20220520-招银国际-Lockdowns_add_uncertainty_to_move-in_schedule_9页_1mb

GDS (GDS US) Company Update Summary

Core Content

GDS (GDS US) reported in-line FY1Q22 results, with revenue and adjusted EBITDA growing by 32% and 29% YoY respectively, reaching RMB2,244mn and RMB1,051mn. However, the company experienced a wider net loss of RMB574mn. The gross margin declined to 21.7% due to higher utility prices, which increased by 10% QoQ, and the adjusted EBITDA margin was at 46.9%, slightly below the estimate. The company maintains its FY22E revenue and adjusted EBITDA growth guidance of +22% and +18% YoY, assuming that the move-in schedule will be delayed due to lockdowns and capacity will be skewed towards 2H.

Main Points

• FY1Q22 Performance:

  • Revenue: RMB2,244mn (+32% YoY, +3% QoQ)
  • Gross profit: RMB486mn (+23% YoY, +0% QoQ)
  • Gross margin: 21.7% (-1.6 pct pts YoY, -0.6 pct pts QoQ)
  • Adj. EBITDA: RMB1,051mn (+29% YoY, +2% QoQ)
  • Adj. EBITDA margin: 46.9% (-1.1 pct pts YoY, -0.1 pct pts QoQ)
  • Net loss: RMB574mn, which was below both estimates and consensus.

• Guidance:

  • Revenue guidance for FY22E is RMB9,320-9,680mn, implying a YoY growth of 19.2% to 23.8%.
  • Adj. EBITDA guidance for FY22E is RMB4,285-4,450mn, implying a YoY growth of 15.7% to 20.2%.
  • Capital expenditure is expected to be RMB12,000mn, a decline of 12.4% YoY.

• Customer Mix:

  • The customer mix is shifting, with internet customers becoming more cautious in cloud spending.
  • GDS achieved 20% of its full-year organic net adds target in 1Q22, which was +18.1k sqm.
  • Alibaba and Tencent accounted for 45% of revenue in 1Q22, with their growth rates slowing to +31% and -5% YoY respectively, compared to +44% and -5% in 4Q21.

• Valuation:

  • The company maintains a BUY recommendation with a new target price of US$46.00, based on a revised EV/EBITDA multiple of 18x (down from 20x) to reflect macroeconomic and pandemic uncertainties.
  • The long-term trend of increased cloud investment in China remains unchanged.

Key Information

• Market Cap: US$5,175 million

• Average 3-Month Trading Volume: 71.22 million

• 52-Week High/Low: US$81.81/US$19.83

• Total Issued Shares: 182 million

• Shareholding Structure:

  • STT GDC: 31.8%
  • William Huang (Chairman): 5.6%
  • Ping An: 2.2%

• Earnings Revision:

  • Sales guidance for FY22E is reduced by 3% to RMB9,129mn.
  • Gross profit guidance is increased by 10% to RMB2,064mn.
  • Adjusted EBITDA guidance is reduced by 3% to RMB4,192mn.
  • Net profit is expected to be RMB-2,101mn for FY22E.

• Valuation Metrics:

  • EV/EBITDA for FY22E: 16.9x
  • EV/EBITDA for FY23E: 15.7x
  • EBITDA margin for FY22E: 45.9%
  • EBITDA margin for FY23E: 46.2%
  • Revenue CAGR for FY21-24E: 19%

Financial Highlights

• Income Statement:

  • Revenue: RMB9,129mn for FY22E
  • Gross profit: RMB2,064mn
  • Operating income: RMB683mn
  • Adj. EBITDA: RMB4,192mn
  • Net profit (loss): RMB-1,638mn

• Cash Flow:

  • Net cash from operating activities: RMB271mn for FY22E
  • Capital expenditures: RMB8,307mn for FY22E
  • Net cash from investing activities: RMB-14,481mn for FY22E
  • Net cash from financing activities: RMB15,710mn for FY22E

• Balance Sheet:

  • Total assets: RMB86,721mn for FY22E
  • Total equity: RMB22,776mn for FY22E
  • Borrowings: RMB27,738mn for FY22E

Catalysts for Growth

• Easing lockdown restrictions
• New mergers and acquisitions
• Customer wins
• Long-term cloud investment growth in China

Conclusion

Despite the challenges posed by lockdowns and the delayed move-in schedule, GDS remains committed to its growth strategy. The company's focus on tier-one cities and the gradual shift in customer mix are expected to drive future growth. The revised target price reflects the current macroeconomic uncertainties, but the long-term outlook for the company remains positive.