Incident: The company announced that it intends to issue shares and pay cash to purchase 100% of Suzhou Qingfeng's shares (corresponding to GlobalSwitch's 51% shares). The transaction price was 18.7 billion yuan, of which the issued shares were paid 18.77 billion yuan and cash payments were 43.24 million yuan. The stock price issued this time is not lower than 90% of the average stock price for the 120 trading days before the pricing benchmark date. The issue price was determined to be 11.61 yuan/share, and it is estimated that 1.62 billion additional shares will be issued (excluding supporting financing).
The fixed increase bill was introduced, and the performance promise was clear, enhancing market confidence. GS has a profit commitment period of three fiscal years. The first fiscal year is the fiscal year in which the delivery date of the underlying asset falls. If the delivery time of the underlying asset is delayed, the performance commitment period is postponed accordingly. GS's projected net profit for 2020 to 2023 is £124 million, £145 million, £199 million, and £266 million respectively (this net profit is net profit attributable to parent company owners after deducting profit and loss from changes in the fair value of investment properties, exchange gains and losses, and other non-recurring gains and losses in the consolidated statement). The performance promises a compound annual growth rate of about 29%, reflecting the company's optimism about future operations and further enhancing market confidence.
Project reserves revealed that there is still strong room for expansion overseas, and the certainty of performance growth has further increased. GS currently has 13 data centers, distributed in 8 regional core cities including Amsterdam, Frankfurt, Hong Kong, London, Madrid, Paris, Singapore, and Sydney, with a total construction area of 392,700 square meters and a total power capacity of 369 MVA. In addition, GS has plans to renovate and expand existing data centers or build new data centers in urban areas such as London, Amsterdam, Paris, and Hong Kong. It is estimated that the total additional construction area will reach 92,000 square meters and add 161 megavalts of electricity capacity, up 23.43% and 43.63% respectively from current levels. When all construction is completed, GS will have a data center of up to 484,700 square meters, with a total power capacity of 530 megavalts, further increasing its coverage in Europe and the Asia-Pacific region and consolidating its leading position in the industry.
The group joined hands with national teams and collaborated business at home and abroad to make IDC a scarce asset worldwide. In September of this year, the National “Count East and West” Industry Alliance was established in Lanzhou, Gansu Province. This industry alliance will build a platform for connecting the supply and demand of computing power in the East, Central, and West of China, optimize the collaborative development pattern of computing power resources in the east, central and western regions of China, and help form a data element market that can be freely distributed, allocated as needed, and effectively shared. Shagang Group will participate in it. In June of this year, Guoxin Zhongshuo signed a strategic cooperation agreement with the Minhang District People's Government to jointly launch a data center industry investment fund project with Shagang Group to promote integrated industrial development. The cooperation reached between Shagang Group and the state-owned platform under the National Information Center shows to a certain extent that the asset quality and technical strength of Shagang and GS have been recognized.
Joining hands with state-owned platforms and government support, the company is expected to quickly improve the domestic IDC layout, form collaboration with GS's overseas nodes, and create the only IDC company in the world that has a layout and global operation both inside and outside of China.
Investment proposal: Assuming that the main steel business of Shagang Co., Ltd. is valued at about 10 billion yuan plus cash and equivalents, the current market value of Shagang is 36.9 billion yuan. After considering the increase, it is implied that Suzhou Qingfeng's current valuation is about 45.7 billion yuan. If GS fulfilled its performance promise, the net profit for 2020-2023 was 1.24/1.45/199 million pounds respectively, corresponding to Suzhou Qingfeng (GS 51% equity) net profit of 5.6/65/ 890 million yuan, and the corresponding PE for 2020-2023 was 82/70/51X. Maintains the “buy” rating given the high level of prosperity in the IDC industry and the scarcity of GS assets.
Risk warning: The acquisition process was slow, GS revenue fell short of expectations, and profits in the main steel business declined.
