Key points of investment

Core logic

Dual power+computing power layout: The company is the leader of clean energy operations. An inflection point in the traditional power generation business has arrived, and the decline in costs combined with rising electricity prices has driven profits to exceed expectations; the implementation of AI computing power centers combined with tight supply and demand for computing power drives the computing power business to exceed expectations, and is also expected to bring about an increase in valuation.

Logic that exceeds expectations

(1) Computing power leasing business: The speed of implementation of computing power centers has exceeded expectations, and tight supply and demand of computing power has driven profits to exceed expectations

1. Market expectations: The company lays out the computing power leasing market across borders. In the context of the US restrictions on high-end AI chips, the company lacks computing power chips and customer resources, making it difficult to implement construction plans.

2. We predict that the company has been deeply involved in the energy field for many years. Through long-term customer relationships on the demand side, it combines characteristic industries such as biomedicine and autonomous driving in Suzhou and GCL Group's own industrial advantages to provide AI computing power services for domestic large-scale model development companies and application development companies in AIGC, AI for Science, robotics, autonomous driving, etc. The company has deployed high-quality computing power chip resources ahead of schedule, and plans that the total scale of global energy computing power construction will reach 10,000P by the end of the year 24. The certainty and speed of computing power center investment and construction is expected to exceed expectations.

3. Drivers:

1) With the early deployment of computing power chips, the speed of computing power center investment and construction is expected to exceed expectations: On August 27, 2023, the company's Suzhou Xiangcheng Intelligent Computing Project was officially completed and put into operation. At the same time, the deployment of intelligent computing centers was accelerated in Shanghai, Suzhou, Nanjing, Shenzhen and other cities. The total scale of global energy computing power construction is expected to reach 10,000P by the end of 2024. On October 18, 2023, the company signed a computing power equipment procurement contract with a total price of 925 million yuan, and both parties will fulfill their contractual obligations according to the agreement. Furthermore, the company has established cooperative relationships with many domestic server chip manufacturers to lay out the domestic server-side computing and reasoning chip industry chain in various forms according to business needs, and the certainty and speed of the company's computing power center investment is expected to exceed expectations.

2) Computing power supply and demand are tight, and computing power profits are expected to exceed expectations: with the rapid development of big models and artificial intelligence, demand for computing power has exploded. In the context of the US restrictions on high-end AI chips, the scarcity of computing power is highlighted, computing power leasing prices continue to rise, and profitability continues to expand. The company's energy storage layout is carried out in regions with large price differences between peaks and valleys. Through the energy storage+computing power business format, the company's computing power leasing business profits are expected to exceed expectations.

3) Customer progress in computing power leasing business is expected to exceed expectations: The computing power leasing industry is still in the early stages of development. In the future, with the gradual implementation of large models and the transformation of traditional manufacturing, application scenarios will become more and more extensive. According to estimates by the China Academy of Information and Communication Technology, the total computing power of global computing equipment reached 906 eFLOps in 2022, with a growth rate of 47%. It is estimated that the global computing power scale will grow by more than 50% in the next five years. By 2025, the total global computing power will exceed 3 zFlops, and by 2030 it will exceed 20 zFlops. The company combines characteristic industries such as biomedicine and autonomous driving in Suzhou with GCL Group's industrial advantages to provide computing power services to related customers. GCL's intelligent computing computing power rental platform has been connected to the Suzhou public computing power service platform to provide computing power services to various computing power demand entities. The progress of the company's computing power leasing business customers is expected to exceed expectations.

4. Inspection indicators: computing power center investment and construction progress, computing power rental prices, computing power customer orders.

5. Catalysts: Delivery of computing power chips, advanced computing power center investment and construction progress, and execution of computing power orders.

(2) Clean energy business: Reduced fuel costs+optimized energy-saving transformation drive profits to exceed expectations 1. Market expectations: Due to external environmental effects such as increased international inflation, electricity prices for combustion engine companies cannot absorb all the costs of rising fuel prices, and profitability continues to be under pressure. The gross profit margin of the power business in '22 was 15.09%, down 9.26% from the previous year.

2. We forecast that the decline in raw material prices is compounded by energy-saving transformation, and the improvement in the profitability of the power generation business is expected to exceed expectations. The gross margin of the power business was repaired to 20.80% in the first half of '23, an increase of 3.75% over the previous year.

3. Drivers:

Profit recovery in cogeneration, the main business, exceeded expectations: with the release of domestic coal production capacity, the increase in imported coal, and the implementation of Changxie Coal's regulatory compliance, the high level of coal market prices fell, the pressure on the cost side of coal power operators was greatly eased, and the operating conditions of coal power companies and thermal power companies improved marginally, achieving continuous improvement in performance. In terms of the natural gas market, the domestic LNG market as a whole showed a continuous downward trend in the first half of the year. Since falling from a high level at the beginning of the year, it has basically shown a continuous downward trend, and prices have fallen to a low level in the past two years. High fuel costs have declined. Through measures such as energy-saving technology transformation and optimized operation methods, the company has fully unleashed profitable production capacity and maximized the operating efficiency of cogeneration units. Reduced fuel costs and optimized energy-saving operation have led to profits exceeding expectations.

4. Inspection indicators: coal price, LNG price, gross profit margin.

5. Catalysts: Fuel prices are stabilizing, feed-in tariffs are rising, and gross margin is increasing month-on-month.

(3) Digital energy business: The power exchange business is transformed into digital energy, and the integration of optical storage and charging continues to empower 1. Market expectations: The “storage, charging and switching” layout lacks a technical foundation, making it difficult to seize the market.

2. We predict that the company has been working in the power industry for a long time and has obvious resource advantages in multiple regions of the country. Through technological upgrades, the integrated layout of “storage, charging and switching” will accelerate.

3. Drivers:

1) Empower “fixed+mobile” new power system service businesses through the integration of “optical storage, charging, and sale”.

The company upgraded the original mobile charging and switching business to enable the “fixed+mobile” new power system service business through the integration of “optical storage, charging and exchange”.

2) Innovate and build a flexible solution service provider that integrates “optical storage, charging, and exchanging sales” to empower diverse scenarios. The company adheres to the concept of storage as the core, vehicle electricity collaboration, transportation energy and digital energy collaboration. Relying on its advantages in the fields of green power, energy storage, computing power, energy supplementation and energy management, the company innovates and creates a flexible solution service provider that integrates optical storage, charging and sales to empower diverse scenarios. In terms of liquid-cooled super fast charging, the company and partners jointly develop integrated optical storage and charging scenarios to achieve integrated storage and charging through efficient access to photovoltaics and energy storage modules. In the field of mobile energy storage, multi-station collaboration, multi-energy complementarity, intelligent peak consumption matching, and intelligent charging and switching are realized, and multi-model battery sharing and compatibility, battery pack tracking, and real-time battery information monitoring are realized.

4. Inspection indicators: number of solar storage charges installed, number of energy storage power plants installed.

5. Catalyst: The layout progress of the “charging and switching” integrated power plant has exceeded expectations, and the implementation of the energy storage power plant has exceeded expectations.

Profit forecasting and valuation

Lower the profit forecast and maintain the “buy” rating. The company is a leader in clean energy operations, and the implementation of the AI computing power leasing business and the integrated layout of “storage, charging and switching” has exceeded expectations, leading to a high increase in performance. Since it will take time for high raw material prices to fall, we have lowered our profit forecast for 23-24. The net profit for 23-24 is estimated to be 12.92 billion yuan and 1,973 billion yuan (15.01 billion yuan and 2,438 billion yuan respectively before the 23-24 reduction), the net profit forecast for the new 25 years is 2,571 billion yuan, and the corresponding EPS for 23-25 is 0.80, 1.22, and 1.58 yuan/share. The PE corresponding to the current stock price is 17, 11, and 8 times, respectively. We selected energy-saving wind power, construction investment energy, and Hengrun Co., Ltd., which engages in computing power-related business, and Wave Information, as comparable companies. The average PE for the same industry in 24 years was 20 times (wind agreed expectations). We gave the company a 20x valuation of PE in 2024, corresponding to a market value of 38.8 billion yuan and a target price of 23.92 yuan. Corresponding to the current market value, there is room for an increase of 81.90%. Maintain a “buy” rating.

Risk warning

Delivery of computing power chips fell short of expectations, and progress in the construction of AI computing power centers fell short of expectations.