‌Produced by | Ruisi Network

On August 26, Sinonet (300383.SZ) released its 2026 half-year report. The most prominent feature of this financial report is the inverse movement of scale and profit: In the first half of the year, the company added approximately 10,000 newly operational cabinets, bringing the total operational scale to 92,000. IDC business revenue increased by 9.38% year-on-year, but net profit attributable to shareholders of the listed company fell by 47.09% to RMB 60.8577 million. Net profit after deducting non-recurring gains and losses plummeted by 78.64%, leaving only RMB 23.8385 million.

The significant profit decline stems from both weakening core business operations and a drop in non-recurring gains. In the first half of the year, the company's non-recurring gains and losses totaled approximately RMB 37.02 million, including RMB 30.9573 million in gains from changes in the fair value of trading financial assets, primarily due to market value fluctuations in held equity investment funds. After deducting non-recurring gains and losses, the company's net profit from core operations was only RMB 23.8385 million, a year-on-year decline of nearly 80%.

The large-scale goodwill impairment in 2025 has already been realized, and this period's profit decline is entirely attributable to core business operational pressures, with the risk of large-scale goodwill impairment largely released.

EBITDA and operating cash flow performed relatively strongly, primarily due to the heavy asset nature of the IDC industry with high depreciation ratios, which does not directly equate to an imminent profitability turning point. During the reporting period, the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) reached RMB 773 million, a year-on-year increase of 6.72%. Net cash flow from operating activities was RMB 573 million, a year-on-year decline of only 4.61%, indicating that the core business's cash-generating capacity has not significantly deteriorated.

As a long-established third-party IDC provider in China, Sinonet's financial report reflects the common operational contradictions faced by the domestic third-party IDC industry: oversupply of traditional IDC services, rental pressure, soaring electricity costs, and weak demand from internet clients. Even leading players are caught in the dilemma of revenue growth without profit increase. The highly anticipated AI computing power business is still small in scale and far from sufficient to fill the profit gap left by traditional services.

More cabinets built, yet profits halved

In terms of business segments, IDC remains the main driver of the company's scale expansion. During the reporting period, the company's internet data center business generated RMB 1.172 billion in revenue, a year-on-year increase of 9.38%, accounting for 35.17% of total revenue. The pace of cabinet deployment accelerated significantly, with a cumulative addition of 36,000 cabinets since 2025, including approximately 10,000 newly operational cabinets in the first half of the year. By the end of June, about 92,000 cabinets were operational. Based on a single-cabinet equivalent power of 4.4kW, the company's total planned national cabinet capacity exceeds 230,000.

In terms of project delivery, Tianjin Baodi Phase II was fully delivered during the reporting period, bringing the total operational cabinet capacity in the Tianjin region to over 30,000, primarily serving large internet clients. Subsequent plans for Tianjin Baodi Phase III include approximately 31,800 cabinets, currently under civil construction, which will become a core capacity release point in the Beijing-Tianjin-Hebei region over the next two years. Projects in Shanghai Jiading, Changsha, and Yanjiao are also progressing steadily, with Jiading Phase II and Tianjin Baodi data centers obtaining Uptime Institute M&O operational certification (as disclosed by the company), gaining international recognition for their operational capabilities.

The demand structure is changing. According to information disclosed in investor interactions in July, the company does not separately distinguish between CPU and GPU cabinets, but new orders are primarily for high-power cabinets, reflecting that AI computing power demand has already trickled down to the data center infrastructure level. Cabinets only provide rack space and power supply environments, with all server hardware provided by clients. The company is also a core partner of Volcano Engine, jointly advancing intelligent computing business implementation.

However, scale growth and order structure upgrades have not brought proportional profit increases. The gross margin of the IDC business in the first half of the year was only 23.17%, a significant decline of 9.54 percentage points from 32.71% in the same period last year, directly dragging down overall profitability.

The company explained the sharp margin decline in its half-year report. Since 2025, the accelerated deployment of cabinets has led to a substantial increase in fixed costs such as depreciation as related assets are transferred to fixed assets. Newly delivered cabinets require time to ramp up utilization rates, resulting in insufficient capacity utilization in the short term and lowering overall profitability. Meanwhile, driven by new infrastructure policies, the IDC industry's market supply continues to expand, while downstream demand from traditional internet businesses slows, leading to regional supply-demand mismatches and intensifying market competition, putting pressure on cabinet service prices.

This is a common dilemma faced by many third-party IDC providers in recent years: Projects that commenced construction in previous years are now entering delivery phases, leading to a concentrated release of supply. However, the contraction in capital expenditures by the consumer internet sector has not yet bottomed out, and the supply-demand imbalance directly compresses providers' profit margins.

The company has significantly slowed its capital expenditure pace. In the first half of the year, cash paid for the purchase and construction of fixed and intangible assets was approximately RMB 663 million, a nearly 50% year-on-year decrease. Net cash outflows from investing activities narrowed from RMB 1.614 billion in the same period last year to RMB 508 million. The company stated it will adjust project progress based on market and client demand, no longer blindly pursuing scale growth.

Cost pressures are also significant. Electricity costs are the largest single expense for data center operations, typically accounting for over 40% of operating costs. During the reporting period, driven by domestic energy structure transitions, electricity price marketization reforms, the company's expanding operational scale, and increased power density and consumption per cabinet in newly operational cabinets compared to traditional data centers, Sinonet's electricity costs rose by 30.70% year-on-year, far exceeding revenue growth. Longer-term constraints come from energy efficiency regulatory policies, with Beijing implementing differential electricity pricing for existing data centers with a PUE higher than 1.35 starting in 2026. The company operates five data centers in Beijing and will face additional costs if they fail to meet standards.

Technologically, the company has not followed the industry trend of hyping all-liquid-cooled data centers. Instead, it adopts a modular compatible design that allows for both air and liquid cooling, enabling flexible deployment based on client needs. This approach controls capital expenditures and accommodates the diverse needs of most clients. However, for high-end computing power scenarios requiring extreme liquid cooling, additional transformation investments are needed. To address energy consumption pressures, the company implemented multiple energy-saving renovations in the first half of the year, achieving approximately 23.94 million KWH in electricity savings and completing 225.92 million KWH in green power transactions during the reporting period. However, cost reductions are limited and cannot fully offset the impact of rising electricity prices.

Cloud Business Divergence: Amazon Cloud Holds Steady, Wushuang Technology Drags

Unlike the upward trend in IDC business scale, the company's cloud computing-related segment saw overall revenue contraction, generating RMB 2.125 billion in the first half of the year, accounting for 63.79% of total revenue, a year-on-year decline of over 17%, with a gross margin of 8.09%, a slight year-on-year increase of 0.33 percentage points.

The segment showed clear internal divergence. Amazon Web Services (AWS) China (Beijing) region's operational services, as the foundation, remained stable, with new products such as Graviton4 self-developed ARM and sixth-generation Intel x86 series EC2 computing instances one after another launched during the period, showing no significant business decline. The revenue pressure came almost entirely from controlled subsidiary Wushuang Technology.

This subsidiary, specializing in search engine marketing and SaaS intelligent advertising, saw its revenue decline by 48.88% year-on-year in the first half, with a gross margin of only 2.58%, continuing to narrow profitability. The overall budget contraction in the advertising and marketing industry is an industry-wide challenge faced by all service providers, and the company is also actively optimizing its client structure.

Wushuang Technology is also transitioning toward AIGC, having built a three-modal AI marketing tool covering text, images, and digital humans. However, mid-year report data shows that AI-related businesses have not yet generated significant incremental revenue, failing to offset the decline in traditional advertising services, and the subsidiary continues to drag on the group's overall performance.

At the R&D level, the company invested a total of RMB 132 million in the first half of the year, roughly flat year-on-year, with resources more heavily tilted toward IDC intelligent operations, energy-saving technologies, and computing power scheduling, rather than making large-scale investments in AI applications.

Multi-Pronged Intelligent Computing Center Layout: Profit Realization Awaits Time

The pressure on traditional IDC businesses has been high, with AI computing power becoming the company's core growth hope.

As of the end of the reporting period, the disclosed deployed computing power capacity exceeded 400P, with corresponding annual contract value exceeding RMB 100 million, primarily relying on high-standard data centers in regions such as Beijing-Tianjin-Hebei to deploy high-performance computing hardware and provide intelligent computing power and network services to clients.

The expansion of computing power services has been cautious, reflecting the company's proactive risk control over orders—server capital investments are high, and market volatility is severe, so hardware procurement will not occur on a large scale without securing long-term clients. However, from a market perspective, the progress of computing power business implementation has not met the expectations of some market participants.

To accommodate larger-scale AI computing power demand, the company is simultaneously advancing multiple intelligent computing/computing power base projects. In Inner Mongolia, two projects with planned total investments of approximately RMB 1.235 billion and RMB 2.295 billion, respectively, have secured project land and paid land purchase fees, enabling same city dual-center mutual backup. Currently in the preliminary approval and planning stage, construction has not yet begun, and subsequent investment scales may be adjusted, with partial cabinet resources expected to be deployed by the end of 2027 at the earliest.

In Hainan, the Lingshui Qingshuiwan Cross-Border Industrial Cloud Base, with a total investment of approximately RMB 467 million, primarily provides computing power services and expands cross-border digital services, currently under construction. Overseas, a Malaysia intelligent computing/cloud computing base project has completed some preliminary approvals and remains in the planning stage.

However, the intelligent computing track (track) is far more crowded than traditional IDC. Major operators, GDS, Chindata, and 21Vianet are all accelerating the deployment of liquid-cooled intelligent computing centers at national computing power hub nodes, with many already signing long-term cooperation agreements with leading large model companies. Sinonet's western intelligent computing projects are progressing relatively slowly, and client reserves have not been clearly disclosed, making it uncertain whether they can secure sufficient market share in the fierce competition.

More critically, intelligent computing centers require far higher investment intensity than traditional IDC, with longer payback periods. If subsequent AI demand growth falls short of expectations, it may repeat the current situation of traditional IDC, where supply precedes demand, further increasing profitability pressures.

Profitability Turning Point Not Yet Visible: Growth Questions After Scale Dividends Fade

Amid the sharp profit decline, the company will not distribute cash dividends, issue bonus shares, or convert capital reserves into share capital for the first half of the year. For the full year, the 2025 profit distribution plan has already been implemented, with a cash dividend of RMB 0.2 per 10 shares, totaling RMB 35.9519 million in cash distributions. Since listing, cumulative cash dividends have exceeded RMB 637 million.

At the governance level, there were executive changes during the reporting period: Former Vice President and Board Secretary Gao Hong retired due to age, with Li Wei succeeding as Vice President and Board Secretary.

In terms of financial position, as of the end of June, the company's total assets were RMB 19.99 billion, with total liabilities of RMB 7.579 billion, and a debt-to-asset ratio of approximately 37.9%, relatively low within the heavy-asset IDC industry. The company and its subsidiaries have applied for a total of RMB 13.004 billion in bank credit facilities, maintaining relatively abundant overall liquidity and controllable short-term debt repayment pressures.

Risks also exist. The book value of accounts receivable at the end of the period was RMB 1.993 billion, accounting for 9.97% of total assets, an increase from the same period last year, with approximately 88% aged within one year. IDC clients are primarily large internet enterprises, making large-scale bad debts unlikely, but the rise in accounts receivable increases the company's capital occupancy, and if downstream clients experience operational fluctuations, there is still a risk of slower collections. Financial expenses increased by 36.50% year-on-year, primarily due to increased bank borrowings and the cessation of interest capitalization for Tianjin Baodi Phases I and II projects after reaching Pre order availability status (intended usable condition), with interest transferred to current profits and losses, a conventional (routine) accounting treatment in heavy-asset industries. As subsequent projects progress, depreciation and interest pressures will persist.

Before the mid-year report release, many institutions maintained a "buy" rating, with forecasts for full-year net profit attributable to the parent company ranging between RMB 280 million and RMB 385 million. Given the first half's performance fell short of expectations, institutions may subsequently downgrade profit forecasts. Current valuations more reflect market expectations for the long-term potential of AI computing power businesses rather than current performance levels.

The company still exhibits inertia for scale expansion, but the marginal returns from New (newly added) cabinets are increasingly thin. Based on industry-standard construction and capacity ramp-up rhythms, stable profits are unlikely to materialize in the short term.

The scale dividends of traditional cabinets have peaked. The issue of revenue growth without profit increase is not unique to Sinonet. While the AI computing power story has begun, base construction, client acquisition, and profit realization remain uncertain. This mid-year report clearly confirms: Sinonet's future growth lies not in current scale expansion but in whether its new computing power businesses can successfully take over the profit baton from traditional IDC. At least for now, this transition will take time.

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