20210312-招银国际-Growth_momentum_to_remain_strong_8页_1mb

GDS (GDS US) Equity Research Summary

Core Content

GDS (GDS US) reported strong FY4Q20 results with revenue and adj. EBITDA growth of +38% and +43% YoY, respectively. The company is expected to maintain its growth momentum in FY21E, with adj. EBITDA growth guidance of +40% YoY. Despite a +5.4% decline in MSR, GDS continues to show strong performance due to increased area utilization. The company's leadership in China IDC, with 77% of total area committed from cloud service providers, is a key strength.

The report maintains a BUY recommendation with a new target price of US$123.34, representing a 40% upside from the current price of US$88.04. This target is based on an unchanged 32x FY22E EV/EBITDA multiple, which is 30% above its 3-year mean. The strong growth trajectory, coupled with adj. EBITDA margin improvements, supports this valuation.

Main Points

• Strong FY4Q20 Performance:

  • Revenue: RMB1,632mn (+38% YoY, +7% QoQ)
  • Gross profit: RMB430mn (+46% YoY, +5% QoY)
  • Gross margin: 26.4% (+1.4pct YoY, -0.5pct QoQ)
  • Adj. EBITDA: RMB758mn (+43% YoY, +6% QoQ)
  • Adj. EBITDA margin: 46.5% (+1.6pct YoY, -0.6pct QoQ)
  • Net loss widened to RMB294mn due to higher effective interest rates from one-off refinancing expenses.

• FY21E Guidance:

  • Revenue: RMB7,934mn (mid-point: RMB7,700-8,000mn, +37% to +39% YoY)
  • Adj. EBITDA: RMB3,796mn (mid-point: RMB3,660-3,800mn, +36.5% to +41.8% YoY)
  • Capex: RMB12,000mn (+28% YoY)
  • Total area committed increased by +52% YoY to 402k sq m in FY20, suggesting area utilization growth of +40% YoY in FY21E.

• Earnings Revisions:

  • Revenue and adj. EBITDA guidance were raised by +3% and +2%, respectively, due to +11% higher area utilization and -3% lower MSR.
  • Net loss is expected to widen in FY21-22E due to increased interest expenses from new debt financing (RMB15bn) and refinancing.

• Valuation:

  • GDS is valued at 32x FY22E EV/EBITDA, which is 30% above its 3-year mean.
  • The EV/EBITDA multiple reflects the company's strong growth and adj. EBITDA margin improvement.
  • GDS's valuation is compared to peers such as 21Vianet, Sinnet, Baosight, AtHub, ChinData, and Equinix, showing a range of EV/EBITDA multiples from 15.7x to 33.0x.

Key Information

• Growth Drivers:

  • Strong backlog to support FY21E adj. EBITDA growth.
  • Expansion of customer base, including new clients like Bytedance, PDD, and iQiyi.
  • Continued investment in organic capex and M&A.

• Financial Highlights:

  • FY20A Revenue: RMB5,739mn (+39% YoY)
  • FY20A Adj. EBITDA: RMB2,681mn (+47% YoY)
  • FY20A Net loss: RMB738mn
  • FY21E Revenue: RMB7,934mn (+38% YoY)
  • FY21E Adj. EBITDA: RMB3,796mn (+42% YoY)
  • FY21E Net loss: RMB934mn

• Capital Structure:

  • GDS plans to raise RMB15bn in new debt financing to support growth.
  • Interest expense is expected to increase despite efforts to lower the effective interest rate to 5% in the long term.

• Market Performance:

  • Market cap: US$16,649mn
  • 12-month price performance: +18.4%
  • Shareholding structure includes STT GDC at 32.1%, William Huang at 5.4%, and Ping An at 2.3%.

• Catalysts:

  • New M&A activity.
  • Customer wins.
  • Overseas expansion plans.

Summary Table

Conclusion

GDS is maintaining its BUY recommendation due to its strong growth momentum, solid EBITDA margin improvement track record, and leadership in the China IDC market. The new target price of US$123.34 reflects the company's potential for continued growth and improved profitability. Key catalysts include new M&A, customer wins, and overseas expansion plans.