Grasp the digital trend and build a digital culture+digital technology industry group. The company was born out of Zhejiang News Media Group and focuses on the three main business lines of digital culture, digital technology, and industrial investment. The digital culture sector focuses on the wingman network to boost the casual game business. In the digital technology sector, Fuchun Cloud Technology is steadily advancing the IDC business, and innovative businesses such as Zhejiang Big Data Trading Center, Communication Brain, and Urban Brain are expanding the company's business model. At the same time, the company's industrial investment sector invests, nurtures and integrates around merit in the main business to empower the development of the industry.

The social business has been strategically adjusted, and the main business is developing steadily. In 2022, the company's revenue was 5.186 billion yuan, up 69.27% year on year. The revenue from social media, online game operations, and technical information services accounted for 49.79%, 33.24%, and 15.83% respectively; net profit to mother was 490 million yuan, down 5.21% year on year. 2023H1, the company's revenue was 1,689 billion yuan, down 30.51% year on year. Among them, the social media business declined rapidly, while the rest of the main business remained relatively stable; net profit to mother was 632 million yuan, an increase of 169.81% year on year.

Deeply cultivate casual games and continue to focus on exploring new products. The company continues to be deeply involved in the field of Internet casual games. The subsidiary Wingman Network has products such as winger game hall, tea garden game hall, whipped egg mobile products, Guangdong mahjong applet, etc., covering comprehensive and local gaming needs. Since 2023, mini-programs such as “Wingman Whipped Egg” and “Guangdong Mahjong” have been operating well. The level of game refinement has increased significantly, and the market share is in the top tier. In 2023, Wingman Network approved a total of 5 games, including “Play Chess Every Day,” “Magical Chain Cancellation,” and “Light Up the Stars.” We believe that Wingman Network is based on casual games, digs deep into players' needs, and can attract a large number of active users. With the release of new games, the company is expected to further expand its product matrix and open up room for revenue growth.

Fuchun Cloud continues to be profitable, and IDC's business is expanding steadily. Fuchun Cloud is steadily advancing various construction and operation tasks. It has now basically built more than 10,000 cabinets, mainly providing infrastructure construction and operation services, and is actively focusing on industry development opportunities in AI computing power leasing. The Hangzhou Fuyang Data Center is operating well, the Beijing Sijiqing Data Center Phase II computer room infrastructure has been completed, and the construction of the Hangzhou Dajiangdong Fuqi Cloud Data Center is progressing in an orderly manner. 2023H1 Fuchun Cloud's profitability remained stable, with operating income of 187 million yuan and net profit of 41 million yuan, which is basically the same as in the same period in 2022. We believe that as the power rate on data center cabinets continues to improve, the company is expected to boost the profitability of the digital technology sector.

Grasp the digital trend and build a digital culture+digital technology industry group. The company was born out of Zhejiang News Media Group and focuses on the three main business lines of digital culture, digital technology, and industrial investment. The digital culture sector focuses on the wingman network to boost the casual game business. In the digital technology sector, Fuchun Cloud Technology is steadily advancing the IDC business, and innovative businesses such as Zhejiang Big Data Trading Center, Communication Brain, and Urban Brain are expanding the company's business model. At the same time, the company's industrial investment sector invests, nurtures and integrates around merit in the main business to empower the development of the industry.

The social business has been strategically adjusted, and the main business is developing steadily. In 2022, the company's revenue was 5.186 billion yuan, up 69.27% year on year. The revenue from social media, online game operations, and technical information services accounted for 49.79%, 33.24%, and 15.83% respectively; net profit to mother was 490 million yuan, down 5.21% year on year. 2023H1, the company's revenue was 1,689 billion yuan, down 30.51% year on year. Among them, the social media business declined rapidly, while the rest of the main business remained relatively stable; net profit to mother was 632 million yuan, an increase of 169.81% year on year.

Deeply cultivate casual games and continue to focus on exploring new products. The company continues to be deeply involved in the field of Internet casual games. The subsidiary Wingman Network has products such as winger game hall, tea garden game hall, whipped egg mobile products, Guangdong mahjong applet, etc., covering comprehensive and local gaming needs. Since 2023, mini-programs such as “Wingman Whipped Egg” and “Guangdong Mahjong” have been operating well. The level of game refinement has increased significantly, and the market share is in the top tier. In 2023, Wingman Network approved a total of 5 games, including “Play Chess Every Day,” “Magical Chain Cancellation,” and “Light Up the Stars.” We believe that Wingman Network is based on casual games, digs deep into players' needs, and can attract a large number of active users. With the release of new games, the company is expected to further expand its product matrix and open up room for revenue growth.

Fuchun Cloud continues to be profitable, and IDC's business is expanding steadily. Fuchun Cloud is steadily advancing various construction and operation tasks. It has now basically built more than 10,000 cabinets, mainly providing infrastructure construction and operation services, and is actively focusing on industry development opportunities in AI computing power leasing. The Hangzhou Fuyang Data Center is operating well, the Beijing Sijiqing Data Center Phase II computer room infrastructure has been completed, and the construction of the Hangzhou Dajiangdong Fuqi Cloud Data Center is progressing in an orderly manner. 2023H1 Fuchun Cloud's profitability remained stable, with operating income of 187 million yuan and net profit of 41 million yuan, which is basically the same as in the same period in 2022. We believe that as the power rate on data center cabinets continues to improve, the company is expected to boost the profitability of the digital technology sector.

Promoting innovative business in multiple dimensions is expected to contribute to increased performance. The company's digital technology sector vigorously promotes the layout of the entire industry chain from digital infrastructure to data resources to digital applications, and continues to deepen the digital economy. The company's Zhejiang Big Data Trading Center is committed to building a data element circulation and trading venue system in Zhejiang Province. It has now launched 4 industry zones and 8 regional zones to help release the value of data elements. In terms of smart cities, Hangzhou Urban Brain Company is deeply involved in the digital reform of Zhejiang Province and is gradually transitioning from a project system to commercialization. In terms of digital media, the “Big Communication Model” has now been iteratively upgraded to the 2.0 version of the AI Creation Center, which has the ability to write documents intelligently, design ideas, and search media assets. We believe that the company's active development of innovative business is expected to accelerate the implementation of digital applications and contribute to the company's second growth curve.

Profit forecasting and valuation. We expect the company's 2023-2025 EPS to be 0.64 yuan/share, 0.72 yuan/share, and 0.80 yuan/share, respectively. Referring to comparable companies, we believe that the steady implementation of new projects and the increase in power efficiency in data center cabinets are expected to enhance IDC's business profitability. Innovative businesses such as Zhejiang Big Data Trading Center, Urban Brain, and Communication Brain will bring new growth points to the company, giving the company a PE valuation of 18-20 times in 2024, corresponding to a reasonable value range of 12.96-14.40 yuan/share. For the first time, coverage gives the company a “superior to the market” rating.

Risk warning: Risk of changes in industry policies, release progress falling short of expectations, increased industry competition risk, and risk of loss of core technical talent.