Summary of investment

Xinyi is the leading information provider in Hong Kong, the neutral data center contractor. Niigata Base Corporation (16.HK) holds 74.04% of the shares. With the rapid growth of client services and the demand for high-end data centers, coupled with short -, medium-and long-term planning, we believe that the collection of high-end data centers will benefit. I offer HK $6.12 to the target label. As the stock market has clearly rebounded recently, we have moved down to "hold". (as of May 27) client services are growing rapidly, driving the demand of high-end data centers

Since the beginning of the customer service in the United States, the continent has also begun to popularize. Not only for personal use, but also for commercial users. According to Gartner estimates, the market regulation models of IaaS, PaaS and SaaS will fall to $76.6 billion, $31.8 billion and $143.7 billion respectively in 2021, with a three-year growth rate of about 25%, 19% and 15%, respectively.

Before the popularization of peer-to-peer services, the actual providers already need to go out of business earlier, so the demand for data centers by these providers has already emerged before the popularization of remote services, and the number is very large. At the same time, end-end suppliers also have high requirements for data centers, such as high power, high normal operating time, and long-stop protection services. however, there are not many high-end data centers that can really attract end-end providers.

The centralized Mega Plus is the standard tier 4 data center, and the Mega Two and Mega-i after construction and transformation can also increase the attractiveness of client service providers. For example, the supply of Mega-i after conversion is expected to increase by about 40%. In addition, it is believed that the new data center to be built by the military Australia project will also be a high-end data center, so I believe that it will be able to receive a great deal of support from the popularity of this remote service.

The short, medium and long term supply is clear.

As the data center is an important asset, and the supply needs to be established over the years, even if there is no strong demand in the future, the collection still needs to be prepared in advance before it can meet the demand and ensure the future growth. We agree that the market has a clear plan for the short, medium and long term.

In the short term, the temporary occupancy rate of Mega Plus has been 50 per cent since October 2017. According to this calculation, if we follow the boarding speed at that time, Mega Plus will be reconciled around 2021. In addition, Mega Two and Mega-i are also under construction and implementation, which is believed to increase the capacity of the data center.

In the medium and long term, the project will be completed in 2021-2022, while the military and Macao project is expected to start in 2022-2023, but may be completed in several periods.

According to the current projects on hand, we believe that the fair will have sufficient supply to meet the future demand and maintain its growth.

The decline in gross profit margin has something to do with the use of the advanced period.

Aggregate gross profit margins have been falling since 2016. Of course, I believe that part of the reason is due to the increasing popularity of the data Centre, but part of the decline is due to the advance period. Half a year before the official arrival of the customer data center, the collection already needs to prepare the necessary equipment, such as UPS and aircrafts, and so on. Before the arrival of the customer, these devices will need to be discounted after the installation, but they will not be able to generate any revenue at the same time, so the gross profit margin will fall and will not return to normal until the customer has officially arrived. At present, the Mega Plus occupancy rate is estimated to be about 50%, and it is very likely that the above situation will happen again in the future, so we expect the gross profit margin to continue to decline slightly in the future.

Profit forecast

In view of the ideal speed of digestion of the new capacity in the center, we have raised the expected income growth of 2019/2020FY to 16.4% and 14.5%.

Valuation

Assuming a price-to-earnings ratio of 36 times 2019, I would like to give the target a price of HK $6.12. The previous headline index rose by 5.2% to reflect the ideal rate of digestion of the center's new capacity, corresponding to a price-to-earnings ratio of 32.2 times earnings in 2020. As the stock market has clearly rebounded recently, we have moved down to "hold".