Incident: The company announced on July 8 that the company and Lanzhou Science and Culture Tourism signed a “Strategic Cooperation Framework Agreement” based on the will to cooperate. The two parties agreed to carry out in-depth cooperation on project development, construction, operation, and maintenance of the Lanzhou New Area Big Data Industrial Park as strategic development partners for new infrastructure (a five-point breakdown of cooperation was proposed).
Based on the content of these in-depth cooperation, in order to solidly promote the rapid implementation of the cooperation, the listed company (Party B) will pay 200 million yuan in installments as cooperation intent money, and return the funds to the company one year after the other party receives the full amount of the cooperation intent fund. In order to show business confidence and avoid the risk of loss for small to medium shareholders, the capital will be provided to the company by Mr. Liang Jianhua, the controlling shareholder of the company, or his designated party.
The signing of the Strategic Cooperation Framework Agreement is an important guarantee for the company's continued rapid development in the next few years. The strategic cooperation framework agreement signed between the company and Lanzhou Science, Culture and Tourism is a follow-up to the “Lanzhou New Area Big Data Industrial Park (Phase II) Project 3 #数据机房设备采购合同》后又一项非常重磅的合作推进。 signed with Shanghai Telecom Engineering Co., Ltd. last week The company has recently obtained two data room construction projects from Lanzhou Science and Culture Tourism through a third party subcontract, with a total contract amount of 876 million yuan.
After the signing of this cooperation agreement, we believe that the positive impact on the future growth of the company will be as follows:
First, it is possible for the company to participate in the construction of the Lanzhou Big Data Industrial Park as a general contractor in the future, so that it can obtain larger projects and a better level of profitability.
Second, judging from the content of the cooperation agreement, in the future, the company will also cooperate in the operation and maintenance support services of the big data industrial park in the new area, and become a priority partner for the Lanzhou New Area under the same conditions. This means that in addition to the relatively many pre-construction and other businesses currently being carried out (relatively one-off), the company will also have the opportunity to intervene in the subsequent continuous operation, maintenance, support, and support of the industrial park. This type of business is sustainable for a longer period of time and can give the company stable returns over a longer period of time.
Third, judging from the scale comparison, the announcement of this agreement mentions “cooperation in R&D, production, manufacturing, etc. of the 2500 cabinets anticipated by the Big Data Industrial Park”. Judging from the details of the “Lanzhou New Area Big Data Industrial Park (Phase II) 3# Data Computer Room Equipment Procurement Integration and Installation Project” disclosed by the Gansu Public Resources Exchange Center, the 704 million contracts won by the company in the previous phase (the total price of the bid contract is about 1,106 billion) correspond to about 7,200 standard server cabinets, so we roughly estimate the future value of 250,000 general cabinet counters. Probably close to 40 billion or so. As a strategic partner with priority cooperation rights, even if it only obtains some of these contracts, its scale will have a very positive growth impetus for the company's current 1 billion dollars (2021 revenue), and rapid growth in the next few years is just around the corner.
Fourth, judging from the project cycle, the construction of the third phase of the Lanzhou New Area Big Data Industrial Park project was gradually completed from 2022 to 2027. After completion, it will become an important big data industry base at the national level.
This means that the company is likely to receive a considerable contract amount in the next five years, laying a solid foundation for the company's sustainable growth.
The cooperative intent fund is provided by the controlling shareholder or designated party to demonstrate the majority shareholders' full confidence in the company's growth. It is worth noting one point from the announcement: “In order to show business confidence and avoid the risk of loss for small to medium shareholders, Mr. Liang Jianhua, the controlling shareholder of the company, or his designated party will provide this amount of capital to the company.” Although the proposed cooperation fund of 200 million yuan is not a particularly large amount, the target of the cooperation is Lanzhou Science, Culture and Tourism is also a first-level local state-owned enterprise controlled 100% by the Lanzhou New Area Finance Bureau. There are relatively clear guarantees in all aspects. However, for listed companies that have just experienced losses due to the bad accounts receivable accounts of its subsidiary Sang Rui Electronics, and especially for the mixed judgment environment from the outside world, this practice really reflects Chairman Liang's responsibility and his great confidence in this cooperation, including the future development of the listed company. The majority shareholders use their own capital to endorse listed companies. This kind of behavior is also rare in the A-share market as a whole. It is the best response to previous media questions and investors' concerns that were unaware of the company's situation.
Lanzhou, Gansu, has built a computing power base, and Supercom is expected to take advantage of the cloud. With the continuous popularization of new technologies such as 5G, artificial intelligence, and the Internet of Things, China's data volume will usher in explosive growth, and demand for data center ownership will rise rapidly. However, in the eastern region, where the amount of data is currently larger, it is more difficult to build large-scale data centers due to energy consumption indicators, electricity costs, land resources, etc., while the western region, including Gansu, has rich land resources, a comfortable climate environment, and great potential to meet the computing power needs of the east. Judging from its geographical location, Gansu is located at the foot of the Eurasian continent. It has always been China's transportation hub connecting Central Asia and West Asia. Building a data center industry in Gansu is expected to reach the northwest region and even the markets of countries along the “Belt and Road”. As a result, Gansu has become one of the eight major hubs of China's Eastern and Western Computing Project.
Lanzhou is the capital city of Gansu Province. It is ahead of other cities in terms of economy, power resources, and talent pool construction, and introduced the Kunpeng Industrial Project in 2020. This will provide strong technical and talent support for Eastern and Western Computing to land in Lanzhou.
The three core operators will be one of the main players in the construction of China's “East Digital and Western Computing” project. For example, the Shanghai Telecom project, which won the bid for the “Lanzhou New Area Big Data Industrial Park (Phase II) 3# Data Room Equipment Procurement Integration and Installation Project”, is a communication construction enterprise under China Telecom. Supercom is deeply involved in the communication technology service industry. In the past, it has built communication networks and provided operation and maintenance services in many provinces and cities such as China Mobile, Unicom, Telecom, China Tower, etc., and has rich experience in cooperation with core communication operators.
Without the negative impact gradually fading away, the traditional business returned to a growth path. In 2021, due to the epidemic, as well as global supply chain shortages and rising upstream raw material costs, etc., the subsidiary Sunray Electronics experienced a sharp decline in revenue. Coupled with bad debt billing on accounts receivable, there was a sharp loss of performance. This resulted in impairment of goodwill and intangible assets. As a result, the company accrued relevant impairment reserves of 113 million yuan. Furthermore, since some 2020 performance compensation payments were not recovered in a timely manner, a credit impairment reserve of about 10 million yuan was generated. In addition to this, the company also accrued a number of amounts last year, including: (1) impairment of goodwill due to declining performance of Kangli IoT; (2) asset impairment preparations due to non-recovery of Haopu Environmental's equity repurchase payments; and (3) impairment of advance payments related to the Hu Qingtao contract case. These various types of uneconomic negative profit and loss were a drag on the company's overall performance in 2021. Looking at it now, such negative factors are gradually being eliminated. In particular, Sang Rui Electronics, which is the biggest drag on Sang Rui Electronics. First, the goodwill was basically calculated last year, and secondly, the company will continue to recover related performance compensation payments, and the continued deterioration of Sang Rui's business conditions will trigger the demand for share repurchase by performance pledgers. Overall, the burden created by the company's past mergers and acquisitions will gradually be lifted. The rest of the company's traditional businesses essentially still have good room for growth. Expected to grow positively this year, the overall business will return to growth trajectory.
Investment Ratings and Suggestions: First coverage, buy ratings. The company's traditional communication network construction and maintenance business returned to a growth trajectory after experiencing the impact of the industry epidemic and lack of materials over the past year or two, after the goodwill and compensation processing of the subject matter of the merger and acquisition was completed. The cooperation of the Lanzhou Big Data Industrial Park has opened up a new business model for the company that integrates overall solutions such as consulting, design, construction, operation and maintenance by an independent third party in the IDC field. In the current industry context where China invests heavily in 5G, data centers, and Eastern and Western Computing industries, the company's business development in this model is expected to bring considerable profit elasticity. The growth trend and sustainability have gradually become clear. We predict that the company's net profit for 2022-2024 will be 176 million, 418 million, 732 million, respectively. The PE corresponding to the current stock price is 18.53 million and 7.80 million respectively. The PE corresponding to the current stock price is 18.53 million and 7.80 respectively and 4.45 times, covered for the first time, giving a buying rating.
Risk warning: (1) the implementation of the Eastern Digital Computing Project or the confirmation and promotion of the company's bidding project fell short of expectations; (2) the goodwill and performance compensation recovery and equity repurchase processing of subsidiary Sang Rui and others fell short of expectations; (3) the continuing impact of the epidemic has led to domestic development and advancement of traditional businesses falling short of expectations.