Key investment points

Event: On October 29, 2024, the company released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 1.977 billion yuan, up 6.20% year on year; net profit attributable to shareholders of listed companies was 0.1429 billion yuan, down 4.11% year on year.

Incident analysis:

Due to short-term profit fluctuations, R&D investment continues to increase: the company is the world's leading data center temperature control and cooling solution service provider and professional special air conditioning system solution service provider, and is deployed in various fields such as data centers and special industries. In the first three quarters of 2024, the company achieved operating income of 1.977 billion yuan, up 6.20% year on year; net profit attributable to shareholders of listed companies was 0.1429 billion yuan, down 4.11% year on year; in the third quarter, the company achieved operating income of 0.672 billion yuan, down 5.58% year on year; and achieved net profit attributable to shareholders of listed companies of 33.23 million yuan, a year-on-year decrease of 48.07%. We believe that the main reason for the decline in profits is that the company is still expanding in scale. All three fees have increased to varying degrees. In the first three quarters of 2024, R&D expenses reached 0.109 billion yuan, up 24.6% year on year. In the future, with the expansion of the company's overseas business and the rapid growth of the data center business, the scale of revenue and profit is expected to increase further, and the overall development situation is improving.

The liquid-cooled 0-1 circuit opens, and the company's technology/customer/market layout is comprehensive. In the future, the transformation of data centers into intelligent computing centers will become an industry trend. High power consumption and cooling issues will become more prominent, and liquid cooling technology will become a necessary option for the construction of intelligent computing centers.

Technology: The company has launched a weather-liquid homogenous large liquid cooling system based on the development needs of various data centers such as intelligent computing and supercomputing.

The system consists of a fully prefabricated modular liquid cooling machine room. The end can use different cooling source combinations such as integrated cooling station/dry cooler/integrated cooling source, etc., and the factory is fully prefabricated through integrated, prefabricated, and modular methods to achieve high quality control of the whole process. Customers: Over the years, the company's data service products have served a wide range of well-known customers such as Huawei, Tencent, ByteDance, Qinhuai Data, Inspur, Runze Technology, and Hyperfusion, and jointly released the “Intelligent Computing Center Full Stack Solution 2.0” with Qinhuai as a joint publisher. Market: In addition to the domestic market, the company has continued to increase its overseas business layout represented by Southeast Asia. In recent years, the company has delivered innovative energy-efficient products such as liquid cooling and phase change cooling on a large scale in Singapore and Malaysia. Currently, it is also increasing sales and after-sales service teams locally to support the needs of rapid market development, and increasing the stickiness of customer cooperation through technological innovation, prefabrication, and local service guarantees.

The share of the data service sector has increased, and revenue from liquid cooling products has increased exponentially: the company's data service sector mainly provides temperature control solutions, serving cloud data centers, computing power centers, communication infrastructure and other fields. The products include precision air conditioning, liquid cooling systems, evaporative cooling units, etc. As of the first half of 2024, the company's data service sector had outstanding performance. Revenue increased by about 61.35% year-on-year, and new orders were close to the total volume of last year. In particular, the performance was remarkable in terms of innovative products with high energy efficiency. Revenue for evaporative cooling products was 3.6 times that of the same period last year, and 6.5 times that of liquid cooling products. As of the first half of 2024, the revenue of the special sector increased by 45.47% year on year. Among them, the hospital business was 2.7 times that of the same period last year, and the nuclear power business was 2.1 times that of the same period last year. In the future, the company will increase research and development for special applications, especially in the fields of nuclear power, rail transit, airports and hospitals. The revenue in the public construction and commercial air conditioning sector is also impressive. It is mainly used in public buildings, large-scale commercial buildings, etc. The main products include commercial chillers, commercial modular air conditioners, etc.

Currently, with the rapid growth of the data center business, the revenue share of the data service sector has increased to about 50% in the first three quarters of 2024, with specialty and industry being divided into two or three categories.

Investment advice: The company leads the industry in the field of temperature control solutions, while achieving customer breakthroughs in multiple fields. We believe that in the future, the company will maintain steady growth for a long time. It is predicted that the company's 2024-2026 revenue will be 3.044/3.783/4.733 billion yuan, up 21.2%/24.3%/25.1% year on year, and the company's net profit to mother will be 0.19/0.296/0.339 billion yuan, respectively, up 81.5%/55.5%/14.6% year on year, corresponding to EPS 0.72/1.11/1.27 and PE 37.9/24.4/21.3.

First coverage, giving a “buy” rating.

Risk warning: New product development falls short of expectations; competition in overseas markets intensifies; accounts receivable are not collected in a timely manner.