Incident: On the evening of July 15, 2024, the company issued a series of announcements including organizational restructuring and new related transactions.

The organizational structure was upgraded and cloud video, cloud computing and AI divisions were established. The company issued the “Notice on Adjusting the Company's Organizational Structure” to completely upgrade the original structure and establish new divisions such as AI commerce, cloud video, cloud computing, operators, and smart door locks. We believe that the company's business has been comprehensively upgraded and is gradually being upgraded from an ODM vendor role to a comprehensive digital technology enterprise integrating server remanufacturing and sales, cloud computing, artificial intelligence computing power services, and cloud video data services. Long-term development prospects and sustainability are expected to improve significantly, which in turn will boost performance and valuation.

Integrate high-quality resources to expand video cloud services and cross-border e-commerce business: The company announced the addition of daily related transactions in 2024, mainly: 1. Add 0.119 billion yuan to buy a server from Qishuo (holding 49% of the company's holding subsidiary Metabex); 2. Add 0.09 billion yuan to purchase computing power services from Youwei (a subsidiary holding 51.00% of the company's affiliated entity, Zhengwei Precision). The corresponding computing resources are mainly used to expand the company's vSaaS video cloud service, the cross-border e-commerce service Fcloud platform, and the AIGC big language model.

We believe that the company integrates high-quality and cost-effective basic computing resources from related parties, combines its own business upgrade process, lays out cloud and AI computing services, and has strong momentum for performance growth.

Performance is growing at an accelerated pace, with huge potential for inventory growth: the company's revenue growth rate from 2023Q2 to 2024Q1 was 54.4%/63.3%/51.6%/118.4%, respectively, showing an overall accelerated growth trend. As of 2024Q1, the company's inventory was 1.448 billion yuan, an increase of 61.16% over the previous year. We believe that while the company's performance is growing rapidly, inventory has maintained a rapid growth trend, which may indicate that the company's production capacity continues to rise, and the market prospects are broad.

Investment advice: The company's original business has been fully upgraded, and demand in the server remanufacturing market is strong, and it is expected to usher in a period of rapid performance growth. We expect the company's revenue for 2024-2026 to be 7.948 billion yuan, 11.004 billion yuan, and 14.993 billion yuan, net profit to mother of 0.84 billion yuan, 1.181 billion yuan, and 1,652 billion yuan, and PE of 22 times, 15 times, and 11 times. Maintain a “buy” rating.

Risk warning: Cloud business development falls short of expectations, server business falls short of expectations, macroeconomic fluctuations.