Event Overview: On July 14, 2022, the company released its 2022 semi-annual performance forecast. It is expected to achieve net profit of 3,000-45 million yuan to the mother, an increase of 275%-462.5% over the previous year.
After deducting non-losses narrowed, the negative drag from earlier acquisitions gradually eliminated the median net profit attributable to 22H1 Company was 37.5 million yuan, an increase of 367.19% over the previous year. The increase mainly comes from investment income and non-operating income, including: 1) the completion of the transaction where the company sold 100% of the shares of Edith, a wholly-owned subsidiary, confirmed investment income of 41.3 million yuan in the current period; 2) the holding subsidiary Conley IoT did not fulfill its performance promise in 2021 and received compensation payments of about 14 million yuan in 2021, which was confirmed as non-operating income in the current period.
In '21, due to a sharp decline in the performance of the holding subsidiary Sang Rui Electronics, the company's accrued goodwill and intangible asset impairment losses, the company's performance was lost, and there was a marginal improvement in the operating conditions of the 22H1 company. 22H1 is expected to achieve net profit of -16 to 11 million yuan, an increase of 5 to 10 million yuan over the previous year.
Considering that Sang Rui's e-commerce reputation was fully devalued in '21, it is expected that the negative drag on the company's early acquisition industry will gradually be eliminated.
A strategic cooperation was reached with Lanzhou Science and Culture Tourism. According to the announcement on July 9, the company plans to sign a “Strategic Cooperation Framework Agreement” with Lanzhou New Area Science and Technology Culture and Tourism Group Co., Ltd., the construction unit of the Lanzhou New Area Big Data Industrial Park project, and reach a new infrastructure strategic development partnership. In the future, the two sides will strengthen cooperation in the development, construction and operation of the Lanzhou New Area Big Data Industrial Park Phase III project.
We think there are a few highlights of strategic cooperation worth noting:
1) Large market space: According to the announcement, the third phase is expected to build 250,000 IDC cabinets. According to current market fair investment estimates, the construction scale is probably around 40 billion yuan. At the same time, the cooperation agreement makes it clear that the company has priority cooperation rights under the same conditions. We believe that the Lanzhou Phase III project will provide favorable support for the company's medium- to long-term performance.
2) Status change: According to previous announcements, the company has signed separate agreements with China Wuye Group and Shanghai Telecom Engineering Co., Ltd. to participate in the construction of the second phase of the Lanzhou New Area Big Data Industrial Park project as subcontractors, with a total contract amount of 876 million yuan. Reaching a strategic partnership with Lanzhou Science and Culture Tourism will help the company participate in Phase III construction as a general contractor in the future to obtain larger projects and better profit returns.
3) Advance Card: According to the cooperation agreement, the company established the Lanzhou New Area Big Data Industry Platform Company with investment strength, with Lanzhou Science and Culture Tourism and the state-owned central enterprise platform with investment strength. The company accounted for no less than 15%. The two parties jointly developed and constructed or used the Yuanzhongyuan model to carry out the construction of the third phase of the project. The platform company's taxes will land in the Lanzhou New Area to promote local employment. We believe this move will strengthen the company's territorial advantage, bind the interests of the company to the owners, and help the advance card phase III project gain more share.
Investment suggestions: Orders for the second phase of the construction of the big data center in Lanzhou have already been placed. There is great certainty that the third phase of the plan will be realized. IDC's revenue is expected to grow by leaps and bounds in the next 3-5 years. We expect the company's net profit to the mother in 2022-2024 to be 126/175/284 million yuan respectively. The PE multiplier corresponding to the current market value is 24X/17X/11X. Maintain a “Recommended” rating.
Risk warning: The implementation of Eastern Digital and Western Computing fell short of expectations, and the recovery of subsidiary performance compensation fell short of expectations.