The company's annual report shows steady revenue, with a significant increase in Q1 performance. The outlook for the Computing Power business is promising.

The company released the 2023 annual report and the Q1 2024 report

The company's 2023 annual report shows that it achieved an income of 770 million yuan for the year, a slight increase of 0.1% year-on-year. The net profit attributable to the parent company was 80 million yuan, a year-on-year increase of 3%. The net profit attributable to the parent company after deducting non-recurring gains and losses was 70 million yuan, a year-on-year increase of 19%. The first quarter report for 2024 shows an income of 260 million yuan, a year-on-year increase of 57%. The net profit attributable to the parent company was 40 million yuan, a year-on-year increase of 130%. The net profit attributable to the parent company after deducting non-recurring gains and losses was 40 million yuan, a year-on-year increase of 148%.

Gross margin increased throughout 2023, optimization of the revenue structure for the two main businesses

From the perspective of the revenue composition for the entire year of 2023:

The revenue from network visualization business is 380 million yuan, a year-on-year decrease of 9%. The main reason is that some projects have not yet reached the revenue recognition milestones for the year 2023, leading to a slight decline in revenue. However, the company won a new centralized procurement project for aggregation and diversion equipment for a certain mobile operator for the years 2023-2024, with the winning share increasing year by year and a good order situation, maintaining an optimistic outlook for revenue growth in 2024. In addition, the gross margin of the company's network visualization business reached 64%, an increase of 8 percentage points year on year, mainly due to the increase in the proportion of revenue from customized projects, which improved the business's profitability.

The revenue of the intelligent system platform business reached 390 million yuan, a year-on-year increase of 13%, with a gross profit margin of 29%, up 0.6 percentage points year-on-year. The growth of this business is mainly attributed to the stabilization of the supply chain situation and the commissioning of the intelligent manufacturing and service base in Jiaxing, Zhejiang. Among them, the proportion of high-margin products has increased, slightly enhancing the overall profitability of the business.

The significant increase in contract liabilities in 2023 indicates strong downstream demand

The company's total contract liabilities for the year 2023 reached 540 million yuan, representing a change of 4121% compared to the previous period's end of 13 million yuan, mainly due to receiving advance contract payments from customers. This is likely primarily driven by the rapid growth in demand for new computing power business. The company's computing power business model provides a comprehensive solution to computing power investors, ranging from system solution design and integration delivery services to long-term operation and maintenance, as well as operational services after construction, linking the computing power needs of AI scenario parties. In September 2023, the company has signed contracts to jointly establish an artificial intelligence computing power center in Qianhai, Shenzhen, with multiple partners, providing AI computing power resource supply, computing power scheduling, training validation, and adaptation services for the Guangdong-Hong Kong-Macao Greater Bay Area.

Analysis of Business Performance in Q1 2024

In the first quarter of 2024, the quarterly gross profit margin was 35%, a decrease of 11 percentage points compared to the full year of 2023; by the end of the first quarter, the company's contract liabilities amounted to 480 million yuan, a decrease of 60 million yuan compared to the end of 2023. This may serve as a side confirmation that the company's new computing power business contributed revenue in the first quarter. It is expected that as demand for computing power gradually increases in the future, the confirmation of new business orders is likely to accelerate, and the company's third growth curve will officially usher in a golden period of expansion.

Investment Advice

The company is an outstanding provider of network visualization and intelligent system platforms in China, with its products and technology layout poised for growth. In the future, with the increasing demand for AI computing power and the growing importance of data elements, the company is expected to achieve rapid growth. It is estimated that the company's operating revenue for 2024-2026 will be 1.3/1.8/2.3 billion yuan, and the net profit attributable to the parent company will be 250/330/420 million yuan, corresponding to P/E ratios of 37/27/22 times.

Risk Warning

Market competition risk, downstream demand affected by policy risk, supply chain risk.