What's new

Highsun announced that it signed a strategic cooperationframework agreement with China Unicom’s branch in Guangzhouto operate a cloud data center in the city. The major businessesof the project include data center operations, cloud computing,IoT, big data applications and business incubation. Cooperationmodel: Highsun will provide office space, buildings, etc. whileUnicom will be responsible for support facilities, networkinfrastructure construction, sales and operations. Revenuedistribution model: Basic fees income + revenue sharing ofcabinets.

Comments

1. Strong alliance to build an international green datacenter business cluster. 2,000 racks will be built in thePhase I project. In the future, Highsun and Unicom will bringtheir advantages into full play, striving to build a supersizedcloud data center in southern China and create a large-scale,information-based and modern logistics-centered businesscluster.

2. Ecosystem starting to bear fruit; capital operations tobe strengthened. In 1H16, Highsun’s recurring net profitgrew 17.4% YoY, With synergies in its ecosystem andprogress in capital operations, the company’s earnings willlikely continue improving in the future.

3. Successful issuance of CBs to drive up share price.

Management is has motivation to drive the stock conversion.

Valuation and recommendation

Maintain earnings forecasts and BUY rating. Highsun’secosystem started to bear fruit and its earnings boasts upsidepotential. Progress in M&A and business model innovation afterthe CB issuance merit attention. Maintain TP of Rmb6.7,implying 51x 2017e P/E.

Risks

Commercial projects disappoint; volatility in real estatesettlements; cross-sector M&A risks.