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GDS (GDS US) Company Update Summary

Core Content Overview

GDS (GDS US) is a leading player in the Chinese data center industry, with a focus on tier-one cities. Despite a softer outlook for FY22E due to macroeconomic challenges such as slower move-in rates and higher power tariffs, the company remains committed to its strategic focus on high-demand areas and continues to invest in its data center pipeline. The firm maintains a BUY rating with a revised target price of US$52.28, reflecting a 20x EV/EBITDA multiple for FY22E, down from the prior 23x to account for macro uncertainty.

Key Financial Highlights

FY4Q21 Results

• Revenue: RMB2,187mn (+34% YoY, +6% QoQ), in-line with estimates.
• Gross Profit: RMB487mn (+13% YoY, +7% QoQ), above estimates but below consensus.
• Gross Margin: 22.3% (+0.2 pct pts QoQ), slightly improved sequentially.
• Adj. EBITDA: RMB1,027mn (+36% YoY, +7% QoQ), in-line with estimates.
• Adj. EBITDA Margin: 47.0% (+0.5 pct pts YoY, +0.3 pct pts QoQ), slightly improved.
• Net Loss: RMB316mn, narrower than previous quarters but still below estimates.

FY22E Guidance

• Revenue: RMB9,320-9,680mn (+19.2% to +23.8% YoY), below consensus of RMB9,826mn.
• Adj. EBITDA: RMB4,285-4,450mn (+15.7% to +20.2% YoY), below consensus of RMB4,575mn.
• Capex: RMB12bn (-12% YoY), split into RMB6bn for organic expansion, RMB2bn for regional expansion, and RMB4bn for M&A and landbank acquisition.
• Organic Net-Adds: Expected to be 85-90k sqm, a decline from FY21's 119k sqm, but with a shift in customer mix toward retail.

Revenue and Growth Trends

• Revenue Growth (YoY): FY20A: +39%, FY21A: +36%, FY22E: +21%, FY23E: +17%, FY24E: +20%.
• Adj. EBITDA Growth (YoY): FY20A: +47%, FY21A: +38%, FY22E: +17%, FY23E: +18%, FY24E: +22%.

Key Assumptions and Metrics

• Total Area in Service: Expected to grow from 334k sqm (FY20A) to 801k sqm (FY24E).
• Total Area Utilized: Expected to increase from 234k sqm (FY20A) to 568k sqm (FY24E).
• Utilization Rate: Projected to rise from 72% (FY20A) to 70% (FY24E).
• Average MSR (Monthly Service Revenue): Expected to decrease from RMB2,333/sqm/month (FY20A) to RMB2,121/sqm/month (FY24E).
• Depreciation: Projected to increase from RMB1,638mn (FY20A) to RMB4,151mn (FY24E).

Valuation

• EV/EBITDA: Ranges from 18.8x (FY20A) to 15.6x (FY24E).
• Target Price: US$52.28 (revised from US$61.06), based on a 20x multiple for FY22E.
• Peer Comparison: GDS is compared with other companies in the sector, such as 21Vianet, Sinnet, Baosight, and Equinix, with EV/EBITDA multiples ranging from 5.3x to 24.7x.

Share Performance

• Market Cap: US$7,054mn.
• Share Price Performance:
  • 1-month: -13.1% absolute, -14.9% relative.
  • 3-months: -24.5% absolute, -16.3% relative.
  • 6-months: -35.3% absolute, -31.1% relative.
• Shareholding Structure:
  • STT GDC: 31.8%
  • William Huang (Chairman): 5.6%
  • Ping An: 2.2%

Earnings Revision

• Sales: Revised from RMB9,967mn to RMB9,432mn for FY22E (-5%).
• Gross Profit: Revised from RMB2,253mn to RMB1,883mn for FY22E (-16%).
• Adj. EBITDA: Revised from RMB4,500mn to RMB4,316mn for FY22E (-4%).
• Net Profit (Loss): Revised from RMB-1,314mn to RMB-2,197mn for FY22E (-67%).
• EPS: Revised from RMB-0.92 to RMB-1.54 for FY22E (-67%).

Financial Summary

• Operating Cash Flow: Expected to be RMB748mn for FY22E, up from RMB1,208mn in FY21A.
• Investing Cash Flow: Expected to be RMB-15,747mn for FY22E, down from RMB-13,692mn in FY21A.
• Financing Cash Flow: Expected to be RMB14,205mn for FY22E, up from RMB8,119mn in FY21A.
• Net Change in Cash: Expected to be RMB-794mn for FY22E, down from RMB11,087mn in FY20A.

Balance Sheet

• Non-current Assets: Expected to grow from RMB38,940mn (FY20A) to RMB78,482mn (FY24E).
• PPE - Net: Expected to increase from RMB29,596mn (FY20A) to RMB59,603mn (FY24E).
• Current Assets: Expected to decrease from RMB18,319mn (FY20A) to RMB13,653mn (FY24E).
• Current Liabilities: Expected to increase from RMB7,644mn (FY20A) to RMB21,390mn (FY24E).
• Net Debt/Equity Ratio: Expected to rise from 0.7 (FY20A) to 2.2 (FY24E).
• Current Ratio: Expected to decrease from 2.4 (FY20A) to 0.6 (FY24E).

Key Ratios

• Gross Margin: Expected to decline from 27.0% (FY20A) to 20.0% (FY22E), then increase to 21.7% (FY23E) and 27.6% (FY24E).
• Adj. EBITDA Margin: Expected to decrease from 46.7% (FY20A) to 45.8% (FY22E), then increase to 46.1% (FY23E) and 46.8% (FY24E).
• Net Margin: Expected to decline from -11.7% (FY20A) to -21.6% (FY22E), then increase to -20.0% (FY23E) and -8.7% (FY24E).

Conclusion

Despite the challenges in FY22E, GDS remains a strong player in the Chinese data center market, with a strategic focus on tier-one cities and a robust pipeline for future growth. The company's commitment to infrastructure investment and its position in the market suggest long-term potential, even with a revised target price reflecting macroeconomic uncertainty. The firm's financial performance, while showing some decline in margins, is supported by its strong balance sheet and ongoing operational improvements.