Shanghai's state-owned cloud service is a vital force, implementing the development path of “improving IDC, strengthening cloud services, deepening big data, and laying out industry applications”. Yunsai Zhilian is a specialized information technology service enterprise with cloud services, big data, smart city industry solutions, and intelligent products as its core business. Over the years, the company has always adhered to the smart city strategy, adhering to the development vision of “becoming a first-class smart city comprehensive solution provider and operator in China”, implementing the development path of “improving IDC, strengthening cloud services, deepening big data, and laying out industry applications”, insisting on digging deeper into industry segments, and carrying out the responsible mission of “strengthening government, developing businesses, and benefiting the people”.

In the context of promoting the digital economy and laying out the digital industry, the company uses digital transformation as an opportunity to accelerate the construction of data centers and computing power infrastructure, enhance full-chain service capabilities for digital transformation, deeply cultivate “ToG and ToB” business fields, continuously research and explore smart city business models, participate extensively in smart city application demonstrations, and is committed to building a new business ecosystem of next-generation information technology and platforms such as the Internet of Things, cloud computing, and big data, to continuously enhance the company's core strength and comprehensive capabilities. The actual controller of the company is the Shanghai State-owned Assets Administration Commission. The company participated in the construction and operation of the Municipal State-owned Assets Administration Commission's State-owned Enterprise Supervision Cloud and the Municipal Committee's Internet Information Office Media Cloud, and successfully implemented various commissioned on-site services such as the Municipal State-owned Assets Administration Commission. In 2023 H1, the company won the bid for the operation, maintenance and comprehensive guarantee projects of various digital projects organized by the Listed Finance Bureau. In the first three quarters of 2023, the company achieved revenue of 3.706 billion yuan, a year-on-year increase of 19.67%; net profit to mother was 156 million yuan, up 2.20% year on year; net profit after deducting non-return to mother was 99 million yuan, an increase of 284.19% year on year. In Q3 of 2023, the company achieved revenue of 1,208 billion yuan, a year-on-year decrease of 0.23%; net profit to mother was 63 million yuan, an increase of 2.43% year-on-year.

In terms of gross margin, in the first three quarters of 2023, the company achieved a gross profit margin of 18.82%, an increase of 0.12pcts over the previous year.

Deeply involved in intelligent computing power, the second phase of the company's data center has been laid out. The company focuses on the construction and operation of high-grade data centers to build a solid digital foundation for the company's urban digital transformation business. Shanghai Technology Network Communications Co., Ltd., a subsidiary of the company, is positioned as a neutral third-party high-end data center operator. Currently, Xuhui Data Center, Baoshan Cloud Computing Center, Baoshan Big Data Center, and Songjiang Big Data Center have a total of more than 7,000 cabinet resources. The first phase of the Songjiang Big Data Center project won the “Yangtze River Delta Green and Low Carbon Demonstration Data Center Award” and became a “National New Data Exchange Center Node”, and passed the “National Standard High Level Enhanced Level (GB50174-2017A Level)” certification. 2023H1, the first phase of the Songjiang Big Data Center was fully put into operation, and the 110KV independent power user station invested and built by the company was officially opened, preparing for the second phase of the data center project. On October 28, the company announced that it plans to launch the construction of the second phase of the Songjiang Big Data Center project based on the first phase of the Songjiang Big Data Center with Yunsai Shuhai, a subsidiary of Technology Network, as the main investor.

The project plans to invest in the construction of about 1124 high-power racks, with a total IT power of 22MW, and a total investment of about 795 million yuan. This project serves the construction of municipal intelligent computing power clusters and provides infrastructure services for intelligent computing power platforms in Shanghai. As the foundation and support for Shanghai's urban digital transformation, the company represents high-end data centers and computing power centers of Shanghai state-owned state-owned enterprises, and is committed to providing customers with full-stack sustainable data center solutions and end-to-end quality service guarantees. In order to seize strategic opportunities for the development of computing power centers and promote the need to build computing power centers that serve the whole country and the Yangtze River Delta region and support cross-domain resource scheduling, 2023H1, Yunsai Zhilian, and other shareholders jointly funded the establishment of Shanghai Intelligent Computing Technology Co., Ltd. to further advance the implementation of the “Improve IDC” strategy.

We attach great importance to data elements, and the company has made continuous breakthroughs in the field of big data in government affairs. “Make Shenzhen Big Data” is a strategic implementation path for Yunsai Zhilian to serve the smart city solution data center. Since the company successfully won the bid for the Shanghai e-government cloud IaaS platform in 2017, the company has made continuous breakthroughs in the field of government big data, successively completed the construction and operation of the Shanghai e-government cloud intermediate platform, the construction of the Shanghai e-government cloud PaaS platform, won the bid for the 2019-2020 Shanghai DaaS data platform integration and data operation turnkey project, 2020 Shanghai Big Data Center (2020-2022) data operation service, 2021 Shanghai Big Data Center Big Data Resource Platform Construction Phase II Project, 2022 An integrated project for the construction and operation of the Shanghai Big Data Center this year. Currently, Yunsai Zhilian has become the general integrator of the Shanghai Big Data Center resource platform, operation and maintenance provider, and general operator of the data operation platform. Over the years of practice, the company has continuously accumulated and accumulated enterprise products and solutions, and continuously built and enhanced the big data team's planning and consulting capabilities, solution design capabilities, implementation and delivery capabilities, operational service capabilities, ecological integration capabilities, and industry standard capabilities. The company is supporting the construction and operation of a data resource platform to expand the “two network construction” urban digital transformation business in various districts of Shanghai. Up to now, the company has implemented big data construction and operation and “two network construction” projects in 10 districts including Minhang and Chongming. The company expanded and extended its digital transformation experience in Shanghai to help digital governance in other provinces and cities, and successfully won the bid for the Chengdu “Smart Rongcheng Operation and Management Platform Data Resource Capacity Improvement” platform construction project and the “Smart Rongcheng Operation and Management Platform Data Governance Service Procurement Project” in Chengdu in 2022. 2023H1, the company successfully won the bid for the Shanghai e-government infrastructure operation and maintenance project and the big data resource platform project in various regions. Using big data operations as an opportunity, the company further laid out the business in the field of government information technology in various government offices and big data centers in Shanghai. Through in-depth planning and design, program refinement, standard formulation, distribution and implementation of various commissioned services, the company successfully achieved on-site services at various agencies such as the Municipal State-owned Assets Administration Commission. 2023H1, the company won the bid for the operation and maintenance of digital projects and comprehensive support projects organized by various agencies such as the Municipal Finance Bureau.

Intelligent computing power and data elements go hand in hand, and the company is expected to continue to benefit in the context of favorable policies. On November 7, 2023, five departments including the Shanghai Economic and Information Technology Commission jointly formulated and issued the “Shanghai Municipal Measures to Promote the Innovation and Development of Big Models of Artificial Intelligence (2023-2025)” (hereinafter referred to as “Measures”), which specifically proposed the implementation of the Big Model Intelligent Computing Power Acceleration Plan. Build a municipal intelligent computing power coordination platform, and build large-scale advanced computing power scheduling and supply capabilities. Eligible intelligent computing centers will be given priority green channel support in terms of energy consumption indicators, etc.; the construction of key intelligent computing industry clusters such as Lingang, Jinshan, and Songjiang will be accelerated. Strengthen urban linkage, and give appropriate deployment rewards to computing power builders that have completed intelligent computing power deployment in Shanghai by the end of 2024 and included in coordination and dispatch; city entities that rent computing power included in the city's overall scheduling to carry out large-scale model development will be given a rental subsidy of up to 10% based on the size and level of achievement of the computing power cluster.

Build an urban high-speed intelligent computing power carrier network to achieve high-speed direct connection of 100 Gb/s and millisecond latency between urban intelligent computing power centers. In addition, the “Measures” also proposed the joint construction and sharing of corpus data resources. Form a large model corpus data alliance to encourage diverse actors to jointly promote the construction of high-level corpus data elements. Establish an intellectual property protection framework for corpus data, make full use of blockchain and other technologies, and deepen contribution-oriented incentive mechanisms and evaluation and certification mechanisms. Relying on the Shanghai Data Exchange to establish a corpus data trading section. We believe that the “Measures” make specific arrangements and guidelines for the two important development elements of the big model of computing power and data. Currently, the company's data elements and intelligent computing power go hand in hand, which is in line with the various favorable policies proposed in the “Measures”, and the company is expected to continue to benefit in the future.

Profit forecasting and investment advice. We believe that as a major force in Shanghai's state-owned cloud services, the company's intelligent computing power and data elements are progressing in parallel in the context of continuous promotion of favorable policies, and it is expected to maintain a high growth rate in the future. We assume: 1) In terms of cloud computing big data business, this business segment covers the company's two main business areas of intelligent computing power and data elements. Considering that the second phase of the company's data center has been laid out and continuous breakthroughs have been made in the field of government big data, the business in this sector is expected to maintain steady and rapid growth in the context of favorable policies. We expect the year-on-year growth rate of the company's cloud computing big data business to be 18%, 22%, and 23%, respectively, in 2023-2025. 2) In terms of industry solution business, the business mainly includes two aspects of urban safety management and smart livelihood. The smart livelihood field also covers industries such as education, medical care, municipal livelihood, testing and traceability, etc., 2023H1, the company won the bid for standardized test site construction projects, foreign language listening and examination room construction projects, and several district school informatization support projects. The National Pipeline Network West-East Gas Transportation Company gas storage data collection and digital platform basic function R&D project built by the company completed delivery and acceptance. It successfully renewed the contract for Shanghai Chengtou Water Group's CIS business operation and maintenance service project for the new year. It can be seen from the chemical platform system operation and maintenance service project, the integrated smart water supply management platform for water supply companies, and the special project for group water leasing. We expect the year-on-year growth rate of the company's industry solution business to be 3%, 5%, and 5% respectively in 2023-2025. 3) In terms of the intelligent product business, the business company is mainly provided by Shanghai Yidian Scientific Instrument Co., Ltd., a leading enterprise in the domestic scientific instrument industry under the company, including a total of 5 categories and 20 subcategories of “lightning” series electrochemical products, about 170 main instruments, more than 200 sensors and optical instrument products. Considering that the business already has a deep market foundation, we believe that the business is expected to maintain a steady and slow growth rate in the future. The year-on-year growth rate of the company's intelligent product business is expected to be 5%, 5% and 5%, respectively. Overall, we expect the company's 2023/2024/2025 net profit to be 2.09/2.46/291 million yuan, respectively, and EPS of 0.15/0.18/0.21 yuan, respectively, giving them 80 times the 2024 PE and a target price of 14.38 yuan. For the first time, coverage is given a “superior to the market” rating.

Risk warning. The development of artificial intelligence fell short of expectations, the development of data elements fell short of expectations, and policy progress fell short of expectations.