IDC business accelerates the company's business upgrading, and the company strives to build the domestic leading data center company business for the production and sales of steel and its Calendering products, and is currently actively transforming and upgrading the industry. The company's IDC business is the main content of the company's "digital economy" business. More than 1500 IDC cabinets in the first phase of the company have been sold out since they were put into production at the end of 2019. The first batch of more than 5000 cabinets in the second phase of the company is expected to be put into production in mid-2020, and the construction of the remaining batches of cabinets is also expected to be completed in 2020. At the same time, the company cooperates with large Internet enterprises to expand the scale of business development. The number of cabinets in the company is expected to exceed 20, 000 in the short and medium term, and the company is on a par with the national first-class IDC operators.

The core of iron and steel enterprise has the advantage of rapid development of IDC business.

The company relies on the high-quality resources of large state-owned enterprises and pays close attention to the convenient conditions of the company's electricity, water and land use to speed up the development of IDC business. The IDC construction cycle of the old steel plant is short, so it is convenient for the business to land. At the same time, the company holds the energy consumption index of 182600 tons of standard coal, which can effectively support the commissioning of more than 20, 000 5KW standard cabinets. In the situation of tightening energy consumption EIA indicators in first-tier cities, the company is expected to become a scarce target in the IDC industry.

With the development of the industry, the "new infrastructure" helps the development of the IDC industry. Domestic data flow is growing continuously, and the trend of exponential growth of data volume remains unchanged. The government side of the "new infrastructure" is expected to inject $100,000,000 of investment into the IDC industry. When senior leaders conducted a survey in Zhejiang on April 1, they once again emphasized the acceleration of data center construction, and the prosperity of the industry was once again enhanced.

In the same region, the IDC core computer room is short of resources, the company's equipment is of high quality, and the price has the right of premium. In the area where the company is located, the shelving rate of the data center core computer room is more than 80%, and the shelving rate of some data center computer rooms is more than 90%. Industry demand is strong, large Internet companies, financial institutions, telecom operators high-quality IDC cabinets are in short supply, the company's product scarcity is guaranteed. The company is half an hour's drive from the city center, and IDC computer room is a rare large IDC base located within the "inner ring" in China. The company carries on the computer room construction according to the high standard of T3+ industry. The cabinet sales of the first phase of the project are optimistic, and the equipment in the later stage is expected to replicate the successful experience of the first phase of the project and become a large-scale IDC three-party operator.

Earnings forecast, valuation and rating

We estimate that the IDC business will bring the company an incremental income of 40 million yuan, 170 million yuan and 270 million yuan in 2020, 2021 and 2022, and a net profit of 1.046 billion yuan, 1.155 billion yuan and 1.307 billion yuan in the corresponding year. The corresponding EPS is 0.28,0.31,0.35 respectively. For the first time, coverage gives highly recommended ratings.

Risk Tip: the market risk that orders with strategic partners fall short of expectations.

Profit forecast, valuation and target price, rating

1) We expect that the company's IDC business will grow substantially in the future, which will lead to a rise in the company's profitability. The EPS from 2020 to 2022 will be 0.28,0.31,0.35 yuan.

2) the absolute valuation price of the company is 13.71 yuan, and the relative valuation price range is 9.52-11.64 yuan. We believe that the relative valuation method is a more suitable valuation method at the beginning of the company's business.

3) for the first time to give a "highly recommended" rating.

Key hypothesis

We assume that the company's IDC sales are as expected as the first phase of the project, and the IDC cabinet landing progress is as expected in the later stage of the company. The progress of the company's strategic cooperation has reached expectations.

At the same time, we assume that the macro policy of IDC development in the region remains unchanged, the company's IDC business is supported by the company's senior management, and the cooperation model between the company and strategic partners is in line with expectations.

The difference between our views and those of the market

1) there is a view in the market that with the development of the IDC industry, the energy consumption target will be gradually liberalized. IDC will become an industry with high investment and low return. We believe that the IDC resources in the domestic core areas are still scarce, the energy consumption EIA indicators show no signs of loosening, and the energy consumption indicators are still a solid industry barrier for the IDC industry. IDC cabinets in first-tier cities will continue to be in short supply.

2) there is a view in the market that the number of IDC construction of the company will be less than expected and will be significantly less than that of comparable companies.

We believe that the follow-up reserve of the company's IDC construction is sufficient, the company's plan is clear, and the company's high-level industrial strategy is determined to upgrade. The company's reserve land resources, energy consumption resources and human resources can support the large-scale development of the company's IDC business in the future.

3) there is a view in the market that the company's future IDC sales are not optimistic. We think that the sales of IDC cabinets are better than expected from the sales of the company's first phase of the project. From the scarcity of products and the incremental demand for IDC cabinets in the company's region, we think that the company's cabinet sales will remain high in the future.

The catalytic factor of the rise of stock price

The company has signed a strategic cooperation agreement with a large Internet company, the number of cabinets is expected to continue to grow in the future, and the company's profitability will be further enhanced. With the continuous expansion of the company's IDC business, the company's valuation level is expected to be closer to the leading IDC operators. The company is expected to see both an increase in valuation and earnings.

Investment risk

The content of strategic cooperation between the company and strategic partners is not clear, the cooperation mode is not clear, and the company has the market risk that the landing of the order does not meet the expectations. The company's iron and steel business faces the market risk of macroeconomic downturn.