Zhiwei Intelligence announced the results for the third quarter of 2024. The 1-3Q24 company achieved revenue of 2.781 billion yuan, a year-on-year increase of 0.06%, and achieved net profit to mother of 0.082 billion yuan, an increase of 162.37% over the previous year. Looking at a single quarter, 3Q24 achieved revenue of 1.093 billion yuan, a year-on-year decrease of 4.54%, a month-on-month increase of 12.1%, and realized a net profit of 0.026 billion yuan to mother, an increase of 352.39% year-on-year and a year-on-month decline of 40.9%.

Actively embrace the Hongmeng ecosystem, and the first exhibition of the “A Thousand Sails of Hongmeng” scene. The company signed a “Cooperative Development Agreement” with Chinasoft International to promote the use of OpenHarmony (OpenHarmony) as a digital foundation. Chinasoft International mainly provides computer systems and open source Hongmeng IoT terminals; Zhiwei Intelligence mainly provides hardware R&D and production capabilities for IoT terminals and computer products. Based on their respective strengths and capabilities, the two sides jointly created domestic autonomous and controllable open source Hongmeng IoT terminals and computer products. The rapid release of demand for Hongmeng's pristine ecological construction is beginning to show momentum. The company is deeply involved in the construction of the Hongmeng ecosystem and has a high level of technical and product maturity in ICT infrastructure.

Take on the mission of “specialization, excellence and innovation” and bravely stand at the head of the trend of digital intelligence. The company successfully passed the “Little Giant” enterprise review in September 2024. “Specialized, special and new” sets high standards for companies' technological innovation, market performance, and industry contributions. Companies entering the list represent their high level in industry segments such as industry terminals, ICT infrastructure, and industrial Internet hardware products. They are a vital force for promoting industrial upgrading, becoming a new type of productivity, and achieving high-quality development.

Profitability increased dramatically. In the third quarter of 2024, the company's gross profit was 0.172 billion yuan, a year-on-year increase of 56.6%, and continued to maintain high growth. The company's gross margin was 15.8%, and it continues to maintain a high gross margin. From the core layout of ICT, cloud terminals, and the industrial Internet, to joining hands with Huawei to build the original Hongmeng ecosystem, the company carried out the mission of “achieving customers and creating a smarter future” step by step. By improving the industrial chain layout and stabilizing its position in the industry, the company is expected to welcome a double attack from Davis.

The second growth curve of Zhiwei Intelligence continues to gain strength. The subsidiary Tengyun Intelligent Computing is the company's main force in the field of computing power, focusing on providing full services for AIGC infrastructure products. According to Shangtang Technology, about half of GenAI spending in 2024 will be infrastructure-related. We believe that Zhiwei Intelligence is expected to continue to generate returns after entering the field of computing power facility services.

Investment advice: Benefiting from the growth in computing power demand and the significant increase in network upgrade demand under the digital economy wave, the company's product structure optimization is expected to bring about an overall improvement in the quality of the main business and further optimization of profit levels. We expect the company's operating income to be 4.24/4.92/5.73 billion yuan in 24-26, respectively, and 0.14/0.18/0.23 billion yuan respectively; corresponding to the closing price on October 31, 2024, P/E is 69x/52x/40x, respectively, maintaining the “recommendation” ratings.

Risk warning: risks brought about by macroeconomic fluctuations, risk of relative concentration of customers, risk of fluctuations in raw material prices, increased risk of industry competition, and AI technology implementation falling short of expectations.