Core views

The company's revenue and net profit maintained steady growth in 2023. As a wholesale customized data center service provider, the company showed a steady development trend through short-term fluctuations in the industry, and achieved a gradual improvement in business performance through the gradual release of production capacity of data center projects put into operation. The company's cabinet size has reached 371 MW, which translates to about 74,200 standard cabinets. Currently, the company has high-quality resource reserves in Huailai, Hebei, and Minhang, Shanghai, which further lays the foundation for the company's performance growth. We are optimistic about the company's long-term development trend.

occurrences

The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 1,542 billion yuan, an increase of 5.96% over the previous year, and achieved net profit of 123 million yuan, an increase of 4.65% over the previous year. In the first quarter of 2024, the company achieved revenue of 381 million yuan, a year-on-year increase of 2.51%, and realized net profit of 36 million yuan, an increase of 1.91% over the previous year.

Brief review

1. Annual revenue and net profit grew steadily, and operating efficiency improved steadily.

The company released its 2023 annual report. For the full year of 2023, the company achieved revenue of 1,542 billion yuan, a year-on-year increase of 5.96%, achieved net profit of 123 million yuan, a year-on-year increase of 4.65%, achieved net profit of 100 million yuan after deduction, an increase of 2.71% over the previous year, and an EBITDA of about 1,051 million yuan, an increase of 2.83% over the previous year. In 23Q4, the company achieved revenue of 427 million yuan, a year-on-year increase of 17.97%, and achieved net profit of 121 million yuan, a year-on-year decrease of 51.37%. Revenue in the fourth quarter increased, and profit declined year-on-year, mainly due to the company's liquidated assets depreciation of about 35 million yuan and credit impairment of about 1.5 million yuan. Asset impairment mainly included depreciation of fixed assets and impairment of goodwill. In 2023, in response to the cyclical development characteristics of the data center industry, the company continuously adjusted its sales strategy to further consolidate the company's main business revenue. With more than 10 years of professional data center project management experience, the company has continuously exploited its superior resources, actively mobilized and utilized external resources, steadily expanded its business scale, and achieved steady growth in business performance.

In the first quarter of 2024, the company achieved revenue of 381 million yuan, a year-on-year increase of 2.51%, and realized net profit of 36 million yuan, an increase of 1.91% over the previous year.

Profitability remains stable, and cost control continues to improve. For the whole of 2023, the company's gross margin was 28.98% (+0.14pct), and the net margin was 7.97% (+0.61pct). In a single quarter, the gross margins for the 1st to 4th quarter of 2023 were 29.38%, 29.38%, 27.83%, and 29.27%, respectively. Net margins were 9.43%, 8.98%, 8.93%, and 5.00%, respectively. The gross margin for the fourth quarter was normal, and the net margin was significantly below average, mainly affected by depreciation of accrued assets. On the expense side, the cost rate for the full year was 17.96% (-2.25pcts), of which the sales rate was 0.17% (-0.01pct), the management rate was 4.46% (-0.16pct), the R&D rate was 4.78% (+0.12pct), and the financial rate was 8.56% (-2.18pcts). The obvious decrease in financial expenses was mainly due to a year-on-year decrease of about 23.8 million yuan in interest expenses. The company's profitability remains stable, and management efficiency is gradually improving. The future recovery of the industry is expected to achieve a rapid increase in the profit side.

2. Core regional strategic layout, high quality domestic leading resource reserves.

The company is a leading domestic wholesale data center enterprise. According to data released by the Chinese Academy of Information and Communications Technology, the overall size of the company has jumped to second place in the industry (third party). As of December 31, 2023, the company's main business scale reached 371 MW, which translates to about 74,200 million standard cabinets, which can support the computing power of 20 billion operations per second for major customers, and can support the development of a wide range of fields such as artificial intelligence and AIGC.

The company lays out the core area and expands and accumulates high-quality resources. Beginning in 2015, the company has built 35 data centers in Ulanqab, Zhangbei, Shenzhen, etc., achieving the strategic layout of Beijing-Tianjin-Hebei, Yangtze River Delta, the eastern hub of the Guangdong-Hong Kong-Macao Greater Bay Area and corresponding core regions in the west, and adapting the data center layout planning guidelines of the “East Digital Western Computing” project in advance. Currently, the company has high-quality resource reserves in Huailai, Hebei, and Minhang, Shanghai, which further lays the foundation for the company's performance growth.

3. Respond positively to the “double carbon” policy, PUE is leading the world

The company's energy consumption control capabilities are particularly outstanding. The minimum annual PUE for operating data centers in the country can reach 1.09, leading the world. In order to implement the concept of green development, the company achieves energy saving and consumption reduction in all aspects. The company uses fresh air for natural cooling in parts of northern China, which greatly saves electricity consumption and effectively reduces the PUE level. The lowest PUE for the national operating data center can reach 1.09; in terms of electrical technology, the company has deployed UPS systems throughout the country to achieve deep integration between smart grids and the cloud computing industry; in the construction and equipment procurement stages, it uses high-quality, efficient and intelligent equipment to effectively improve electricity utilization and reduce energy consumption; in the operation and maintenance management stage, the energy efficiency management of data centers is optimized to create rapid response, cost savings, and Safe and stable operation and maintenance environment.

4. Investment advice: In line with national policies, operating efficiency is steadily improving, performance is expected to achieve steady growth, and maintain the “gain” rating.

The company is a domestic wholesale IDC leader. It lays out IDC resources in the core domestic region in line with national policies and strategies. It has excellent assets, abundant reserves, and obvious technical advantages, and is far ahead in PUE level. Benefiting from the continued promotion of digital China and the continued increase in demand for new AIGC applications, we are optimistic about the company's future development prospects. We expect the company's revenue for 2024-2026 to be 1,636 billion yuan, 1,751 billion yuan and 1,891 billion yuan respectively, and net profit to mother of 154 million yuan, 171 million yuan and 194 million yuan respectively. The PE corresponding to the current market value is 54 times, 49 times and 43 times, respectively, maintaining the “increase” rating.

Risk analysis

Cabinet construction delivery fell short of expectations. IDC computer room construction usually takes 1-2 years. If the construction process is interrupted by force majeure factors, the construction cycle of the computer room may be extended, causing the computer room delivery schedule to fall short of expectations, which will have a negative impact on the company's future revenue growth.

Customer demand and power-up progress fell short of expectations in the short term. Customer demand determines the delivery schedule of the computer room and the power up progress after delivery. If customer demand decreases in the future, it will cause the company's cabinet to fall short of expectations, which will affect the growth of the business scale; if customer demand falls short of expectations after the cabinet is delivered, it will cause the cabinet to be powered up slowly, and customers will pay according to the power-up schedule, causing the company's performance growth to fall short of expectations.

New customer expansion and resource reserves fell short of expectations. Customer and cabinet resources determine the company's future growth potential. The company needs to continuously develop new customers and resources. If the expansion falls short of expectations, it will lead to insufficient long-term growth momentum and affect the company's business expansion.