Incident: On October 28, 2024, the company released its 2024 three-quarter report. In the first three quarters, the company achieved operating income of 5.395 billion yuan, a year-on-year increase of 67.11%, achieved net profit of 0.557 billion yuan, an increase of 184.46% over the previous year, and realized the deduction of non-net profit of 0.547 billion yuan, an increase of 186.58% over the previous year, and the performance continued to grow rapidly.

Gross margin continued to rise, and the number of video cloud users increased significantly. In the Q3 quarter of 2024, the company's gross margin was 18.62%, up 5.47 pcts year-on-year, mainly benefiting from the reduction in revenue share of the original low gross margin ODM business and the continued growth in sales of high-margin products such as Big Health. Among them, the commercial intelligent unmanned self-service drink machine business has been put into operation in 71 cities across the country. In terms of cloud services, the company's vSaaS (video surveillance as a service) video cloud continues to advance, the number of users has increased significantly, and the ARPU (average revenue per user) value has steadily increased.

Inventories continue to rise, GPUs are being purchased in large quantities, and the computing power business is about to be implemented. From June to October 2024, the company successively reached cooperation or service agreements with Japan's Best Choice, Youwei Supercomputing, China Mobile International, Guangzhou Aojia, and leading domestic Internet companies, including cooperative operation, computing power procurement (company announcement on October 24, 2024, procurement of H20 NVLINK AIGPU servers due to planning 10,000 card class server clusters), etc., involving cloud computing power leasing, industry model applications, and the integration of computing power resources in overseas regions. Up to now, the company has purchased multiple ARM computing power, X86 computing power and GPU computing power servers, which have been deployed and put into operation in many parts of the country, mainly targeting computing power requirements such as graphics rendering, video editing, data analysis, and game acceleration. As of September 2024, the company's inventory was 1.798 billion yuan, up 0.304 billion yuan month-on-month and 0.751 billion yuan year-on-year. We believe that the company's inventory and related orders are signed or indicate that the computing power business is about to be implemented, and the performance is expected to enter a stage of high growth.

Investment advice: The company's original business has been fully upgraded, demand in the server remanufacturing market is strong, and the new layout of AI computing power services is progressing smoothly, and it is expected to usher in a period of rapid performance growth. We expect the company's revenue for 2024-2026 to be 7.948 billion yuan, 11.004 billion yuan, and 14.993 billion yuan, net profit to mother of 0.825 billion yuan, 1.164 billion yuan, and 1,642 billion yuan, and PE 23 times, 16 times, and 12 times. Maintain a “buy” rating.

Risk warning: Cloud business development falls short of expectations, server business falls short of expectations, macroeconomic fluctuations.