Event: The company released 3Q24 results, achieving total revenue of 1.89 billion yuan, an increase of 16.0% year-on-year, mainly benefiting from the accelerated growth of the AI business. 3Q24 gross profit was 0.3 billion yuan, up 54.6% year on year; gross profit margin was 16.1%, up 4.0 pcts year on year, which is an improvement in the company's revenue structure (increase in revenue share of high gross margin businesses such as AI + contraction of CDN business strategy with low gross margin), optimization of industry cloud project selection and effective cost control. 3Q24 adjusted EBITDA profit of 0.185 billion yuan, and the adjusted EBITDA margin reached 9.8%. In comparison, Alibaba Cloud's adjusted EBITDA rate for the quarter was 9.0%.

Continuing to empower the Xiaomi & Jinshan ecosystem, the total revenue cap of the 2025-27 three-year framework agreement reached 11.3 billion yuan. On November 19, the company announced a related transaction. In 2025-2027, the company is expected to continue to provide cloud services (including but not limited to cloud storage, cloud computing, computing power services, integrated cloud solutions, and other related or similar services such as technical support, maintenance and upgrades), while benefiting from 1) Jinshan Software: promotion of commercialization of WPS AI in office business+cloud game distribution and operation; 2) Xiaomi Group: Xiaomi Car Intelligent Driving Training Research and Development+Autonomous Driving Data Storage+Mobile Phone x AIoT Division Revenue from the ecosystem is expected to continue to grow. According to the announcement, Jinshan Cloud's revenue cap from Jinshan Software+Xiaomi Group in 2025-2027 was 2.78/3.74/4.81 billion yuan, respectively, and the total amount reached 11.3 billion yuan (vs 1.1 billion yuan in revenue from Xiaomi+Jinshan Software in 2023).

In 3Q24, public cloud revenue returned to double-digit growth, and the AI layout is already beginning to bear fruit. The 3Q24 public cloud achieved revenue of 1.18 billion yuan, an increase of 15.6% year over year, mainly benefiting from the increase in AI revenue; however, the 4.8% month-on-month decline was mainly due to the company continuing to actively reduce the scale of the CDN business during the quarter. In terms of AI, 3Q24 AI revenue reached 0.36 billion yuan, accounting for 31% of public cloud business revenue. The expansion of the AI business has led to further diversification of the company's customers and industry distribution: 1) Jinshan Cloud has now covered most leading general AI companies in the industry; 2) the development of AI has driven the company's data cleaning business to achieve rapid growth in computing power and storage requirements; 3) the company has achieved new breakthroughs in the field of autonomous driving and intelligent robots.

The industry cloud continues to focus on advantageous segments and emphasizes the profitability and sustainability of projects. 3Q24 Industry Cloud achieved revenue of 0.71 billion yuan, an increase of 16.7%/8.0% year-on-year. The company continues to focus on the public service sector and signed a cooperation agreement with the Zhuhai High-tech Zone to help Zhuhai lay out a new “Smart City on the Cloud” infrastructure; help the Shenzhen National High-tech Industry Innovation Center complete the construction of a data element platform for the Greater Bay Area; and officially launch the Shanghai Digital Production Cloud and the Yunnan State-owned Assets Cloud. In addition, Jinshan Cloud continues to refine technology around customer scenarios to further strengthen benchmark projects in the healthcare and finance fields.

Profit forecast, valuation and ratings: 3Q24's adjusted EBITDA rate continued to improve steadily on the basis of the correction in the previous two quarters, and increased sharply by 12.6 pct over the previous year, demonstrating the strong growth momentum of the company's operations. We believe that Jinshan Cloud is the only strategic cloud platform within the Xiaomi & Jinshan ecosystem. Revenue flexibility from the ecosystem can be expected, and profitability is expected to continue to improve. We expect the company's adjusted operating profit margin to be corrected in 2025. Considering 3Q24's one-time accrual of long-term asset impairment, we lowered 2024 net profit to mother to -2.09 billion yuan, but raised 2025-2026 net profit to -2.1/+0.16 billion yuan, raising the company's “buy” rating.

Risk warning: competition in the cloud industry intensifies, cloud expansion falls short of expectations, AI progress falls short of expectations, etc.