Incident: On the evening of April 29, the company released the “Report for the First Quarter of 2024”, achieving operating income of 17.607 billion yuan, an increase of 85.32% year on year; net profit attributable to shareholders of listed companies was 306 million yuan, up 64.39% year on year, exceeding market expectations.
2024Q1's performance exceeded expectations, and AIGC may have significantly boosted the business. 1) During the reporting period, the company achieved operating income of 17.607 billion yuan, up 85.32% year on year; net profit to mother of 306 million yuan, up 64.39% year on year; deducted non-net profit of 240 million yuan, up 62.96% year on year, exceeding market expectations. 2) According to the company's announcement, business growth is mainly due to increased customer demand and server sales growth, and the company continues to improve its 2023Q4 business.
We believe that considering that since 2023, AIGC has become a new global technology trend, investing in intelligent computing power may significantly contribute to the company's business.
Purchases and advance payments have increased significantly, and costs have remained relatively stable. 1) At the end of the reporting period, the company's monetary capital decreased by 40.76% compared to the beginning of the period, mainly due to the expansion of business scale and increase in purchase payments in the current period; contract liabilities increased by 116.47% compared to the beginning of the period, mainly due to an increase in pre-received customer payments. 2) We believe that at the beginning of the AIGC wave, computing power was a relatively scarce resource, actively preparing goods, or laying the foundation for the company's subsequent performance release. 3) During the reporting period, the company's gross sales margin was 8.08%, down 4.93 pcts from the same period last year; the sales expenses ratio was 1.53%, the management expense ratio was 0.72%, and the R&D expenses ratio was 3.59%. Compared with the same period of the previous year, it decreased 0.86, 0.88, and 3.27 pcts respectively, and costs remained relatively stable.
The AIGC wave has arrived, and the company is expected to gradually benefit as a server leader. 1) In 2023, the AIGC (Generative Artificial Intelligence) development boom triggered by ChatGPT made global enterprises generally pay attention to and explore the layout of AIGC, and accelerate intelligent development in various industries and fields. According to the “2023-2024 China Artificial Intelligence Computing Power Development Assessment Report”, artificial intelligence is accelerating progress from perceptual intelligence to generative intelligence, and the scale of China's artificial intelligence computing power market is rapidly growing and expanding. In 2023, China's artificial intelligence server market will reach 65 billion yuan, an increase of 82.5% over the previous year; the scale of intelligent computing power is expected to reach 414.1 EFLOPS (10 billion floating point operations per second), an increase of 59.3% over the previous year. 2) The company continues to focus on smart computing represented by cloud computing, big data, and artificial intelligence, and continues to innovate in R&D, production, delivery, and service models. According to the latest data released by Gartner and IDC, in 2023, the company's server market share is second in the world and number one in China; the storage market share is the top three in the world, number one in China; and the market share of liquid cooled servers is number one in China. 3) We believe that Scaling-law will bring about a continuous increase in the amount of large model parameters and training data; at the same time, the emergence of popular applications will drive inference demand to achieve a leap forward. As a core leader in domestic computing power infrastructure, the company will actively respond to challenges and is expected to gradually benefit.
Maintain a “buy” rating. Considering the external environment, we believe that IT expenses for traditional general-purpose servers may still be under pressure in the short term; however, AI servers benefit from innovation and application of large models, etc., and demand is expected to be significantly released, thus driving the company's performance improvement. In 2024-2026, we expect the company's revenue to be 757.94 billion yuan, 857.00 billion yuan, and 96.043 billion yuan, respectively, and net profit to mother of 23.29 billion yuan, 27.83 billion yuan, and 3.306 billion yuan, respectively, maintaining the “buy” rating.
Risk warning: AI industry development falls short of expectations, increased industry competition, macroeconomic risks, changes in the international environment.