Why pay attention to domestic servers and chips at present? (1) From a macro perspective, the digital economy with science and technology as the core is expected to become the vanguard of future economic development. Looking back on the past decade, China’s GDP is gradually rising, but the GDP growth rate has a slowing trend. It is urgent to find new growth points for economic growth. Science and technology, as the primary productive force, has frequently emerged new technologies and new trends in recent years to break the dilemma of weak economic growth or still need science and technology as the “vanguard”. Historical experience shows that major changes in economic form often give birth to and rely on new production factors, which are “data factors” in the digital age. Relevant policies are also frequently issued at the national level to increase the construction of digital economy. The 14th five year plan, the 14th five year digital economy development plan and the East digital West computing project in 2021 are the digital economy development policy guidance made at the national level. 2022 is expected to become an accelerated year of digital construction; (2) From the perspective of industrial development, the development of digital economy needs to consolidate the foundation of computing power, and the server is the main bearing terminal of computing power at the social level. According to IDC, China generated data of about 7.6 ZBS in 2018, which will increase to 48.6 ZBS in 2025. The huge data growth puts forward higher demand for infrastructure such as computing power. From the perspective of bearing terminals, the realization of computing power is mainly realized through servers, PCs, mobile phones and other terminals, that is, relying on the CPU, GPU and other computing power chips carried in the terminal. As the main supply force of social centralized computing power, the improvement of the amount of data in the whole society and the development of digital economy are bound to bring a significant increase in the demand for server-side, and the incremental space of server-side will still be considerable in the future; (3) From the perspective of security and the availability of domestic servers and chips, the volume of domestic servers and chips is at the right time. Firstly, in terms of security, as the main bearer of data storage and computing, the importance of security is self-evident. Moreover, in recent years, European and American countries have frequently initiated scientific and technological sanctions by virtue of their scientific and technological advantages, which has seriously affected and restricted the development of China’s science and technology industry. In order to ensure information security and the orderly development of the science and technology industry, domestic substitution is imperative. In terms of product availability. From 2020 to 2021, the Xinchuang project was launched, and the application of domestic servers in party and government organs and some industries has preliminarily verified the availability of domestic servers. Moreover, domestic chip manufacturers and server manufacturers continue to change product performance, and the products have changed from over availability to easy use. The process of domestic replacement is expected to be accelerated from 2022.
How to determine the development space of domestic servers and chips? (1) China is still the main server sales market, and the growth rate is higher than the global average. According to IDC data, in 2020, the global server shipment was 12.129 million units, with a year-on-year increase of 3.26%, of which China’s x86 server shipment was 3.439 million units, with a year-on-year increase of 8.1%. In 2020, China’s server market accounted for about 30% of the global server market shipments, which is the main demand market for global servers. In the past five years, the compound growth rate of China’s x86 architecture server sales was 9.9%, higher than the compound growth rate of 3.95% of global servers in the same period, and still maintained a good growth momentum; (2) From the perspective of growth space, the penetration rate of domestic servers is still low. According to our calculation, the penetration rate of domestic servers and chips in 2021 is about 15%, and the penetration rate is still low. If the domestic substitution penetration rate increases to 50% in 2025, there is still much room for penetration. According to our specific calculation, if the server industry maintains a growth rate of 10% and the domestic substitution rate increases from 15% to 50% in 20222025, the domestic chips and servers will maintain a high growth rate of 40-50% in the next four years; (3) Domestic enterprises pay particular attention to the release of incremental demand from downstream customers. To grasp the specific rhythm of domestic server replacement, we should pay attention to the actual demand of domestic servers. Actual demand can also be understood as effective demand. Two key points need to be considered in the judgment of effective demand: one is the purchase demand for servers, and the other is the financial strength of server purchase. Considering that the replacement of domestic servers of Party and government organs has been preliminarily completed in 2020, the business expansion of downstream customers of the Internet and data center has slowed down, and the financial strength of customers in communication, finance, energy, manufacturing and other industries is strong, and the trend of cloud and digital transformation of state-owned enterprises is obvious in recent years, with a high demand for high-performance servers, Therefore, we believe that the incremental source of domestic server market in the future should mainly be industry customers, especially state-owned enterprise customers.
How to evaluate the domestic server and chip industry? Since 2018, China’s server market has entered a stage of steady growth, and the valuation level has also tended to be stable. However, it can be seen that domestic substitution brings new development opportunities to domestic server manufacturers and chip manufacturers. Therefore, new development factors should be taken into account in this part of business. We specially estimate the valuation of domestic server and chip business for reference: (1) the first is the choice of valuation method. Since domestic server and chip are expected to maintain a high growth rate in recent years, they are still in the growth stage, Therefore, the two-stage relative valuation method will be used to value the industry; (2) The second is the valuation assumption. Combined with the development of Chinese server manufacturers and overseas CPU manufacturers, we judge that the mature roe of the server industry is about 10%, and the mature roe of server chips is about 25-30%. The next four years will be the stage of rapid development of domestic servers and chips, with a compound growth rate of about 40%. Combined with the correlation between the industry valuation level and roe and index valuation level, Finally, it is estimated that the PE value of domestic server industry is about 100 times and that of domestic server chip industry is about 190 times. It should be noted that the valuation given here is only for the business part of domestic server and chip industry. If the valuation of relevant individual stocks is calculated, the proportion of this business and the overall business situation of individual stocks should be considered.
Investment strategy: 2022 is expected to be an accelerated year for the development of domestic servers and chips. Therefore, we should focus on investment opportunities in relevant industries and individual stocks. It mainly includes (1) domestic server manufacturer Dawning Information Industry Co.Ltd(603019) ( Dawning Information Industry Co.Ltd(603019) . SH), China Shuguang is a domestic x86 server supplier, and haiguang information, a joint-stock company, is a leading company of domestic x86 architecture chip. The company is expected to gain both sales growth of domestic servers and investment income of joint-stock companies; (2) Domestic complete machine manufacturers China Greatwall Technology Group Co.Ltd(000066) ( China Greatwall Technology Group Co.Ltd(000066) . SZ), China Greatwall Technology Group Co.Ltd(000066) are suppliers of domestic complete machine manufacturers, and servers suitable for Feiteng chips of joint-stock companies have been preliminarily applied in some industry scenarios. With the improvement of server performance, it is expected to benefit from the substitution market of domestic servers in the future; (3) Haiguang information (a21476. SH). Haiguang information is the absolute leader of domestic x86 chips. The company’s R & D chips haiguang 1 and haiguang 2 have been verified by the market. The sales volume has increased significantly in 2021. It is expected to fully benefit from the domestic substitution of servers in the future, and will continue to maintain high growth rate. Haiguang information will be listed on the science and Innovation Board soon; (4) Godson Zhongke (a21222. SH), a MIPS architecture chip manufacturer, mainly carries out industrial ecological construction based on the two main lines of information system and industrial control system. Its series of products have been applied in e-government, energy, transportation, finance, telecommunications, education and other industries.
Risk tip: the downstream demand of domestic servers and chips is less than expected, the capacity of chips and servers is limited, and the output is less than expected. The Sino US science and technology friction leads to the risk that relevant enterprises will be included in the sanctions list, and the slow technological iteration leads to the increased risk of gap.
