Event

The company announced that it intends to invest in the establishment of a wholly-owned subsidiary Zhejiang Cloud Computing data Center Co., Ltd., with an investment of 3.979 billion yuan to build a Zhejiang cloud computing data center project in cooperation with Zhejiang Tmall, and Zhejiang Tmall will lease the cabinet resources of the data center.

Analysis.

Hand in hand Tmall, Zhejiang Cloud Computing data Center project landed. The wholly-owned subsidiary of the project shall be contributed by the company in cash, with a contribution proportion of 100% and an investment of 3.979 billion yuan. After the establishment of the wholly-owned subsidiary, it will act as the main operator to build the Zhejiang cloud computing data center project, and plan to cooperate with Zhejiang Tmall to lease the data center cabinet resources by Zhejiang Tmall. The project is divided into two batches, and the company will deliver the first data center of the first phase of the project by the end of 2021, with a financial internal rate of return of 10.33% for the first phase of the project and 10.42% for the second phase of the project.

The company has disclosed some of the contents in the previous change announcement, which includes more details such as project planning, and we think it has exceeded expectations:

Nearly 4 billion yuan in all cash and holding 100%. In the early stage, the market has some doubts about the shareholding proportion of the project cooperation, and 100% holding dismisses its worries. At the same time, 4 billion scale investment all own funds, does not involve refinancing dilution and other issues, the existing monetary funds of nearly 7 billion, also reflects our previous emphasis on the "steel mill IDC" financial advantages.

Deeply bound Internet bigwigs. It is clearly stated in the announcement that "the project adopts the design, construction, and operation standard system provided by Zhejiang Tmall to build two high-standard green data centers", and Zhejiang Tmall will lease the first phase of the project data center. judging Hangzhou Iron and Steel's unique resource advantage is exactly what BABA likes, and does not rule out the possibility of deeper cooperation in the future.

Reiterate that the company has obvious competitive advantages in participating in IDC. 1) advantages of land location and land reserve. After the closure of the Banshan base, the group's own land covers an area of 1743 mu, with a reserve of 400,000 square long-span idle factories; 2) energy supply advantages. There are already substations that can provide independent power for the data center, as well as a natural gas master station. 3) Policy and customer advantage. As a state-owned enterprise, the company has obvious advantages in building "government cloud".

Profit Forecast & Investment suggestion

It is estimated that the company will achieve a net profit of 928 million yuan, 1.04 billion yuan and 1.142 billion yuan in 20-22 years, corresponding to 38 times, 34 times and 31 times of PE respectively. Maintain a "buy" rating.

Risk hint

The progress of the rights issue is lower than expected, and the profitability of the steel business is not as expected as a drag on short-term performance.