Digital China(000034) 广发证券·2024-09-30 07:07Investment Rating - The report assigns a "Buy" rating to the company with a current price of 27.98 CNY and a fair value of 33.20 CNY [2]. Core Insights - The company plans to acquire a subsidiary of ZhiBang Technology, enhancing its capabilities in the computing power business. The acquisition will allow the company to hold a 60% stake in the joint venture, with ZhiBang holding 40% [3][11]. - The company's computing power business is expanding from servers to network devices, which is expected to enhance product and business synergy. The acquisition is anticipated to improve revenue scale and profitability, although the impact will depend on the integration process [3][11]. - The company benefits from being a major server partner of Huawei, capitalizing on the trend of domestic substitution in computing power. In the first half of 2024, the company's self-branded business revenue reached 2.66 billion CNY, a year-on-year increase of 45.5% [3][12]. - Earnings per share (EPS) are projected to be 2.0, 2.4, and 2.7 CNY for 2024, 2025, and 2026 respectively. The report gives a 17x PE ratio for 2024, corresponding to a fair value of 33.20 CNY per share [3][39]. Summary by Sections Acquisition and Business Expansion - The company signed an equity acquisition and joint cooperation agreement with ZhiBang Technology on September 27, 2024, to acquire all business entities in mainland China [11]. - The acquisition is expected to create strong synergies between the two companies, leveraging ZhiBang's network device products and the company's distribution channels [11][12]. Market Trends and Growth Drivers - The domestic switch market is projected to reach 79.6 billion CNY in 2024, with a year-on-year growth of 16.2%. The company is well-positioned to benefit from the increasing penetration of high-end switches in AI computing clusters [12][13]. - The report highlights the ongoing trend of domestic substitution in computing power products, driven by policy support and technological advancements [13][19]. Financial Projections - The company's revenue is expected to grow from 129.1 billion CNY in 2024 to 145.9 billion CNY in 2026, with a compound annual growth rate of 7.9% [39][41]. - The self-branded product segment is projected to see significant growth, with expected revenues of 2.57 billion CNY in 2024, growing at a rate of 70% [39][40]. Competitive Position - The company is a key partner in Huawei's server ecosystem, which enhances its market competitiveness and allows it to leverage Huawei's technological advancements [14][19]. - The report notes that while the self-branded business is growing rapidly, it faces challenges from product homogenization and intense competition in the market [14][16].