q425/q126 results missed expectations, but IDC demand outlook improved; maintain Neutral rating

Overview

This report is UBS's review of Beijing Sinnet Technology's q425 and q126 results. The company's performance was below expectations, with key pressure coming from slower-than-expected customer move-ins, increased depreciation from large-scale capacity delivery in 2025, GPU shortages slowing utilization ramp-up, and continued pressure on cloud revenue. Despite short-term earnings cuts, management is more confident about IDC revenue growth in 2026, and UBS also believes AI-driven industry demand visibility has become clearer, with solid hyperscale customer demand.

Core views

UBS's core view is that short-term results and earnings forecasts remain under pressure, but demand is improving at the margin. The company's q425 and q126 profits were below expectations, and 2025 IDC gross margin fell 5.25 percentage points YoY, mainly reflecting lagging utilization due to GPU shortages. At the same time, the company added 26k cabinets in 2025, a historical high, and although the two Inner Mongolia projects are still awaiting NDRC approval, sizable potential customer demand has already emerged. UBS keeps its 2026-2028 revenue forecasts largely unchanged, but lowers gross profit and net profit forecasts by 5%-14%, ultimately maintaining a Neutral rating and cutting the target price.

Analysis framework

The report focuses on earnings variances, business segment performance, demand outlook, earnings forecast revisions, and valuation changes. UBS compares the differences between the company's q425/q126 revenue, gross margin, and net profit versus its own forecasts and market consensus, and uses IDC cabinet delivery, utilization, GPU supply constraints, cloud revenue, and advertising SaaS losses to explain the forecast revisions. For valuation, it uses the DCF method and cross-references the target price implication with the 2027e EV/EBITDA multiple.

Methodology notes

• Valuation methodDCF

  Discounted cash flow valuation

  UBS uses the DCF method for valuation and lowered the target price by 7.5% to Rmb17.20 after rolling forward the valuation.

• Valuation metricEV/EBITDA

  Enterprise value multiple

  The new target price implies about 20x 2027e EV/EBITDA; the title section of the report also notes that the stock is trading at about 19x 2027e EV/EBITDA.

• Short-term factor assessmentQuantitative Research Review

  Quantitative research review

  UBS disclosed a quantitative Q&A on industry structure, regulatory environment, changes in stock fundamentals, and the risk of the next EPS update over the next six months. Most answers were 3, indicating broadly no significant change or balanced risks.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Beijing Sinnet Technology 300383.SZ

  Core coverage target of the report

  Strengths

  IDC capacity expansion is significant, with 26k new cabinets added in 2025; AI-driven demand and hyperscale customer demand are improving; the company is confident in 2026 IDC revenue growth.

  Weaknesses

  q425 and q126 results were below expectations, gross margin declined, cloud revenue fell, and advertising SaaS revenue declined while losses widened.

  Comparison

  UBS kept its 2026-2028 revenue forecasts largely unchanged, but lowered gross profit and net profit forecasts by 5%-14%; the target price was cut from Rmb18.60 to Rmb17.20.

  Risks

  GPU shortages may delay utilization ramp-up, legacy data center upgrade costs may be higher than expected, and customer churn in the retail business may increase.

• IDC business

  Main growth and valuation driver

  Strengths

  New cabinet deliveries reached a historical high, the customer demand outlook is more positive, and the Inner Mongolia projects already have potential sizable demand.

  Weaknesses

  2025 IDC gross margin fell 5.25 percentage points YoY, mainly affected by lagging utilization.

  Comparison

  Compared with cloud services and advertising SaaS, IDC has the more positive demand outlook in the report.

  Risks

  Project approvals, the speed of customer move-ins, GPU supply, and limited room for price increases may all constrain earnings elasticity.

• Cloud services

  One of the business factors dragging revenue and earnings

  Strengths

  The company has strategic positioning as an AWS China regional partner.

  Weaknesses

  Cloud revenue declined amid macro headwinds, dragging q126 results.

  Comparison

  Compared with improving IDC demand, cloud revenue performance is weaker.

  Risks

  If the cloud migration trend in China comes in below expectations, it will pose downside risk.

• Advertising SaaS business

  Non-core but profit-dilutive business line

  Strengths

  The report does not provide clear evidence of advantages.

  Weaknesses

  Revenue continues to decline and losses are widening.

  Comparison

  Compared with the IDC business, advertising SaaS contributes less to the investment thesis and is more negative.

  Risks

  Continued revenue decline or wider losses may further drag overall profit.

Key data

• q425 revenueRmb1.7bnUp 16.7% YoY, mainly due to the low base in q424.
• q425 gross margin10.2%Down 6.4 percentage points YoY, below both UBS and consensus expectations.
• q425 net profit-Rmb899mnq424 recorded net profit of Rmb20mn, partly affected by a one-off goodwill impairment.
• q126 revenue YoY-10.8%Below consensus expectations, affected by declining cloud revenue and delayed utilization ramp-up.
• q126 gross profit YoY-17.0%Gross profit was weaker than revenue, reflecting utilization and cost pressures.
• q126 net profit YoY-82.5%Profit fell sharply, below consensus expectations.
• New cabinets added in 202526kA historical high, bringing the total number of cabinets to 82k at year-end.
• Total capacity in q12686k cabinetsCapacity continued to expand, but utilization was affected by GPU shortages.
• Target priceRmb17.20Cut by 7.5% from the previous Rmb18.60.
• 2026e revenue forecastRmb7,528mnLargely unchanged from UBS's previous forecast and 5% below consensus expectations.
• 2026e net profit forecastRmb423mnDown 14% from the previous forecast and 21% above consensus expectations.
• Forecast total return10.6%Includes 10.3% implied share price upside and 0.3% forecast dividend yield.

Impact & implications

The implication for the investment view is that improved demand is not enough to fully offset short-term earnings downgrades. AI-related demand and hyperscale customer demand strengthen visibility on 2026 IDC revenue growth, but GPU shortages, the pace of customer move-ins, and depreciation pressure delay profit release. The target price cut indicates that earnings quality and utilization ramp-up remain valuation constraints; maintaining Neutral suggests the current share price still has some upside relative to the new target price, but not enough to support a more positive rating.

Risks

• China's cloud migration trend is weaker than expected.
• Legacy data center upgrade costs are higher than expected.
• Customer churn in the retail business is higher than expected.
• GPU shortages continue to slow customer move-ins and utilization ramp-up.
• The Inner Mongolia projects still need to wait for NDRC approval, and the approval timeline remains uncertain.
• Although hyperscale customer demand is strong, the company believes prices are unlikely to rise in the short term, limiting margin elasticity.

What to watch

• Whether 2026 IDC revenue growth can be delivered.
• The speed of customer move-ins and cabinet utilization ramp-up after GPU supply improves.
• Progress of NDRC approval for the two Inner Mongolia projects.
• Whether cloud revenue stabilizes and whether advertising SaaS losses narrow.
• Whether gross margin and net margin can recover in line with UBS's lowered 2026-2028 forecasts.
• Whether the implied roughly 20x 2027e EV/EBITDA in the target price can be supported by earnings recovery.