidly in the first half of the year. The gross margin of the IDC+ smart power business rose steadily and slightly 1) the smart power business achieved revenue of 0.567 billion yuan, an increase of 15.37% over the previous year, with a slight increase in gross margin; 2) The data center business achieved overall revenue of 1.197 billion yuan, a slight decrease of 7.02% over the previous year, and the overall gross margin increased slightly. Among them, IDC's service revenue fell 5.50% year on year, and data center products and integrated revenue fell 8.55% year on year; 3) The new energy business maintained a trend of continuous rapid growth, with revenue reaching 1.934 billion yuan, up 21.98% year on year, and gross margin decreased 7.07pct from the same period last year.

It is worth noting that the company's domestic revenue increased by 23.33% year on year in the first half of the year, but foreign revenue was under pressure in the short term, falling 51.67% year on year. It is expected that the subsequent recovery of overseas business will continue to increase and inject vitality into the company's overall gross margin.

The company has been deeply involved in the data center industry for more than 10 years, and has modular data center solutions such as air cooling, liquid cooling, and wind and liquid fusion. Since this year, it has successively reached strategic cooperation with Boeing and Sheem Computing, and has signed a “Computing Power Cooperation Service Framework Agreement” with Beftin to provide computing power services. At the same time, the company relied on mature power electronics technology to continue to develop the optical storage circuit and achieved rapid growth. As the company continues to expand its overseas new energy business, the company's overall gross margin is expected to increase further.

Investment recommendations and profit forecasts:

In the short term, with the rapid development of the domestic AI-related industrial chain, data centers are expected to usher in a new round of development opportunities as an important carrier infrastructure. Combined with the company's many years of accumulated operation and management experience in the data center industry, it is expected that core customers & key technologies (liquid cooling, high power) will continue to benefit in the future. At the same time, the company's new energy business continues to develop rapidly, which is expected to lay an important foundation for the company's short-term performance growth. The company continues to advance around the “Gemini” strategy, providing a clear direction for medium- to long-term development.

Considering that the company's credit impairment in the first half of the year was about 0.037 billion yuan and asset impairment was about 0.081 billion yuan, which put pressure on short-term net profit to mother, we lowered the company's net profit to mother in 2024 from the previous 0.727 billion yuan to 0.572 billion yuan, maintained 0.866 billion yuan and 1.116 billion yuan in '25 and '26, maintaining a “buy” rating.

Risk warning: the data center industry's supply and demand pattern deteriorates, competition in the new energy industry intensifies, the company's new energy business development falls short of expectations, etc.