Inspur Information 24 Q1-Q3 achieved revenue of 83.126 billion yuan (yoy +72.26%), net profit of 1.294 billion yuan (yoy +67.05%), deducting non-net profit of 1.155 billion yuan (yoy +176.67%). The previous guideline revenue also increased by about 70%, with net profit attributable to mother of 12.50 to 1.35 billion yuan, after deducting not 11.16 to 1.216 billion yuan, in line with the forecast. Among them, Q3 achieved revenue of 41.062 billion yuan (yoy +76.05%, qoq +67.90%) and net profit of 0.697 billion yuan (yoy +51.09%, qoq +139.97%). The high revenue increase was mainly due to increased server sales. The company is a global leader in AI servers. The overall server market share is second in the world and number one in China in 2023, and it is expected to fully benefit from AI industry opportunities. Maintain a “buy” rating and actively increase stocking to seize AI server industry opportunities

The overall gross margin of 24Q1-Q3 was 6.70%, a year-on-year change of -2.96pct. Among them, the 24Q3 gross profit margin was 5.62%, a year-on-year change of -2.2 pct. 24Q1-Q3's net operating cash flow was -9.387 billion yuan, -67.58% YoY. Among them, 24Q3's net operating cash flow in a single quarter was -4.89 billion yuan (-0.43 billion yuan in the same period last year); inventory at the end of 24Q3 was 38.5 billion yuan, up 83%, up 21% month on month; accounts payable were 37.08 billion yuan, up 214% year on year, up 97% year on year, 24Q3 net operating cash flow decreased year on year, and the increase in inventory and payables was mainly due to the company's active increase in inventory preparation. The company is actively preparing goods and is expected to seize opportunities in the AI server industry.

Downstream capital expenditure remains strong, and the server industry's prosperity is expected to pick up. Downstream capital expenditure is an important influencing factor in the server industry's prosperity. In terms of CY24Q3 capital expenditure, Google's capital expenditure is 13.06 billion dollars (up 62.1%), Meta 9.2 billion dollars (up 36.1%), and Microsoft (including financial leases) is 20 billion US dollars (78.6% increase); in addition, Meta guides capital expenditure of 38-40 billion US dollars in 24 (original guidance of 37-40 billion US dollars), and capital expenditure is expected to accelerate significantly in 25 years; Microsoft said capital expenditure will increase sequentially in the next quarter. Domestically, the CY24H1 BAT (Baidu, Ali, Tencent) capex totaled about 50.5 billion yuan, an increase of 122%; maintaining strong downstream capital expenditure helped the server industry to recover.

AI server production and delivery efficiency is expected to improve, or drive profitability improvement. 24Q1-Q3 sales/management/ R&D expenses ratio is 1.23%/0.64%/2.75%, -0.93pct/-0.49pct/-1.74pct year-on-year. The company actively improved delivery efficiency. By building an intelligent engine for supply chain planning, the order delivery cycle was shortened from 15 days to 5-7 days. We believe that in the future, as the productivity of high-end AI servers gradually increases, gross margin or marginal improvement, the cost ratio is expected to continue to be optimized, and the company's profitability is expected to further increase.

Profit forecasting and valuation

We maintain our forecast for 2024-2026 EPS of 1.52, 1.86, and 2.14 yuan. Comparatively, the company's 25-year Wind unanimously expected an average PE value of 22.1 times. Considering that the company is a global AI server leader and has deep technology and channel accumulation, it is given 33 times PE in 25 years, and the target price is 61.41 yuan (previous value: 54.59 yuan).

Risk warning: risk of macroeconomic fluctuations; increased market competition; supply chain risk.