20210312-招银国际-万国数据-SW-09698.HK-Growth_momentum_to_remain_strong_4页_902kb

GDS (9698 HK) Summary

Core Content

GDS (9698 HK) is a leading player in the China IDC market, with a strong customer portfolio dominated by cloud service providers, contributing 77% of total area committed. The company delivered robust financial performance in FY4Q20, with revenue and adj. EBITDA growth of 38% and 43% YoY, respectively. It beat the top-end of its prior guidance for adj. EBITDA growth by 2%. Despite a 5.4% decline in MSR, the company's area utilized increased by 45% to 226k sq m, leading to a 71% utilization rate.

The company is expected to maintain its growth momentum in FY21E, with adj. EBITDA growth guidance of +40% YoY. The mid-point of FY21E guidance suggests revenue and adj. EBITDA growth of +37% and +39% YoY, respectively, and an improvement in adj. EBITDA margin by +1pct. The FY21E capex plan is at RMB12bn, with 30% related to M&A. Total area committed increased by +52% YoY to 402k sq m in FY20, which is a leading indicator for area utilized growth in FY21E.

Main Points

• Strong Financial Performance in FY4Q20:

  • Revenue: RMB1,632mn (+38% YoY)
  • Adj. EBITDA: RMB758mn (+43% YoY)
  • Net loss widened to RMB299mn due to a higher effective interest rate of 6.9% from one-off refinancing expenses.

• Growth Guidance for FY21E:

  • Revenue growth: +37% YoY
  • Adj. EBITDA growth: +39% YoY
  • Adj. EBITDA margin improvement: +1pct YoY
  • Capex plan: RMB12bn (+28% YoY)
  • M&A-related capex: 30% of total capex

• Net Loss Widening:

  • Due to increased interest expenses from RMB15bn new debt financing, including refinancing.
  • Despite efforts to lower effective interest rate to a long-term target of 5%, net loss is expected to widen in FY21-22E.

• Maintain BUY Recommendation:

  • New target price: HK$119.43 (35% upside from current price of HK$88.65)
  • Valuation: Based on unchanged 32x FY22E EV/EBITDA
  • Catalysts: New M&A, customer wins, and overseas expansion plans

Key Information

• Earnings Summary:

  • Revenue: RMB4,122mn (FY19A), RMB5,739mn (FY20A), RMB7,934mn (FY21E), RMB10,521mn (FY22E), RMB13,989mn (FY23E)
  • Adj. EBITDA: RMB1,824mn (FY19A), RMB2,681mn (FY20A), RMB3,796mn (FY21E), RMB5,126mn (FY22E), RMB6,964mn (FY23E)
  • Net Profit (loss): RMB-442mn (FY19A), RMB-669mn (FY20A), RMB-934mn (FY21E), RMB-358mn (FY22E), RMB653mn (FY23E)

• Valuation Metrics:

  • EV/EBITDA: 58.9 (FY19A), 37.5 (FY20A), 30.0 (FY21E), 24.1 (FY22E), 18.7 (FY23E)
  • EBITDA margin: 44% (FY19A), 47% (FY20A), 48% (FY21E), 49% (FY22E), 50% (FY23E)
  • Net debt/equity ratio: 0.5% (FY19A), 0.5% (FY20A), 0.9% (FY21E), 1.1% (FY22E)

• Share Performance:

  • Market Cap: HK$128,511mn
  • 1-month absolute return: -20.6%
  • 3-month relative return: -18.6%

• Shareholding Structure:

  • STT GDC: 32.1%
  • William Huang (Chairman): 5.4%
  • Ping An: 2.3%

• Key Operating Ratios:

  • Total area in service (EoP): 226k sq m (FY20A), 455k sq m (FY21E), 628k sq m (FY22E), 858k sq m (FY23E)
  • Avg. utilization rate: 69% (FY19A), 72% (FY20A), 71% (FY21E), 72% (FY22E), 73% (FY23E)
  • Average MSR: RMB2,532/sq m (FY19A), RMB2,403/sq m (FY20A), RMB2,315/sq m (FY21E), RMB2,222/sq m (FY22E), RMB2,125/sq m (FY23E)

Analysts' Views

• The analyst continues to maintain a BUY rating on GDS due to its strong growth prospects, leadership in the China IDC market, and solid EBITDA margin improvement track record.
• The company is expected to penetrate new customers such as Bytedance, PDD, and iQiyi in FY20, which supports its growth trajectory.
• The company's ability to maintain high utilization rates and its focus on organic capex and M&A are key drivers of its future performance.

Conclusion

GDS is positioned well for continued growth in the China IDC market, supported by a strong customer base and a clear expansion strategy. While net loss is expected to widen in FY21-22E due to increased interest expenses, the company's EBITDA margin improvement and growth potential justify the BUY recommendation. The new target price of HK$119.43 reflects confidence in its long-term value and performance.