Core views

In the first three quarters of 2024, the company continued to operate steadily, with revenue growth of 0.7% year-on-year. Operators in China were pressured by the impact of the overall investment environment, international operators grew in double digits, and the consumer and government enterprise markets grew rapidly. Due to changes in business structure, etc., the company's comprehensive gross profit margin from January to September was 40.43%, down 3.24 pcts year on year, but the company achieved a steady performance of overall profitability through improvements in management efficiency and operational efficiency. Facing the development of artificial intelligence and the wave of opportunities for self-reliance in technology, the company insists on “connection+computing power” to deepen collaboration. Based on the company's continuous improvement of technical capabilities and product strength, it is expected that it will continue to benefit from the development of the domestic computing power industry in the medium to long term.

occurrences

The company released its 2024 three-quarter report. In the first three quarters of 2024, the company's revenue was 90.04 billion yuan, up 0.7% year on year, and net profit to mother was 7.91 billion yuan, up 0.8% year on year.

Brief review

1. Overall operations remained steady in the first three quarters.

From January to September 2024, the company achieved operating income of 90.04 billion yuan, a year-on-year increase of 0.7%; achieved net profit of 7.91 billion yuan, a year-on-year increase of 0.8%; and realized net profit deducted from non-mother of 6.9 billion yuan, a year-on-year decrease of 2.9%. Looking at the breakdown, the domestic business is under overall pressure due to the impact of the investment environment. The international market continues to break through the big country's T and maintain double-digit growth; both consumer business and government business have achieved rapid growth.

Due to changes in business structure, etc., the company's comprehensive gross profit margin in January-September was 40.43%, down 3.24 pcts year on year. However, through improvements in management efficiency and operational efficiency, the company's total sales, management, and R&D expenses in January-September were 28.25 billion yuan, down 5.09% year on year, and the total cost ratio of the three expenses was 31.38%, down 1.92 pcts year on year; in January-September, the company's net profit margin was 8.78%, up 0.01 pcts year on year.

In a single quarter of the third quarter of 2024, the company achieved operating income of 27.56 billion yuan, a year-on-year decrease of 3.9%; realized net profit of 2.17 billion yuan, a year-on-year decrease of 8.2%; and realized net profit without return to mother of 1.93 billion yuan, a year-on-year decrease of 11.7%. The company's comprehensive gross profit margin for the third quarter was 40.35%, down 4.28 pcts year on year. The total three rates were 33.03%, down 1.29 pcts year on year.

2. Continue to deepen “connection+computing power”.

The company continues to deepen “connection+computing power”, promote technological innovations such as 5G-A, all-optical networking, and full-stack intelligent computing, and accelerate deep integration and application implementation with thousands of industries. R&D expenses in the first three quarters were 18.64 billion yuan, accounting for 20.7% of revenue. The company launched a “one-machine, multi-core” open architecture AI server, compatible with mainstream GPUs, and launched 2*200G network cards based on self-developed chips; promoted the OLink high-speed bus interconnection standard, and developed its own high-capacity switching chips to conduct research in forward-looking technology such as ultra-10,000 card cluster core technology, native computing power, long-distance interconnection of intelligent computing centers, and intelligent distribution of inference tasks.

3. Profit prediction and investment advice.

In the first three quarters of 2024, the company continued to operate steadily. Revenue increased 0.7% year on year, and net profit to mother increased 0.8% year on year. Facing opportunities in the AI industry, the company insists on “connection+computing power” to deepen collaboration. Based on the company's continuous improvement of technical capabilities and product strength, it is expected that the domestic computing power industry will continue to benefit from the development of the domestic computing power industry in the medium to long term. We expect the company's revenue for 2024-2026 to be 125.15 billion yuan, 131.46 billion yuan, and 140.28 billion yuan, respectively, and net profit to mother will be 95.0.4 billion yuan, 10.28 billion yuan, and 11.24 billion yuan respectively, corresponding to PE 15X, 14X, and 13X, maintaining a “buy” rating.

4. Risk warning. Supply is limited and development is limited due to changes in the international environment; the company is the world's leading 5G communication equipment provider. If the global and Chinese 5G development falls short of expectations, it will have a great impact on the company's main business; if the company's revenue share in the operator market falls rapidly, it will have a certain impact on the company's performance; market competition intensifies, gross margin declines rapidly; the company's market share falls short of expectations; the second growth curve. These new businesses are the company's key businesses. Computing power and credit innovation businesses are expected to bring new flexibility to the company, such as servers, storage, automotive electronics, etc. Business development fell short of expectations, which had a certain impact on the company's future development, etc.