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Dr. Peng Semi-annual Report: Strategic transformation continues to advance, IDC and cloud computing with stunning performance

2019-08-28

On the evening of August 28, Dr. Peng (600804.SH), the largest privately-owned listed company providing telcom value-added services in China, released its 2019 semi-annual report. The report shows in the first half of this year, Dr. Peng has achieved an operating income of RMB 3.074 billion and net profit attributable to shareholders of RMB 52.7 million, which, compared with the corresponding period last year, have both declined. Analysis believes the decline with Internet access business revenue is the main cause for Dr. Peng's decline in performance. With the advancement and implementation of the Internet business transformation, follow-up development will be worth expecting. It is worth noting that the data center and cloud computing business performed well in the first half of the year, for the operating income reached up to 765 million yuan, a year-on-year increase of 29.06%.


Facing the rapid changes in the industry led by rapid development of 5G and industrial Internet, Dr. Peng deployed ahead of schedule to accelerate the transformation and take advantage of its industry strength to sail on the blue ocean of 5G.


According to public information:

Dr. Peng set up big data company in Shenzhen to seize geographical advantage, focusing on data center business;

Founded GWBN Communications Services to develop market with high-quality neutral services, providing integrated services of marketing, installation and maintenance;

Rolled out Xiaopeng Manager, an innovative Internet platform to eliminate users’ pain points in network life, that is, being unable to install, use and configure the network;

Joined hands with China Mobile Hebei to expand data center business in the Greater Beijing Region;

Worked with China Unicom Shanghai to promote fixed-mobile convergence business;

Participated in the mixed-ownership reform of China Unicom Yunnan, engaged deep into the field of mobile communication operations;

Deeply integrated with China Unicom Beijing for transformation to communication services;


The successive implementation of major events have not only accelerated the transformation and implementation of Dr. Peng, but also demonstrated its determination to march towards “a business and home Internet service provider".


Diversified data center cooperation patterns 

Rapid development achieved

As digital economy surges, data centers are becoming an important infrastructure. Driven by such policies as “Digital China", "Broadband China", and "Internet +", as well as the growth of customer demand in vertical industries like mobile Internet, video, and online games, a rapid growth with IDC and network demand will be touched off. 


According to the “China IDC Industry Development Research Report 2018/2019" released by Kezhi Consulting (idcquan.com), the total scale of China's IDC business market in 2018 reached 122.8 billion yuan, an increase of 29.8% yoy; the scale of China IDC business market in 2021 is expected to exceed 270 billion yuan, a 30+% increase yoy.


As a leader in the data center industry, Dr. Peng keeps to customer-centered DC business, and continues to expand resources in Beijing-Tianjin-Hebei Region, Yangtze River Delta, and Guangdong-Hong Kong-Macao Greater Bay Area, to better support customers' business development. Mr Cui Hang, President of Dr. Peng, once said in an interview, "Dr. Peng has shifted its focus of investment and operations on the DC business."


Dr. Peng has currently established distributed and commercially available high-standard T3+ and T4 data centers in Beijing, Shanghai, Guangzhou, Shenzhen, Wuhan and Chengdu, covering a total area of more than 200,000 sqm, total cabinets amounting up to 30,000, and total installed capacity of servers exceeding 330,000 units. It is one of the largest neutral data center providers in China.


Dr. Peng boasts rich network resources to provide customers with DCI network from DC to DC, DC to public cloud; and meanwhile to construct SD-WAN network with DC being access points, providing customers with dedicated high-speed channel from the user end to data center, private cloud and public cloud.


With cloud network advantages, Dr. Peng won the bid for a Internet service project from SOHO China’s property management company in early 2019, and later became a core distribution partner of Aliyun’s intelligent access gateway.


In addition, the DC business is provided with a professional operation & maintenance and powerful backend technical support team with more than 500 members, who can promptly respond to demands of customers, offer product lifecycle services and management, and guarantee the safe and stable operation of customers' business.


In the future, Dr. Peng will progressively shift from self-building & self-operating to the "self-building & self-operating + co-building + entrusted operation" mode, thereby developing diversified cooperation patterns, combining recent revenue with long-term value, to achieve rapid growth of the data center business and improvement of capital market valuation. It is known that in the first half of this year, Dr. Peng has newly built 10,000 cabinets in Beijing, Guangzhou and Shenzhen, further expanding its DC resource advantage.


Dr. Peng also plans to build itself into a DC service brand, to provide export of services with its stable operating standards, and undertake DC operation service projects from such organizations as small and medium DC vendors and real estate investors, thereby developing the data center service market.


Its diversified business development pattern will lay a foundation for Dr. Peng to rapidly reserve DC resources and raise the revenue scale in the following 3 years. Dr. Peng plans to introduce about 70,000 more cabinets over the next 3 years, including 30,000 self-built ones and 40,000 co-built and entrusted ones. That means there will be a total of 100,000 cabinets available for operation, leading the data center industry.


Strategic transformation continues

Expanding market of communication services

In terms of Internet business, Dr. Peng is a full-service carrier with a nationwide license. It has the business permit to operate telecom value-added services across regions, and has the license to conduct Internet access service in 26 provinces (autonomous regions and municipalities) across China, and to run the Internet VPN service in 290 cities nationwide.


In recent years, changes with the competitive structure have put greater pressure on private broadband. Dr. Peng opted to take the initiative and actively adjust its strategy. Instead of investing in new cities, it chose to serve the existing users in the 212 cities of its network coverage, and meanwhile undertake marketing, installation and maintenance of fixed-line broadband from carriers, and the construction and maintenance of 5G community base stations, and expand the fixed-mobile convergence services.


In August 2019, Dr. Peng transferred the ownership of its 1.25m home broadband users, and 22,000 government & business broadband and Internet dedicated line users in Beijing to China Unicom Beijing, and henceforth charge the latter as agreed while it acts as a service provider and channel agent for China Unicom Beijing.


The deep integration with China Unicom Beijing was a solid and important step for Dr. Peng's strategic transformation. The cooperation between the two parties has initiated a new model of transformation, which involved not only resource sharing of access network, but also deep integration of businesses between both.


In future cooperation, Dr. Peng will work with China Unicom Beijing to launch such products as "Wo Chang Kuan”, to optimize the combination of mobile and home broadband services. As a private enterprise featuring innovation and flexible market strategies, in addition to the resource advantages of China Unicom Beijing, Dr. Peng will be able to bring users a richer and more preferential product mix.


It is reported that Dr. Peng has been negotiating with some provincial branches of the major telecom carriers, CBN and China Tower as regards cooperation on broadband, 5G applications and infrastructure construction.

Moreover, Dr. Peng has aimed at the door-to-door economy since last year and independently developed the innovative platform "Xiaopeng Manager" to provide home users and government & business customers with installation, configuration, testing and consulting services on network, computer, mobile terminal, smart home, home appliances, etc.


Xiaopeng Manager went live for trial operation on May 17 this year. It has now covered 8 cities in China, i.e., Wuhan, Guangzhou, Tianjin, Xi'an, Qingdao, Zhongshan, Foshan, and Qingyuan in just over two months. Other cities, such as Shenzhen, Dalian, and Taiyuan, are on the way to follow. As of now, Xiaopeng Manager has 90,000+ registered users and 8,000+ monthly active users. The platform has certified 2,161 engineers and is expected to be available in more than 60 cities by the end of October.


PLCN to be completed by the end of the year

Future performance is worth expecting

According to the announcement, the PLCN project has completed all approval procedures required for construction, laying a foundation for successful implementation of the follow-up construction. PLCN is the first submarine optical cable directly connecting between Hong Kong, China and Los Angeles, USA, co-run by Dr. Peng, Google, and Facebook, and contracted to Subcom LLC (U.S.) for construction. It adopts C+L band long-distance transmission technology, and its total design capacity reaches up to 144Tbps. PLCN has become a benchmark of trans-Pacific international submarine cable project.


The submarine cable project mainly sells the PLCN submarine cable capacity to multinational enterprise customers, and provides customers with submarine cable connection products and maintenance services. The customers will mainly include telecom carriers, multinational OTT enterprises, cloud service providers, data center service providers, Internet service providers and large multinational enterprises, etc.


Due to the resource scarcity of the PLCN submarine cable, Dr. Peng will sell the PLCN submarine cable capacity based on market prices to obtain continued operating income. Dr. Peng predicts that within the next three years, PLCN is very likely to become the sole international submarine cable that directly connects between Hong Kong, China and the United States. Along with the progress of the project, PLCN will continue to receive more attention from the market.

Analysts believe: 


Rich data center resources, unique edge storage and edge computing resources, professional and powerful service team competitiveness, superior cross-cloud and networking capabilities, unique license and technology resources, and scarce submarine cable resources constitute Dr. Peng’s moat of competition in the development of the industry.


Based on the "cloud, edge, server, network, cable" strategic structure, Dr. Peng has been laying emphasis on the data center business, transforming to develop the communications installation & maintenance market, and expanding the field of Internet communication services. In the future, it will establish a development trend of tripod propped up by big data and cloud computing services, communications and Internet services, and submarine cable operation.