Digital China(SZ:000034) CSC SECURITIES (HK) LTD·2024-02-22 16:00Investment Rating - The report assigns a "Buy" rating for the company, indicating a potential upside of 15% to 35% [4][9]. Core Insights - The company is expected to benefit significantly from the acceleration of AI server demand driven by central government initiatives to develop intelligent computing centers [4]. - The company's net profit for the first three quarters of the year increased by 25% year-on-year, with a notable 43% increase in Q3, indicating strong performance in the AI server business [4][5]. - The company's traditional business margins are improving, with Q3 gross margin at 4.39%, up 0.2 percentage points year-on-year, and net profit margin at 1.5%, up 0.4 percentage points year-on-year [4][5]. Company Overview - The company operates primarily in the computer industry, with a market capitalization of 157.68 billion RMB and a current share price of 28.65 RMB as of February 23, 2024 [1]. - Major shareholders include Guo Wei, holding 23.12% of shares, and the company has a total of 669.58 million shares issued [1]. Product Portfolio - The company's revenue breakdown includes 35.49% from enterprise value-added services, 57.95% from consumer electronics distribution, 4.33% from cloud services, and 2.22% from proprietary brands [2]. Financial Performance - The company’s projected net profits for 2023, 2024, and 2025 are 1.267 billion, 1.577 billion, and 1.938 billion RMB respectively, with year-on-year growth rates of 26.11%, 24.49%, and 22.90% [5][6]. - The earnings per share (EPS) are expected to be 1.89 RMB, 2.36 RMB, and 2.89 RMB for the same years, with corresponding price-to-earnings (P/E) ratios of 15, 12, and 10 [6]. Market Outlook - The company is well-positioned to capitalize on the domestic market's shift towards AI servers, especially in light of supply constraints on NVIDIA chips, which may enhance its market share [4][5]. - The cloud service revenue has shown a compound annual growth rate (CAGR) of 71% from 2018 to 2022, indicating robust growth potential in this segment [5].