San'an & Verdi Technology reached a strategic cooperation to jointly promote the development of critical infrastructure. Sanan Semiconductor and Verdi Technology announced the establishment of a strategic partnership on March 28. The goal is to use the technology and market resources of both parties to promote innovation and development in the fields of data centers, communication networks, and industry and commerce. Sanan Semiconductor will provide high-efficiency and high-reliability semiconductor solutions, particularly in the field of advanced semiconductors such as silicon carbide (SiC), to support Verdi Technology's global power, cooling, and IT infrastructure performance improvements. Through its layout in data centers and communication infrastructure, Verdi Technology opens up market channels and application scenarios for Sanan Semiconductor. This strategic cooperation will cover various aspects such as joint R&D, marketing and technical exchanges. Sanan and Verdi Technology are expected to use their respective advantages, achieve synergy effects, provide customers with comprehensive and efficient solutions, and promote the development of critical infrastructure.

Digital infrastructure solutions provider, leading position in thermal management & power management. Verdi Technology is the world's leading provider of digital infrastructure solutions, providing customers with a portfolio of power, cooling and IT infrastructure solutions and technical services covering critical infrastructure in various fields. In 2023, power management accounted for 33% of revenue and 30% of thermal management revenue. If you click below, it is mainly data centers, which account for 75% of revenue. Judging from its position in the industry, Verdi ranks first in thermal management, three-phase large-scale UPS, and power switching and distribution. Additionally, Veritas participated in the Nvidia COOLERCHIPS program and was designated as the sole refrigeration system partner, and is currently collaborating to build the most advanced liquid cooling solution for next-generation NVIDIA accelerated data centers equipped with the GB200 NVL72 system. We believe that Verdi technology has accumulated decades of history in data centers and other application scenarios, leading the industry, and is exclusive to Nvidia in the refrigeration field. Cooperation with Sanan is expected to benefit deeply from its application and channel advantages.

Build a compound semiconductor platform and continue to enhance the layout. San'an Optoelectronics is mainly engaged in R&D, production and sales of compound semiconductor materials and devices. San'an Integrated Circuit mainly provides compound semiconductor foundry services. The process capability covers the four fields of microwave radio frequency, power electronics, optical communication, and filters, and has an in-depth layout of the four major sectors GaN RF, power electronics, GaAs radio frequency, and SiC power electronics. Among them, in the SiC field, the company invested 16 billion dollars in the three-generation semi-vertical industrial chain of SiC and other compounds in Changsha. It is one of the few domestic manufacturers that have formed a vertical silicon carbide industrial chain layout. It has now achieved a major breakthrough from silicon carbide diodes to MOS, and the silicon carbide business is expected to usher in volume growth. We believe that Sanan Semiconductor is leading in the field of advanced semiconductors such as SiC, and is expected to improve the performance of Verdi Technology's electricity, refrigeration, and IT infrastructure. This strategic cooperation between the two sides is expected to give full play to their respective advantages and achieve collaborative development.

Investment advice: We expect the company to achieve operating income of 144.40/180.44/21.945 billion yuan respectively in 2023/2024/2025, up 9.2%/25.0%/21.6% year on year, and achieve net profit of 4.26/14.69/2,037 billion yuan, up -37.8%/244.8%/38.7% year on year. The company's 24/25 PE is 41/30X, maintaining a “highly recommended” rating.

Risk warning: Compound semiconductor business progress falls short of expectations, cooperation falls short of expectations, risk of international trade disputes.