Key takeaway

The company plans to acquire a stake in Wuhu Yungang through Shidai Intelligent Computing and jointly establish Zhonglian No. 1 with an investment platform under Zhonglian Data. It will invest a total of RMB471mn in data centers in Wuhu and Fangshan, Beijing, while launching an equity incentive plan favoring the intelligent computing team. The Wuhu project has secured 130 MW of long-term contract orders, with phased delivery in 2027 and subsequent server deployment arrangements clearly defined. The Fangshan project already has a certain foundation for construction, supporting the company’s expansion of its data center asset portfolio.

We believe the combination of project investment, a professional team, and industry partnerships will help the company establish a foundation for its data center business. The Wuhu long-term contracts improve medium- to long-term revenue visibility, while the framework for acquiring the remaining equity interests and the platform’s rolling investment plan leave room for subsequent integration. As the projects are delivered, servers are deployed, and operating capabilities are accumulated, the company is expected to develop new growth drivers.

Event

Proposed RMB471mn investment in data centers, with additional disclosures on project orders and operating forecasts

On September 9, the company announced plans to invest RMB285mn in Wuhu Yungang through a capital increase to acquire a 33% stake. The company and Shidai Zhisan plan to subscribe for a combined RMB186mn to establish Zhonglian No. 1 with Huixinfu, a subsidiary of Zhonglian Data, representing 80% of the total subscribed capital. Its initial investment will be in a data center project in Fangshan, Beijing. On the same day, the company disclosed a draft restricted share incentive plan under which it plans to grant 10.206mn shares, including 5.057mn shares to six core management personnel at Shidai Zhisan.

On September 23, the company disclosed its response to a regulatory inquiry letter, providing additional details on the Wuhu project’s orders and delivery arrangements, project valuation forecasts, the Fangshan transaction consideration, and the construction plan.

Risks:

1) Project execution and policy risks: This investment remains subject to the completion of capital contributions and related implementation matters under the agreement. Any shortfall in funding, construction and delivery, or special inspections could result in project delays or adjustments. Changes in policies related to energy consumption, environmental protection, or electricity could also affect project execution.

2) Risks of customer nonperformance and lower-than-expected investment returns: If demand from customized data center customers, contract execution, or subsequent equipment deployment falls short of expectations, the realization of service revenue may be affected.

3) Risks from asset valuation and uncertainty over subsequent acquisitions: The valuation of the target depends on assumptions regarding future operations and capital contributions. If actual returns fall short of expectations, asset impairment may occur. The acquisition of the remaining equity interest in Wuhu Yungang is a conditional framework arrangement, and the transaction price, implementation method, and completion date remain uncertain.

4) Risks related to core business operations and incentive expenses: The implementation of the restricted share incentive plan will result in share-based payment expenses. If business growth fails to effectively cover these expenses, profit may come under pressure.