Net profit to mother increased 4.82% year-on-year in 2023, and gross margin increased 0.80pct. The company released its 2023 report, with 2023 revenue of 476.340 billion yuan (YoY -6.94%), net profit of 21.04 billion yuan (YoY 4.82%), net profit not attributable to mother of 20.09 billion yuan (YoY 9.77%); 4Q23 revenue of 147.522 billion yuan (YoY -2.15%, QoQ 20.88%), net profit to mother of 7.555 billion yuan (YoY -8.72%, QoQ 19.48%), net profit of non-attributable net profit of 6.676 billion yuan (YoY -8.72%, QoQ 19.48%) YoY -5.49%, QoQ 11.33%). 2023 gross profit margin 8.06% (YoY 0.80pct), 4Q23 gross profit margin 8.28% (YoY 0.20pct, QoQ -1.01pct).
Demand for computing power is driving the rapid growth of AI servers, and the profitability of cloud computing has increased significantly. The cloud computing business generated revenue of 194.308 billion yuan (YoY -8.54%) in 2023, with a gross profit margin of 5.08% (YoY 1.12pct). The company focuses on GPU modules, substrates, and back-end AI server design and system integration upstream of the AI industry value chain. With the rapid rise in upstream computing power construction and the rapid growth in downstream AI demand, the share of cloud service provider products increased rapidly, accounting for nearly 50% in 2023. Among them, AI servers accounted for about 30% of cloud computing revenue, showing a strong growth trend. The sharp rise in AI server market share has effectively led to an increase in the company's overall cloud computing gross margin.
Demand for generative AI high bandwidth is growing, driving the upgrade of high-speed switches and routers. Communications and mobile network equipment generated revenue of $278.976 billion (YoY -5.81%) in 2023, with a gross profit margin of 9.80% (YoY 0.55pct).
High-speed switch router revenue is heating up quarter by quarter. Data center AI and network upgrade trends are driving the increase in high-speed switch shipments. High-speed switch router revenue showed a double-digit year-on-year increase; 200G/400G switch shipments have increased significantly, and 800G switches have entered the NPI stage and are expected to contribute revenue in 2024. Precision terminal components benefited from the company's active layout in the high-end smartphone market. Shipments remained steady, sales of high-end models from major customers were better than expected, and revenue showed contrarian growth over the same period last year.
The industrial Internet accelerates empowerment, and “lighthouse factories” lead the transformation of the manufacturing industry. Industrial Internet's 2023 revenue was 1,646 billion yuan (YoY -13.89%), and gross profit margin was 49.81% (YoY 1.94pct). As the world's leading intelligent manufacturing and industrial Internet overall solution service provider, the company has added 3 new world-class lighthouse factories and built a total of 9 lighthouse factories. In December 2023, the company's AI server factory was rated as the world's first AI server lighthouse factory, promoting phased upgrades of automation, digitalization and intelligence.
Investment advice: We are optimistic that the company's cloud computing business will benefit from the explosive growth in global AI computing power demand, while global data center and computing power infrastructure construction will continue to drive the growth of high-speed communication and network equipment; considering the company's overall product restructuring, revenue trends in various businesses, and the actual growth rate of corresponding gross margin, we will adjust the company's performance expectations appropriately. The company's net profit to the mother is expected to increase 14.1%/17.5%/16.5% year-on-year to 240.04/282.12/32.75 billion yuan (previous value 300.71/ (34.797 billion yuan), corresponding PE was 20.7/17.6/15.1 times, respectively, maintaining the “buy” rating.
Risk warning: New product expansion falls short of expectations, downstream demand falls short of expectations, customer introduction falls short of expectations, etc.