Incident: On May 16, 2020, Donghua Software released a plan for the non-public offering of shares. The total amount of capital to be raised shall not exceed 4,013 billion yuan, and the number of shares issued shall not exceed 11% of the company's total share capital before issuance (that is, 342,703,061 shares). Raise 4,013 billion yuan to deeply deploy emerging industries such as cloud computing and AI, accelerate the pace of innovation, and transform and upgrade integrated service providers: the total capital raised by the company's current non-public offering does not exceed 4,013 billion yuan, which is intended to be used for 1) Xinchuang Pengxiao Project 750 million yuan; 2) Donghua Yundu Project 1,245 million yuan; 3) Avatar (Avatar) Industrial Internet Platform Construction Project of 423 million yuan; 4) AI City Super Brain Project of 180 million yuan; 5) AI operation and maintenance platform development and industrialization projects of 185 million yuan ; 6) Data security product development and industrialization projects worth $190 million; 7) Smart public data and AI-enabled industrialization projects worth $237 million; and $803 million in supplementary flows. The fixed increase plan raised a large amount of capital. The projects cover various cutting-edge fields such as cloud computing, big data, artificial intelligence, and the industrial Internet. The focus is on information innovation and the expansion and upgrading of existing projects, which will help further strengthen the company's core competitiveness and achieve the strategic goal of transformation and upgrading from a traditional software enterprise to a solution and integrated service provider. Upgrade and expand cloud data centers to seize the cloud service market and achieve rapid growth: Donghua Yundu, the project involving the largest amount of private funding this time is Donghua Yundu, which plans to invest 1,245 billion yuan, mainly to expand the company's existing cloud data center business. Currently, the company is already operating cloud data centers in Sanya, Danzhou, and Ma'anshan, Anhui. In addition to expanding these cities, the project is also building separate cloud data centers in Qingdao, Shouguang, and Heze in Shandong. The six cloud data centers will jointly form the “East China Cloud Capital”. Among them, Ma'anshan Yundu (Phase II) is positioned as a financial cloud data center, and the other five are all positioned as government cloud plus industry cloud data centers. In the context of the acceleration of informatization construction across the country, demand from local governments and enterprises to the cloud has increased dramatically. The company continues to build a cloud service network with broad coverage and further improve the cloud service system. In the future, it will continue to meet larger cloud service market needs, and is expected to take advantage of the “cloud” style to achieve performance take-off. In addition, the Avatar (Avatar) industrial Internet platform construction project meets the needs of the energy and power industry and performs SAAS transformation of existing industrial big data service software products; the AI City Super Brain Project promotes business innovation and profit improvement in the company's smart city sector through a combined innovation model integrating capability layer+vertical function type (SAAS platform). As the trend of servicization, platformization, and integration of the software industry becomes more and more obvious, the accelerated penetration of next-generation information technology is driving the continuous upgrading of traditional software companies. As the country's leading comprehensive software enterprise, the company is deeply involved in the construction of cloud computing, big data, smart cities, etc., and is expected to usher in a period of rapid development in the context of the policy of driving the rapid development of the IT industry with new infrastructure. The Pengxiao server industry continues to gain strength and accelerate the innovation process: Of the private capital raised this time, about 750 million yuan was used for the Pengxiao project, mainly based on the background of the national credit and innovation strategy, relying on the Kunpeng computing industry, and using Huawei Kunpeng processors to build the company's own Pengxiao server. The project will be implemented in Beijing, Qingdao and Ningbo. Among them, Beijing will build the Donghua Xinchuang Pengxiao management headquarters; Ningbo will build the Donghua Pengxiao production management headquarters; and Qingdao will build the Donghua Pengxiao production base. Previously, the first batch of Pengxiao servers produced by the Ningbo base were already used in the Ningbo Municipal Affairs Cloud Center in January of this year; the company also signed a strategic cooperation framework agreement with relevant departments of the Qingdao Municipal Government in February to jointly build the Donghua Information Innovation Ecological Base to achieve the implementation of Pengxiao server production and middleware research and development. We believe that as the pace of innovation in the country continues to accelerate, domestic servers will surely usher in a broad market space. The company is expected to open up a world of domestic servers through deep cooperation with Huawei and its own technical advantages and accumulation of customer resources. Investment suggestions: The company has maintained a leading edge and achieved steady growth in the fields of healthcare, finance, government affairs, smart cities, etc., and achieved steady growth in performance. This private fundraising focuses on cutting-edge industries such as cloud computing, big data, and artificial intelligence to respond positively to the country's new infrastructure and innovation needs. The company's core competitiveness is expected to improve significantly, while the balance and liability structure will be further optimized. The company is expected to achieve operating income of 9.704 billion yuan, 10.633 billion yuan and 12.011 billion yuan, and net profit of 775 million yuan, 1,011 billion yuan and 1,245 billion yuan respectively in 2020-2022. The corresponding PE is 54X, 41X, and 34X respectively, maintaining a “highly recommended” rating. Risk warning: the risk that the construction of the Pengxiao server and cloud data center falls short of expectations; the risk of cooperation with Tencent and Huawei falling short of expectations; the risk of increased competition in the medical and financial markets; and the risk of impairment of goodwill.