Incident: On the evening of April 26, the company released the “Report for the First Quarter of 2024”, which achieved operating income of 1,425 billion yuan, an increase of 28.66% over the previous year, and achieved net profit attributable to shareholders of listed companies of 60 million yuan, an increase of 44.04% over the previous year, exceeding market expectations.
The 24Q1 performance exceeded expectations, and the cloud computing big data business progressed rapidly. 1) During the reporting period, the company achieved operating income of 1,425 billion yuan, an increase of 28.66% over the previous year; achieved net profit of 60 million yuan, an increase of 44.04% over the previous year; achieved deducted non-net profit of 56 million yuan, an increase of 82.83% over the previous year. Various businesses maintained a rapid development trend and exceeded market expectations. 2) According to the company's official WeChat account, on February 19, the Shanghai Development and Reform Commission officially announced the 2024 Shanghai Major Projects List. The Yidian Intelligent Computing Center (Songjiang) (i.e. Yunsai Zhilian Songjiang Big Data Computing Center (Phase II)) was selected as one of the four major “planned new construction” projects in the technology industry. We believe that with the core card position of the digital economy in Shanghai and the computing power operating strength accumulated over many years, the company's cloud computing big data business may continue to advance rapidly.
The gross margin is generally stable, and the cost ratio is controlled to a certain extent. 1) During the reporting period, the company achieved a gross profit margin of 18.30%, a decrease of 0.66 pct compared with the same period last year, and remained stable overall. 2) In terms of the cost ratio, during the reporting period, the company's sales expenses ratio was 4.07%, down 1.44 pcts from the same period of the previous year; the management expense ratio was 4.11%, down 1.81 pcts from the same period of the previous year; the R&D expenses rate was 6.89%, down 0.93 pcts from the same period last year, and the cost rate was controlled to a certain extent.
The main force of factors and the core of intelligent computing, Shanghai's state-owned cloud lords set sail. 1) Data elements: Since 2022, the digital economy and data elements have become the country's top strategy. The company is the main force in the digital transformation and construction of Shanghai cities, and has implemented the entire industry chain layout in terms of data elements, including state-owned clouds, government data governance, and data product development and application.
2) Intelligent Computing Platform: In August 2023, the General Office of the Shanghai Municipal People's Government issued the “Action Plan to Promote Innovation and Development of the Data Factor Industry Based on the New Circuit of the Digital Economy (2023-2025)”, which indicates that the total computing power will quadruple by 2025 compared to the end of the 13th Five-Year Plan period. On June 30, 2023, the company announced the establishment of a computing power facility company in a joint venture with Yidian Group and others, holding 11% of the shares. The position of Shanghai Intelligent Computing's top platform has been established, and the speed of implementation is expected to continue to exceed expectations.
3) Intelligent cloud service: The company's subsidiary Shanghai Nanyang Wanbang Software Technology Co., Ltd. and Beijing Xinnuo Times Technology Development Co., Ltd. are the core domestic MSP service providers for mainstream cloud service providers such as Microsoft, Ali, Huawei, and China Telecom. At present, Microsoft has become a global leader in AIGC technology and applications, and the company is expected to rely on Azure cloud services to solidly promote the export of AI capabilities.
Maintain a “buy” rating. The company is a core service provider for the digital economy in Shanghai. With the acceleration of computing power infrastructure, data elements, and the digital transformation of government and enterprises, the business is expected to grow steadily. We expect the company to achieve operating income of 60.23, 68.17, and 7.661 billion yuan in 2024-2026, and achieve net profit of 2.32, 2.77, and 323 million yuan. Maintain a “buy” rating.
Risk warning: government spending falls short of expectations; development of AI technology falls short of expectations; revenue and profit assumptions fall short of expectations; impact of international relations.