Core views

Along with the rapid rise in AI attention since 2023 and advanced investment in domestic computing power construction, server power supplies also enjoy the logic of rapid expansion of the industry space as a direct derivative of the server industry chain. As a leader in the domestic server power supply industry, Eurocom has a strong customer base on the downstream cloud factory side, and also has leading product development capabilities.

Along with continued breakthroughs in the domestic computing power industry chain, revenue for 2024-2026 is expected to be 3.633/4.576/5.685 billion yuan, up 26.57%/25.98%/24.22% year on year, and net profit to mother 0.207/0.297/0.426 billion yuan, up 5.85%/43.48% year on year.

Corresponds to PE 34/24/17 times, covers for the first time, and gives a “buy” rating.

occurrences

The company released its three-quarter report, with revenue of 2.664 billion yuan for the first three quarters, +28.95% year-on-year. Q3 revenue was 1.064 billion yuan, +38.17% YoY and +17.83% YoY. Net profit for the first three quarters was 0.157 billion yuan, +277.01% year over year, and net interest rate was 5.89%, +3.88pct year on year. Net profit for single Q3 was 70.7867 million yuan, +104.78% year over month, +28.04% month on month; net margin was 6.65%, +2.16 pct year on year, +0.53 pct month on month.

Brief review

Demand for server power is high, and revenue continues to grow rapidly

According to the company's semi-annual report data, its server power business achieved revenue of 0.495 billion yuan, YOY +77.16%, which became the main driving force for the company's revenue during the semi-annual report period. Judging from the revenue data in the three-quarter report, there is also an acceleration trend in Q3 companies' revenue, so downstream server power supplies are still the main contributor to revenue growth.

Furthermore, from the perspective of server vendors, the 2024Q1-3 wave information achieved revenue growth of 72.26, which is also an intuitive reflection of the high boom in downstream servers, especially computing power servers.

As the share of high-power servers increased, gross margin continued to rise

2024Q1-3's gross margin was 21.28%, +1.75pct YoY. Q3 gross profit margin 21.78%, +2.02pct year over year, +0.01pct month-on-month. Considering that the competitive pattern in the high-power power supply market is more relaxed than conventional power supplies, it also has a higher level of gross margin. As high-power server power supplies (especially server power supplies above 2000W) grow rapidly and their share continues to rise, the company's gross margin is expected to maintain an upward trend. Overall, as demand for domestic server customization continues to emerge, power supply manufacturers are expected to maintain the gross margin of high-power power supplies through the continuous introduction of new products.

The cost control effect is good, and profitability continues to improve

The company's total expenses for the first three quarters of 2024 were 0.332 billion yuan, with an expense ratio of 12.47%, a year-on-year rate of -4.02pct. The total cost of Q3 was 0.129 billion yuan, and the cost rate was 12.09%, -2.00pct year on year. Among them, sales expenses were 70.9667 million yuan, or +33.80% year over year. The high increase was mainly due to the continuous expansion of sales scale; management expenses were 0.11 billion yuan, -8.12% year over year, mainly due to reduced equity incentive expenses; R&D expenses were 0.152 billion yuan, -11.30% year over year, and R&D expenses rate 5.71%, -2.59 pct year over year. Mainly related R&D expenses after the previous divestment of Ion were no longer included in the scope of the consolidated statement.

Investment advice

Along with the rapid rise in AI attention since 2023 and advanced investment in domestic computing power construction, server power supplies also enjoy the logic of rapid expansion of the industry space as a direct derivative of the server industry chain. As a leader in the domestic server power supply industry, Eurocom has a strong customer base on the downstream cloud factory side, and also has leading product development capabilities. Along with continued breakthroughs in the domestic computing power industry chain, revenue for 2024-2026 is expected to be 3.633/4.576/5.685 billion yuan, up 26.57%/25.98%/24.22% year on year, and net profit to mother 0.207/0.297/0.426 billion yuan, up 5.85%/43.48% year on year. Corresponds to PE 34/24/17 times, covers for the first time, and gives a “buy” rating.

Risk analysis

(1) Increased risk of market competition: Product development in the power supply industry is fast, and there may be a risk that other manufacturers will enter the high-power power supply market, increasing competition. If the gross margin of the company's server power supply decreases by 0.5/1/1.5pct due to increased market competition, the corresponding profit will be reduced by 0.007/0.014/0.021 billion yuan; (2) Risk of exchange rate fluctuations: Since the company's power adapter business targets the global market, the company may face exchange profit and loss risks, and the specific amount of exchange profit and loss will be affected by the company's current overseas revenue scale; (3) Risk of low growth in the power adapter business: the company's power adapter business has large revenue Scale. If the subsequent power adapter business revenue continues to grow at a low rate, it will put some pressure on the company's overall revenue growth rate.