Incident: The company released its 2023 annual report. In 2023H1, the company achieved revenue of 26.7 billion yuan, an increase of 17.5% over the previous year, and a net profit loss of 149 million yuan. After adjustment, the year-on-year increase was 53.6%. The performance was in line with market expectations.

Key points of investment

Steady growth in performance, reduction in the scale of pure integrated business: The company's high-tech industrial engineering services have a remarkable advantage, and achieved steady growth in the first half of 2023; H1 revenue in 2023 was 25.1 billion yuan, up 23% year on year; digital and information services H1 revenue in 2023 was 360 million yuan, down 55% year on year, mainly due to the company's overall transformation into a high-tech and product-based company, actively reducing the scale of pure integrated business, and some projects did not achieve revenue in delivery.

China Electronics Cloud's self-developed product line is developing rapidly and is expected to increase rapidly throughout the year: “China e-Cloud” IaaS and PaaS product capabilities and self-developed product lines have developed and progressed rapidly, and market competitiveness continues to improve. In 2023, China Electronics Cloud Company, a subsidiary of H1 Shensanda, achieved revenue of 125 million yuan, an increase of 346% over the previous year. In July 2023, the winning bid amount for the China e-Cloud Innovation Project increased 300% year-on-year. We expect that in the future, with the development of the data element market and a high demand for state-owned cloud construction, China's e-Cloud will be expected to achieve continued high growth.

The local data element pilot made a rapid breakthrough: the company and China Electronics and Tsinghua University formed a “data security and data factorization project overall plan integrating system, technology, and market, and has carried out engineering practices in various cities such as Wuhan, Zhengzhou, Xuzhou, Wenzhou, Deyang, and Dali.

Among them, the Deyang project has achieved phased results. The Xuzhou Data Vault (pilot), as the first data vault built in the country, has passed the overall experience with academicians as the expert group leader; the “Zhengzhou Data Security and Data Elementalization Project Overall Plan” undertaken by the company has passed the overall expert review.

Big government model products continue to be implemented: The company has released a series of products such as the “Xingzhi 2.0 Big Model Industry Intelligent Platform” and “Xingzhi Government Vertical Field Big Model” based on big model technology, forming deep cooperative relationships with economically developed regions such as Beijing, Huangpu District in Shanghai, and Wenzhou in Zhejiang Province.

Dingzheng is firm in its strategic layout: The company plans to raise 3 billion yuan, mainly for operational cloud construction, distributed storage, high-tech industrial engineering, etc. Among them, operational cloud projects are to be built in Wuhan, Shenzhen, Shanghai, Chengdu, etc., to provide all-digital infrastructure for key industries such as government, finance, energy, transportation, education, etc., and the company will continue to invest more in Cloud Digital's strategic layout in the future.

Profit forecast and investment rating: We maintain the company's 2023-2025 EPS forecast of 0.17/0.45/0.96 yuan. We expect China E-Cloud to achieve high growth in the second half of the year with innovation and data element construction. We are optimistic that the company will continue to replicate the Deyang model based on a state-owned cloud platform and maintain a “buy” rating based on the state-owned cloud platform and the application of the vertical model in government and industry.

Risk warning: Competition in the industry is intensifying, and policy progress falls short of expectations.