On February 21, 2024, Zhongchen Co., Ltd. issued an indicative announcement regarding the expected triggering conditions for a downward revision of the conversion price of Zhongchen Bonds. According to the prospectus of Zhongchen Convertible Bonds (123147.SZ), when the closing price of the company's stock falls below 85% of the current conversion price for at least 15 trading days (i.e. 6.61 yuan/share) in any 30 consecutive trading days, the board of directors of the company has the right to propose a downward revision plan for the share conversion price and submit it to the company's shareholders' meeting for review and vote. The company's closing price on February 23 was 6.62 yuan/share, which did not trigger Zhongchen debt-for-share price reduction conditions.

The demand for the cable business is stable, and the company has advantages in technology, qualifications, manufacturing, etc. The construction of new power systems is progressing steadily, and the domestic wire and cable industry is expected to have a CAGR of about 11% in 2022 to 2026. With the vigorous development of strategic emerging industries and high-end manufacturing, the market size of special cables is expected to reach 700 billion yuan in 2023. The company has built a “one hospital, one station, one office, three fields, and four centers” R&D platform. As of mid-2022, it has 174 patents, including 22 invention patents. Zhongchen Co., Ltd. has also passed various certifications from the State Grid, Southern Grid, and many power groups. The company has first-class domestic wire and cable production and testing equipment. It uses many new technologies such as gravity unloading, conductor preheating, and double rotation traction to ensure stable product performance and reliable quality. The company uses a direct sales model, and the marketing network covers the whole country.

It is proposed to establish a joint venture to lay out the inference computing power business and open up a second growth curve. On December 20, Zhongchen Co., Ltd. disclosed the “Notice on Signing an Investment Agreement and Establishing a Holding Subsidiary”. It plans to jointly fund the establishment of a joint venture with Hangzhou Xinglin Technology Co., Ltd. with a registered capital of RMB 11 million, and Zhongchen shares pledged an investment of 7.7 million yuan, accounting for 70%. After the establishment of the joint venture, it will be included in the scope of the Zhongchen Stock Consolidated Statement. The joint venture built and operated a low-carbon liquid-cooled intelligent computing center into the field of inference computing power, providing services to downstream customers through computing power leasing and other computing power services. The computing power industry is still developing rapidly, and inference side computing power has not yet formed a stable market pattern. The company's layout computing power business is expected to form the company's second growth curve.

Zhongchen Co., Ltd. and Xinglin Technology complement each other's advantages and work together to develop the computing power business. Zhongchen Co., Ltd. has a nationwide sales network, a stable management team, and the resource advantages of listed companies. Xinglin Technology will empower the joint venture in terms of technical support, project operation management, and employee training. Xinglin Technology and its subsidiaries have granted and are applying for a total of 10 patents related to computing power services, including 8 patents, including liquid cooling cabinets with adjustable flow, server cabinets with high space utilization, data storage devices that are easy to locate, and computer data lines with anti-interference electromagnetic shielding layers. In the future, if the joint venture needs to use technology related to Xinglin Technology, the two sides will negotiate cooperation through authorized use and joint development in accordance with fair market prices. Subsequent joint ventures will also establish their own R&D systems, product systems, service systems, and management systems.

The joint venture's two-year construction plan is supported by its own and self-funded funds. The joint venture plans to build a low-carbon liquid cooling intelligence center within two years. It plans to rent an existing computer room from a third party, without involving the acquisition of land or the construction of a new computer room. Zhongchen Co., Ltd. will provide financial support to the joint venture. The source of capital for the early construction of the intelligent computing center is the company's loans to the joint venture. After the joint venture starts production and operation to generate revenue, it will expand its business through self-financing, including but not limited to its own funds or loans and financial leases from financial institutions such as banks, etc., and the shareholders of both parties to the joint venture will provide equal guarantees for it. Zhongchen Co., Ltd. and Xinglin Technology have made detailed arrangements on the joint venture's governance structure, personnel arrangements, and division of shareholder roles.

The lockdown period for restricted shares has been voluntarily extended. Short-term investment does not have a significant impact on the finance and operation of Zhongchen Co., Ltd. After the establishment of the joint venture, it will be included in the scope of the consolidated statement of Zhongchen Co., Ltd. and become a holding subsidiary of the company. This investment has no significant impact on the company's financial and operating conditions in the short term. Zhongchen Holdings Co., Ltd., a shareholder holding more than 5% of the company's shares, issued a “Letter of Commitment on Voluntarily Extending the Lockdown Period for Restricted Shares” on October 25, 2023, to voluntarily extend the lockdown period for the limited shares held by the company until July 21, 2024. The third board of directors, supervisory board members and current senior management of the company did not directly hold shares in the company, nor are there any plans to reduce their holdings.

Risk warning: The development of artificial intelligence technology falls short of expectations, competition in the computing power service industry increases risks, the risk of delays in establishing joint ventures and obtaining operating qualifications, the risk of making procurement of computing power servers more difficult and cost fluctuations, and the risk of companies bearing guarantee repayments for joint ventures, etc.