Key points of investment
Incident: The company issued an announcement on the evening of June 12, 2017. The controlling shareholder's co-actor, Ms. Ji Xiaorong, the current chairman, plans to increase the company's shares through the Shenzhen Stock Exchange trading system between June 29, 2017 and December 31, 2017. The proposed increase in shares shall not exceed 1% of the company's issued shares, and it is promised not to transfer the company's shares within six months after the increase in holdings is completed. The source of capital for this increase in holdings is own capital.
The chairman's increase in holdings showed the company's confidence, and the transformation of cloud computing resumed expansion. Market conditions continued to be sluggish within 3 months of the company's suspension. The decline in net worth of the fund put pressure on individual stock holdings. After the resumption of trading, the company's stock price fell continuously to a standstill due to this. Judging from the current stock price, this plan to increase holdings allows the actual controller to increase control over the company at a lower cost. On the other hand, the plan to increase holdings also shows the determination and confidence of the actual controller to transform the company into cloud computing. According to the restructuring plan announced earlier, the company will complete the merger and acquisition of the remaining 49% of the shares in Connected Port. The acquisition of Connected Port will not only directly increase the company's performance, but also lay the foundation for the company's transformation into an integrated Internet service provider. In addition to IDC and cloud service businesses, Connected Port has already expanded its business to VPN services, Internet access services, and other value-added services. Against the backdrop of weak growth in its traditional main business, the company is expected to start the expansion process again through mergers and acquisitions of Connected Port.
The hybrid cloud market is expected to dominate in the future, and “IDC+DCI+SDN” will power the hybrid cloud market. Hybrid clouds combine the advantages of strong scalability of public clouds and high security of private clouds. According to IDC's forecast, hybrid clouds will account for 67% of the cloud computing market in the future. Based on accurate judgment of industry trends, while expanding the scale of IDC, Connected Port built or leased nearly 3,000 cabinets in the north. On the other hand, Dahe Cloud collaborated to create the first DCI network based on SDN technology in China, which can provide a stable, flexible and flexible SDN-DCI network for IDC/hybrid cloud users and establish differentiated hybrid cloud services for users.
Currently, the connected port has been connected to leading public clouds at home and abroad, such as Amazon, AWS, and Alibaba Cloud, which has greatly expanded the potential customer base. At the same time, the Internet Port opened a Hong Kong cloud node at the end of 2016 and obtained the Hong Kong IAS (Internet Access Service) license, and the international layout is progressing steadily. In the future, Connected Port will further increase the cabinet scale by building its own or seeking partners, guarantee the expansion needs of cloud computing services, and fully develop the hybrid cloud market.
Entering the field of VPN services and Internet access services, high-quality integrated cloud service providers set sail. The amount of data transmitted between branches of enterprises distributed around the world is increasing, and the demand for bandwidth and security is getting higher and higher in the process of synchronizing and transmitting massive amounts of data at multiple points, and the demand for VPN services continues to grow as a result. Competitors in the VPN market are mainly divided into two camps: basic operators and third-party service providers. Although basic operators have resource advantages, third-party service providers can provide more flexible solutions, high-quality services, and quick response, etc., and have more potential for development. Connected Port began construction of a virtual private network connection system project in 2016, and has now begun providing VPN services to customers including Wanda's Xinfeifan and Beijing Youfan Technology. In addition, the Connected Port also provides customers with services such as Internet access and subsequent operation and maintenance. Currently, it has provided Internet access services to 14 Wanda Plazas in 3 cities, and it is expected that more Wanda Plaza and other customers will accelerate the introduction in the future. By expanding the business to fields such as VPN services and Internet access services, the Internet port network can provide users with more value-added services. The strong synergy between various services enhances user stickiness while also opening up more space for the company's development.
Profit forecast and investment advice: Assuming that the issue price of shares raised supporting capital is also 9.4 yuan/share, the company's total share capital will increase to 4,8253 million shares. We expect the company's net profit for exam preparation from 2017 to 2019 to be 150 million yuan, 210 million yuan, and 300 million yuan respectively, while the corresponding diluted EPS will be 0.31 yuan, 0.44 yuan, and 0.62 yuan respectively. We gave the company a “buy” rating for 37xPE in 2017, with a target market value of 5.50 billion yuan and a corresponding target price of 11.40 yuan.
Risk warning: 1) Traditional business competition intensifies; 2) Connected port performance falls short of expectations; 3) There is a possibility that the restructuring plan will fail to pass review by the regulatory authorities