RANGE INTELLIGENT COMPUTING(300442)：LEADER OF IDC AT INDUSTRIAL LEVEL BENEFITING FROM AI & DIGITAL ECONOMY

　　With valuable resources, self-built data centers at the industrial park level, high-quality customer development, and professional operation & maintenance (O&M) capabilities, Range Intelligent Computing, a leading internet data center (IDC) company in China, has achieved rapid development in recent years and delivered industry-leading profitability. It has in-depth cooperation with telecom operators thanks to complementary strengths, and its end customers include ByteDance, Huawei, etc. The Company has stepped into a period of robust growth since 2019. We expect that with the surge in artificial intelligence (AI) and computing power demand, the recovery of user traffic, and the rebound in cloud manufacturers' capex, the Company's cabinet commissioning and the utilization of customer shelves are likely to accelerate. Coupled with its pre-emptive presence in liquid-cooled cabinets and intelligent computing centers, we are optimistic about its long-term rapid growth. We assign 43x 2023E PE to derive a target price of Rmb46 and initiate coverage with a "BUY" rating.
　　Company overview: The domestic IDC leader continues to grow rapidly.
　　Founded in 2009, and going public through a reverse merger in 2022, Range Intelligent Computing focuses on the operation of hyperscale IDCs at industrial park level. In 2010, it invested in the Runze International Information Port project. According to its announcement, the Company has deployed six hyperscale IDCs in five regions including the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Greater Bay Area, the Chengdu-Chongqing Economic Circle, and the Northwest region, with an overall plan of 56 IDCs and 290,000 cabinets. The construction of about 70,000 cabinets in the 12 IDCs in Area A of Langfang project has been completed and will be delivered this year according to the Company. Range Intelligent Computing has in-depth cooperation with operators, and its end customers include high-quality Internet companies such as ByteDance, Huawei, JD.com, Kuaishou, Meituan,etc. In 2019, the Company reported positive earnings for the first time, and it has entered a phase of rapid development since then. Its revenue achieved a more than 40% CAGR in 2019-22, and that of attributable net profit (ANP) was about 119%. For Area A of Langfang project, the Company promises to achieve ex-one-off ANP of at least Rmb6.12bn/1.098bn/1.794bn/2.095bn respectively. We expect that with the completion of the IDC construction, the Company will likely see high earnings growth ahead.
　　Industry analysis: Computing power and digital economy drive the IDC demand, and IDCs in tier-1 cities boast prominent value.
　　According to the data of the China Academy of Information and Communications Technology (CAICT), in 2022 the scale of China’s IDC market was about Rmb200bn with a more than 25% CAGR in recent years. In demand side, the rapid development of artificial intelligence generated content (AIGC) and competition on large models of the operations drive the growth of IDCs, while in the demand side, the east-data-west-computing project was launched, the Digital China policy was implemented, and the production of cabinets by various companies will likely accelerate. However, given the approval process of energy consumption is becoming strict, IDCs are still in shortage in tier-1 cities. Therefore, we expect the IDC industry to fully benefit from the increase in computing power and traffic demand, and third-party IDC leaders with resources and customer advantages will present high earnings visibility.
　　Company advantages: Location advantage + quality customer base + sound operation make the Company an IDC leader in all aspects. 1) Resource advantages: Range Intelligent Computing targets tier-1 cities and constructs hyperscale IDCs at industrial level by its own. It has deployed six hyperscale IDCs in five regions including the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Greater Bay Area, the Chengdu-Chongqing Economic Circle, and the Northwest region, with an overall plan of 56 IDCs and 290,000 cabinets. The Company insists on the model of self-investing, self-constructing and self-operating high-grade data center clusters, therefore its industrial park-level IDCs can better meet the needs of AI clusters; 2) Customer advantages: The Company has in-depth cooperation with operators, and its terminal customers includes ByteDance, Huawei and so on with sound demand in the long term; 3) Operational advantages: The Company presents leading profitability, and outstanding O&M capabilities. It boasts resource advantages, O&M at industrial park level and edges in customer structure. In 2022, Range Intelligent Computing reported gross profit margin (GPM) of 53%, outperforming its peers; 4) Technical advantages: Liquid-cooled cabinets were put into mass production, leading the transformation and upgrading of computing power centers. According to its announcement, the Company takes lead in the liquid-cooled technology, and it is delivering liquid-cooled cabinets above 10KW and above 20KW; in addition, the Company will rapidly evolve into intelligent computing centers and supercomputing centers to form comprehensive data centers.
　　Potential risks: Policy fluctuations in energy consumption, power supply and land use; lower-than-expected traffic growth; AI development not up to expectations; less-than-expected cloud vendor Capex growth; IDC cabinet expansion not up to expectations; disappointing customer expansion.
　　Investment strategy: With valuable resources, self-built data centers at the industrial park level, high-quality customer development, and professional O&M capabilities, Range Intelligent Computing, a leading IDC company in China, has achieved rapid development in recent years and delivered industry-leading profitability.
　　It has in-depth cooperation with telecom operators thanks to complementary strengths, and its end customers include ByteDance, Huawei, etc. The Company has stepped into a period of robust growth since 2019. We expect that with the surge in AI and computing power demand, the recovery of user traffic, and the rebound in cloud manufacturers’ capex, the Company's cabinet commissioning and the utilization of customer shelves are likely to accelerate.
　　Coupled with its pre-emptive presence in liquid-cooled cabinets and intelligent computing centers, we are optimistic about its long-term rapid growth. We forecast the Company’s ANP to be Rmb1.817bn/2.453bn/3.306bn in 2023E/24E/25E. Considering the average valuation level of 43x 2023E PE for comparable companies (based on Wind Consensus estimate) Aofei Data (300738.SZ), Kehua Data (002335.SZ), Sinnet Technology (300383.SZ), Baosight Software (600845.SH) and AtHub (603881.SH), we assign 43x 2023E PE to derive a TP of Rmb46 to the Company. By adopting PEG valuation method, we expect the Company’s ANP to achieve a ~40% CAGR in 2022-25. Given the Company’s excellent business model and industry-leading profitability, we believe the slightly higher than 1x 2023E PEG is reasonable.Combing the two methods, we give 43x 2023E PE to derive a TP of Rmb46 and initiate coverage with a “BUY” rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。