The company's recent situation

Jinshan Cloud issued an announcement on November 19, announcing the renewal and revision of its related transaction framework agreement with Jinshan Software (directly holding approximately 37.40% of Jinshan Cloud's shares on the announcement date) and Xiaomi (directly and indirectly holding a total of about 12.25% of the shares on the announcement date) in December 2022, including cloud services provided by Jinshanyun to these related parties and receipt of financing services from related parties, covering the three-year period from 2025 to 2027.

reviews

The visibility of Xiaomi and Jinshan's ecological revenue continues to increase. According to the announcement, from 2022 to 2024, the total cloud service revenue agreement limits from Jinshan Software and Xiaomi were about 0.8089 billion yuan and 4,775 million yuan, and the average annual maximum usage rates for the period 2022 to 2023 were 91.13% and 71.87%, respectively. From 2025 to 2027, the cloud service revenue caps from Jinshan Software and Xiaomi totaled about 1.8416 billion yuan and 9.483.2 billion yuan respectively, up 128% and 133% year-on-year from the previous three years, with implied compound annualized growth rates of 29% and 32%, driven by the following factors, respectively: 1) Jinshan Software: continuous optimization and upgrading of AI application products in line with the office software business, promotion of cloud migration strategies, and supporting the distribution and operation of new and old games; 2) Xiaomi: Deepening the electric smart vehicle business with Xiaomi in automotive development and data storage , cloud service cooperation in automobile production and operation, and promotion of continuous cooperation with existing businesses such as mobile phones and AIoT. Since the second half of 2022, Jinshan Cloud has continued to focus on computing power and production and research resources to serve the needs of Jinshan and Xiaomi ecosystem customers. Jinshan Software and Xiaomi's revenue share increased from about 10% in 2021 to 20% in 3Q24. We believe that this related transaction framework agreement has set a clear growth path for ecosystem customer revenue for the next three years, and as the share of relevant party revenue in the company's overall revenue continues to rise, the company's performance visibility has further increased.

Related parties provide reliable and flexible financial support for business expansion. According to the announcement, from 2025 to 2027, the total annual outstanding balance of financing services provided by Xiaomi to Jinshan Cloud through financial leasing, factoring, and mortgage loans was 4.4 billion yuan. Starting in the second half of 2023, Jinshan Cloud accelerated capital expenditure investment to reserve AI computing power. The capital expenditure for the full year of 2023 was nearly 2 billion yuan, and we expect 2024 or double year-on-year. Looking forward to the future, we believe that financing support from Xiaomi provides a flexible and reliable liquidity guarantee for the company's subsequent infrastructure investment; at the same time, the company is also expected to support incremental computing power investment through operating cash flow.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged. Maintaining an outperforming industry rating; considering increased performance visibility and increased market risk appetite, we raised our target price by 46% to $9.5 (based on a 2x market sales rate in 2025), corresponding to 45% upward space. The company is currently trading 1.4 times the 2025 market-sales rate.

risks

Demand and revenue transformation fell short of expectations; industry competition intensified; customer dependency risk.