20220824-招银国际-万国数据-SW-09698.HK-Lacks_visibility_in_recovery_timeline_9页_1mb

GDS (9698 HK) Company Update Summary

Core Content Overview

GDS (9698 HK) reported FY2Q22 results in line with expectations, with revenue growth of +24% YoY to RMB2,310 million and adjusted EBITDA growth of +19% YoY to RMB1,062 million. However, the company guided down its FY22E revenue and adjusted EBITDA growth to +19% / +14% respectively, from the previous +22% / +18%, due to delayed data center capacity deliveries and continued pressure from utility price hikes. The net loss widened to RMB388 million in FY2Q22 compared to RMB325 million in FY2Q21.

Main Points

• FY2Q22 Performance:

  • Revenue: RMB2,310 million (+24% YoY, +3% QoQ)
  • Gross profit: RMB469 million (+7% YoY, -4% QoQ)
  • Gross margin: 20.3% (-3.3 pct pts YoY, -1.4 pct pts QoQ)
  • Adjusted EBITDA: RMB1,062 million (+19% YoY, +1% QoQ)
  • Adjusted EBITDA margin: 46.0% (-2.1 pct pts YoY, -0.9 pct pts QoQ)
  • Net loss: RMB388 million (vs. -RMB325 million in FY2Q21)

• Guidance for FY22E:

  • Revenue: RMB9,250–9,400 million (+18.3% to +20.2% YoY)
  • Adjusted EBITDA: RMB4,200–4,280 million (+13.4% to +15.6% YoY)
  • Capital expenditure: RMB12,000 million (-12.4% YoY)

• Balance Sheet Adjustments:

  • GDS is establishing a China Data Center Fund with a sovereign wealth fund, committing US$1 billion (30% from GDS, 70% from the investor) to acquire data center projects, which could help in capital recycling and balance sheet de-stressing.
  • The company is trading over 1-SD below its three-year mean, but the analyst maintains a BUY recommendation with a new target price of HK$33.96 (down from HK$44.55), based on a revised 16x FY23E EV/EBITDA.

• Valuation Analysis:

  • The EV/EBITDA for FY23E is 16.2x, reflecting lowered expectations due to macroeconomic uncertainties and changes in the China data center market.
  • The analyst uses EV/EBITDA for valuation, as it better reflects IDC profitability compared to P/E, given high depreciation and varying capital structures among peers.

Key Financials and Trends

Market and Shareholder Information

• Market Cap: US$39,407 million
• Average 3-Month Turnover: 82.69 million
• 52-Week High/Low: US$64.05 / US$18.90
• Total Issued Shares: 1,457 million
• Shareholding Structure:
  • STT GDC: 31.8%
  • William Huang (Chairman): 5.7%
  • Ping An: 2.2%

Share Performance

• 1-Month Return: -7.2% (Absolute) / -2.7% (Relative)
• 3-Month Return: -11.9% (Absolute) / -7.2% (Relative)
• 6-Month Return: -35.5% (Absolute) / -22.8% (Relative)

Key Assumptions and Margins

Valuation Comparison with Peers

Summary of Key Insights

• Growth Slowdown: Net area committed growth continued to slow in FY2Q22, with MSR declining by -1.3% QoQ.
• Margin Pressure: Higher utility costs dragged down adjusted EBITDA margin by 2.1 pct pts YoY to 46.0%.
• Capacity Delays: 45% of FY22E capacity delivery was delayed to 2023, impacting revenue and EBITDA growth.
• Valuation: Despite the guidance cut, the analyst maintains a BUY rating, with a target price of HK$33.96, based on a 16x EV/EBITDA for FY23E.
• Balance Sheet: The new fund aims to recycle capital and de-stress the balance sheet through asset disposal and recurring management fees.
• Share Performance: Shares have seen a significant decline over the past 6 months, but the analyst remains optimistic about the long-term prospects.

Conclusion

GDS faces challenges due to capacity delivery delays and rising utility costs, which have dragged down margins and slowed growth. However, the company is taking steps to manage its balance sheet through the China Data Center Fund and maintains a BUY recommendation, citing undervaluation and potential for recovery. The revised EV/EBITDA reflects the analyst’s cautious outlook on the macroeconomic environment and the evolving data center landscape in China.