Century interconnected stock ratings remain unchanged in overweight

The following is a summary of the contents of the report:

Profitability exists upside potential beyond the P/E expansion; maintain an "overweight" rating

The share price of the century has risen by more than a year in 2013 (compared with the Nasdaq Composite index, which rose 38%), with the main impetus coming from the expansion of P/E, but the limited growth in EBITDA (net profit before interest, tax, depreciation and amortization). It is clear that, with the support of the structural demand of data traffic, the data Center business unit of the interconnected century has endogenous growth opportunities. In our view, this clearly deserves a reassessment of its valuation.

The century interconnection brought more growth angles to the cloud deals with Microsoft and IBM in 2013. As we enter the 2014, we believe that the century interconnect price-earnings ratio is not much further upward from the current level, but its profitability still has the upside, mainly because the century interconnection launched a new plan for the enterprise-level market, as well as cloud computing business revenue growth has increased.

-The structural investment theme remains strong, which is a "sweet spot" in the long-term growth sector:

We predict that the core business of the Century Interconnection (data center hosting) will grow, and its revenue growth will be 40% between 2013 and 2015, and the share of the market will be increased. We believe that because China's major telecoms companies will launch 4G networks over the next few years, they do not have enough capacity to compete in this area.

Given the scalability that this business requires, we believe that a limited internationalization process for a particular Internet company will not pose a major threat to the interconnection of the century, and that new market newcomers will not be able to pose a threat to it.

-The business market is likely to bring new growth drivers:

Century interconnection is taking steps to expand its footprint in the corporate marketplace, such as hiring new employees and possibly seeking acquisitions. More than 70% of the current century's net revenue comes from internet companies, which means the company has a good upside in higher-margin corporate markets.

-The growth rate of cloud services is better than expected:

The internet has already signed more than 90 VIP customers for its Microsoft cloud service, which contributed $2 million to its fourth-quarter revenue in 2013, above the company's previously expected $1 million trillion, easing worries about the exact commercial release of the service (expected to be March), The reason is that the commercial release of the service is primarily related to retail-based network direct services, while network direct services account for only 10% of Windows Azure Revenue, representing only 30% of Office 365 revenue.

We linked the 2014 and 2015 revenues from Microsoft trading to $40 million trillion and $100 million trillion respectively, and estimated that the century interconnection will be $7 million and $15 million for IBM transactions in the two years.

-The fourth-quarter results are expected to be in line with analysts ' average expectations and the 2014 outlook for performance is fairly good:

We expect that the century-old interconnection outlook for 2014 will be in line with Wall Street analysts ' average expectations, leaving the company with more room than expected. We expect that the share price volatility of the century linked to corporate earnings is less volatile.

We linked the 2014 and 2015 EBITDA forecasts to 7% and 4% respectively (14% to 20% higher than Wall Street analysts ' average expectations) and raised their target prices from 24 dollars to $27, based on the 2014 Century interconnected EBITDA ( The ratio of corporate value to profit before interest, tax, depreciation and amortization will be 14 times times higher than expected 13 times times.

Investment theme:

-century interconnection is the largest operator-neutral data center service provider in the Chinese market, with a share of more than 10% per cent;

-It is expected that the cloud computing business partnership between the century interconnection and Microsoft will boost its revenue and profitability growth over the next few years;

-In the second half of 2013, the managed business margins are expected to be better than market expectations;

-Faster sales of new capacity and a shift in the data center portfolio to the Self-built data center in Beijing will support the accelerated growth of the managed business.

Valuation：

We set the target price based on the 14 times-fold EBITDA of the 2014 century interconnection. The 27 dollar target price means that the 2014-century interconnection is 36 times times higher, 24 times times 2015. Based on the expected EBITDA calculation for the 2014 years of the century interconnection, the current EBITDA is 11.5 times times.

Rating and target price risk:

The downside risks of the century interconnection rating and target price include: 1 The absorption capacity of cloud business is weaker than expected; 2 if the sales of new cabinets are slower than expected, it will represent a downside risk to our revenue and profitability expectations.