20230316-招银国际-Focus_on_quality_growth_with_cautious_expansion_plan_10页_1mb

GDS (GDS US) Summary

Core Content and Key Points

GDS (GDS US) reported FY4Q22 results that were in line with expectations, with revenue of RMB2,404mn (+9.9% YoY, +1.5% QoQ) and adjusted EBITDA of RMB1,071mn (+4.3% YoY, +0.5% QoQ). The net loss narrowed to RMB194mn, primarily due to a one-off gain from a purchase price adjustment. Excluding this gain, the net loss widened slightly. The adjusted EBITDA margin declined to 44.6% (-2.4 ppts YoY, -0.5 ppts QoY), slightly below the analyst's estimates but above the consensus.

For FY23E, GDS has guided revenue to be in the range of RMB9,940-10,320mn, implying a YoY growth of +6.6% to +10.7%, which is in line with the consensus of RMB10,265mn. The company is focusing on the delivery of existing backlog and has reduced capital expenditure by 33.5% YoY to RMB7.5bn, emphasizing quality growth. The adjusted EBITDA margin is expected to remain at 44.6% (-1 ppts YoY), with the margin expected to reach a trough in FY23E and gradually improve in FY24E.

Main Views

• Revenue Growth: GDS's revenue growth is expected to slow in FY23E compared to FY22E, reflecting a cautious expansion strategy and a focus on existing projects.
• Margin Compression: The company is experiencing margin compression due to increased capital expenditures and a slowdown in the Chinese cloud market post-COVID-19. However, margins are expected to stabilize and improve in FY24E.
• Customer and Geographical Diversification: GDS is improving its customer mix, with cloud service providers (CSP) contributing 63.1% of FY4Q22 revenue, and the contribution from large internet companies (LI) increasing to 63.1% of total. The company also plans to deliver over 50% of new capacity from overseas markets.
• Long-Term Outlook: Despite the short-term challenges, the long-term demand for data centers is viewed positively, driven by the growth of the Digital Economy and AI development.

Key Information

• FY4Q22 Performance:

  • Revenue: RMB2,404mn (+9.9% YoY)
  • Adjusted EBITDA: RMB1,071mn (+4.3% YoY)
  • Net loss: RMB194mn (vs. -RMB351mn in FY4Q21)
  • Gross margin: 20.3% (-2.0 ppts YoY, -0.5 ppts QoQ)
  • Adjusted EBITDA margin: 44.6% (-2.4 ppts YoY, -0.5 ppts QoQ)

• FY23E Guidance:

  • Revenue: RMB9,940-10,320mn (+6.6% to +10.7% YoY)
  • Adjusted EBITDA: RMB4,430-4,600mn (+4.2% to +8.2% YoY)
  • Capital Expenditure: RMB7.5bn (-33.5% YoY)
  • Organic Capex: RMB3.5bn
  • Regional Capex: RMB4bn

• Valuation:

  • Current price: US$15.59
  • Target price: US$21.21 (down from US$35.07)
  • EV/EBITDA multiple: 15x (down from 16x)
  • The valuation is based on a slower growth phase, with the new target multiple set at 1-SD below the mean to reflect this.

• Peer Comparison:

  • GDS is compared with other companies in the data center sector, including 21Vianet, Sinnet, Baosight, AtHub, ChinData, and Equinix.
  • GDS is currently trading at 0.9x FY23E P/B, indicating a potential undervaluation.

Summary Table

Conclusion

Despite the short-term challenges, GDS is maintaining a cautious approach to growth, emphasizing quality over quantity. The company is diversifying its customer and geographical mix, which is viewed positively for long-term resilience. The outlook for the data center market remains optimistic, driven by the Digital Economy and AI development. The revised target price reflects a slower growth phase, and the company is still recommended as a "BUY" with a new target of US$21.21.