ChinaNetCenter & ChinaCache: Profit Gap with Flat Income

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Jun 29, 2013, 01:00 ET

BEIJING, June 29, 2013 /PRNewswire/ -- Thanks to the huge growth potential and high profitability of CDN services, various CDN service providers have emerged since the service entered China. With their experience in market competition, settlement, and filtering over the years, ChinaNetCenter and ChinaCache have ranked among the leading CDN service providers in China according to CCID Consulting.

Recently, ChinaCache announced its financial results in 2012. According to the report, ChinaCache earned a net income amounting to CNY813.7 million in 2012, which increased by 31.6 percent on a year-on-year basis. In addition, it suffered a net loss amounting to CNY17 million in 2012. As a result, its adjusted net profit (i.e. following the non-generally accepted accounting) was CNY3.4 million, which decreased by 87.9 percent in comparison with that in the previous year. Two weeks ago, ChinaNetCenter also announced its financial results in 2012. According to its report, ChinaNetCenter received an operating income amounting to CNY814.8 million in 2012, up 50.29 percent over the previous year. In addition, it had a net profit of CNY103 million attributed to the shareholders of the listed company, which increased by 89.59 percent compared with that in 2011.

With increasing development of the Internet in China, there is still a huge space to grow for the CDN market as it is closely connected to the Internet. Analyzing and comparing the financial data that ChinaNetCenter and ChinaCache announced historically is crucial for understanding the potential investment opportunities. The financial data of the two companies are compared as follows:

Financial Results of ChinaNetCenter, 2010-2012 (CNY)
Item	2010	2011	2012
Total operating income	362,282,002	542,142,099	814,799,486
Operating income growth rate (YoY)	26.22%	49.65%	50.29%
Net profit attributed to shareholders of the listed company	38,274,476	54,721,678	103,745,746
Net profit growth rate attributed to the shareholders of the listed company	-1.48%	42.97%	85.59%
Gross margin	30.95%	28.84%	33.83%

Financial Results of ChinaCache, 2010-2012 (CNY)
Item	2010	2011	2012
Net income	403,400,000	618,400,000	813,700,000
Net income growth rate (YoY)	48.11%	56.50%	31.58%
Net loss	55,700,000	11,500,000	17,000,000
Adjusted net profit (non-GAAP)	61,000,000	28,100,000	3,400,000
Net profit growth rate	/	-53.93%	-87.90%
Gross margin	/	30.03%	31.25%

(Source: Public financial results of ChinaCache and ChinaNetCenter)

Through comprehensive comparison of the financial results of the two companies in last three years, we can see that:

Operating income

ChinaNetCenter's total operating income increased to CNY814.8 million in 2012 from CNY362.3 million in 2010, expanding by nearly 2.25 times. At the same time, ChinaCache's total operating income increased to CNY813.7 million in 2012 from CNY403.4 million in 2010, expanding by nearly 2.02 times. Unlike their similar trends of growth in total operating income, the growth rate of the total operating income of ChinaNetCenter and ChinaCache differed greatly over three years. The growth rate of ChinaNetCenter's total operating income was significantly increased to 49.65 percent in 2011 and even 50.29 percent in 2012 from 26.22 percent in 2010. In other words, its growth rate of total operating income nearly doubled within three years. On the contrary, after rising slightly to 56.50 percent in 2011 in comparison with that in 2010, the growth rate of ChinaCache's net income failed to continue its growth but declined to 31.58 percent in 2012.

Net profit

With a general survey of the net profit figures over the three years, it is easy to find that ChinaNetCenter's net profit attributed to the shareholders of the listed company increased to CNY104 million in 2012 from CNY38 million in 2010, expanding by nearly 2.7 times. In contrast, ChinaCache's net profit declined to CNY3 million in 2012 from CNY61 million in 2010.

Gross margin

With regard to the change in gross margin, ChinaNetCenter and ChinaCache remained stable over the three years. The gross margin of ChinaNetCenter lingered about 31 percent over the years and reached 33.78 percent in 2012. The gross margin of ChinaCache also lingered about 31 percent in the recent two years.

ChinaNetCenter vs. ChinaCache = Stable vs. Fluctuating

According to its general financial results over three years, we can say ChinaNetCenter grew stably from 2010 to 2012 in terms of both operating income and trends of the income growth. On the contrary, ChinaCache changed dramatically in the same period, generating a poor performance.

In short, it proves that ChinaNetCenter can offer stable ROIs for investors. As a result, its risks are obviously less than those of ChinaCache. In terms of the macro CDN market in China, however, ChinaNetCenter is also promising given the preliminary effects of focusing on reducing corporate costs through independent R&D though it entered later compared with ChinaCache.

Now ChinaNetCenter and ChinaCache are the two largest CDN service providers in the CDN market in China. Although their income remained flat in 2012, ChinaNetCenter is more stable according to their performance in the last three years.

About ChinaNetCenter

ChinaNetCenter (Wangsu Science & Technology Co., Ltd.) was founded in January 2000, and is a leading Internet service platform provider in China, mainly providing customers with content distribution and acceleration, server hosting and rental, network optimization solutions, and other services. With strong research capability, ChinaNetCenter developed many core technologies with independent intellectual property. In October 2009, ChinaNetCenter was listed on China Shenzhen Stock Exchange (SZ300017). For more information, please visit http://en.chinanetcenter.com/Home

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SOURCE ChinaNetCenter