Summary of the Conference Call Transcript Industry Overview - **Industry**: Chinese Internet Data Centre (IDC) Sector - **Key Markets**: Top 10 IDC markets in China account for 79% of the nation's capacity, with significant growth in IT power and utilization rates Key Points 1. **Capacity Expansion**: - By Q2 2025, China's top 10 IDC markets reached 15.5GW of IT power in service, with net additions of 1.9GW in Q4 2024, 1.0GW in Q1 2025, and 1.1GW in Q2 2025, indicating sustained capacity expansion across major hubs [2][3][11] - Hebei and Jiangsu led new capacity additions with 1GW and 756MW respectively since Q3 2024, while Inner Mongolia added 554MW [2] 2. **Utilization Rates**: - Utilization across the top 10 IDC markets remained stable at 70% in Q2 2025, up from 69% in Q3 2024, indicating healthy demand [3] - Beijing and surrounding cities recorded the highest utilization rates at 73%, while the Greater Bay Area reached 75%, both maintaining above 73% despite capacity additions [3] 3. **Regional Performance**: - The Yangtze River Delta maintained utilization rates between 67% and 71%, while other regions improved from 52% to 61% during Q3 2024 to Q2 2025, suggesting a more balanced supply-demand dynamic [3] 4. **Downside Risks**: - Risks for the sector include weaker-than-expected AI demand, faults at data centers affecting reputation, higher-than-expected interest rates, and unfavorable regulatory environments [11] 5. **Upside Risks**: - Potential for stronger-than-expected AI and cloud business growth, lower electricity costs, lower interest rates, and tighter control on licensing and Power Usage Effectiveness (PUE) requirements [11] Additional Insights - **Market Dynamics**: The IDC sector shows resilience with stable utilization rates despite ongoing capacity expansions, reflecting a robust demand environment [3] - **Emerging Hubs**: Inner Mongolia is emerging as a significant player in the IDC market, indicating a shift in regional dynamics [2] This summary encapsulates the critical insights from the conference call regarding the Chinese IDC sector, highlighting both growth opportunities and potential risks.

Summary of the Conference Call Transcript Industry Overview - The focus is on the **Chinese Internet Data Centre (IDC) Sector** which is currently seen as an **AI laggard** globally, presenting an attractive investment opportunity as demand for AI infrastructure strengthens [2][19][39]. Key Insights and Arguments 1. **Growth Phase**: The Chinese IDC industry is entering a renewed growth phase, driven by increasing demand for AI infrastructure. New orders are expected to recover significantly in the next 3-6 months, particularly for large-scale AIDC projects [2][10]. 2. **Revenue Growth Forecast**: For Q325, revenue growth is projected at **11.4%** for GDS and **18.7%** for VNET year-over-year, indicating steady utilization ramp-up despite previous chip supply constraints [3][6]. 3. **Positive Earnings Reports**: A-share IDC companies reported strong earnings in Q325, with revenue growth rates of **30%** for Aofei, **15%** for Range, **9%** for Sinnet, and **6%** for Athub, all surpassing Q225 growth [3][10]. 4. **Hyperscaler Capital Expenditure**: Upcoming earnings reports from hyperscalers are anticipated to provide insights into their AI capital expenditure, which is expected to be closely monitored by investors [4]. 5. **Valuation Discounts**: Chinese IDCs are currently trading at an average **25%** valuation discount compared to global peers, with ADRs trading at a **40%** discount. This gap is expected to narrow as the sector is projected to grow at a higher EBITDA CAGR of **17%** from 2025 to 2027, compared to **11%** for global peers [5][19]. 6. **REIT Launches**: The anticipated launch of IDC public REITs in 2025 is expected to support valuation re-rating and enhance balance sheet flexibility for companies like GDS and VNET [5][27]. Additional Important Points - **Utilization Growth**: The IDC industry is expected to see IT power utilization grow by **19%** in 2025, **24%** in 2026, and **26%** in 2027, translating to a net addition of **2-4GW** per year [9]. - **Market Recovery**: The sector has shown signs of recovery since Q325, with new IDC orders resuming after a temporary pause due to supply constraints [10]. - **Risks and Opportunities**: Downside risks include weaker-than-expected AI demand and regulatory challenges, while upside risks involve stronger-than-expected growth in AI and cloud services [39][40]. Conclusion The Chinese IDC sector is poised for significant growth driven by AI demand, with favorable revenue forecasts and potential for valuation re-rating through REIT launches. Investors should monitor upcoming earnings reports from hyperscalers and the overall market recovery trajectory.

Summary of the Conference Call Transcript Industry Overview - **Industry**: Chinese Internet Data Centre (IDC) Sector - **Key Players**: VNET, GDS Core Insights and Arguments - **Potential New Orders**: Anticipation of new IDC orders alongside a new round of GPU procurement, with significant events scheduled such as AliCloud's Apsara conference and potential REIT launches by VNET and DayOne [2][4] - **Utilization Trends**: Strong utilization ramp-up in major AIDC campuses observed in Q2 2025, indicating that AIDC orders from hyperscalers in Q4 2024 to Q1 2025 were supported by previously procured GPU chips [3] - **Resumption of Tenders**: New IDC tenders have resumed since September 2025 after a pause due to the H20 ban, with multiple new orders expected as hyperscalers plan AI capital expenditures for the upcoming year [4] Valuation Insights - **Valuation Multiples**: VNET is trading at an 11-12x EV/EBITDA multiple for 2026 estimates, while GDS is at 12-13x, both lower than GDS's private REIT asset transactions at 13x and public REIT IPOs at 16-17x [5] - **Policy Support**: Recent policy changes by the NDRC to support infrastructure REITs, allowing asset injections into public REITs six months post-IPO, are expected to positively impact valuations [5] Risks and Opportunities - **Downside Risks**: - Weaker-than-expected AI demand - Potential faults at data centers affecting reputation - Higher-than-expected interest rates - Unfavorable regulatory environment [10][11][12] - **Upside Risks**: - Stronger-than-expected growth in AI and cloud businesses - Lower electricity costs - Lower interest rates - Tighter control on licensing and PUE requirements [10] Additional Important Points - **Recent Order Wins**: VNET has secured significant new orders, including a notable 40MW win [4][6] - **Analyst Ratings**: Both VNET and GDS are rated as "Buy" with respective prices of US$9.95 and US$39.00 as of September 18, 2025 [24] - **Market Context**: The IDC sector is experiencing a shift with increased demand for AI-related infrastructure, which is expected to drive future growth [2][4] This summary encapsulates the key points from the conference call, focusing on the IDC sector's dynamics, valuation metrics, and the associated risks and opportunities.

Summary of the Conference Call on the Chinese Internet Data Centre Sector Industry Overview - The Chinese Internet Data Centre (IDC) sector is experiencing a strong demand outlook driven by artificial intelligence (AI) [2][3] - Limited IDC tender releases in the past two quarters were primarily due to uncertainties in chip supply, which are expected to be resolved [2] - IDC rental prices remain stable, with project-level unlevered Internal Rate of Return (IRR) around high single digits (HSD) [2] - Absolute rental fees per kW have significantly declined since the peak in 2021, with capital expenditures (capex) now at Rmb 16-21 million per MW (excluding land costs) [2] - Efficient supply chains in China have contributed to the reduction in capex [2] - Liquid cooling technology presents both challenges and opportunities for the IDC industry in the AI era [2] Company Insights Sinnet - Sinnet anticipates strong demand in the AI era, projecting recurring annual IDC demand could reach 2GW [3] - The financing environment for IDC operators is favorable due to a declining interest rate environment in China, provided there are secured orders [3] - Sinnet is selective in entering new projects due to ongoing competition [3] Athub - Athub is actively seeking IDC resources near existing computing hubs, such as Inner Mongolia and Gansu, to support growth beyond 2025 after completing the Langfang project [4] - The company believes it can maintain cost control for new projects while preparing for liquid cooling [4] Risks and Opportunities - **Downside Risks**: - Weaker-than-expected AI demand [6] - Potential faults at data centers that could harm reputation [6] - Higher-than-expected interest rates [6] - Less favorable regulatory environment [6] - **Upside Risks**: - Stronger-than-expected growth in AI and cloud businesses [6] - Lower-than-expected electricity costs [6] - Lower-than-expected interest rates [6] - Tighter control on license granting and Power Usage Effectiveness (PUE) requirements [6] Conclusion - The IDC sector in China is poised for growth, particularly with the increasing demand from AI applications. Companies like Sinnet and Athub are strategically positioning themselves to capitalize on this trend while navigating competitive and regulatory challenges.

Summary of the Conference Call Transcript Industry Overview - **Industry**: Chinese Internet Data Centre (IDC) Sector - **Quarter**: Q225 Key Points and Arguments Market Demand and Orders - There were not many new IDC orders in Q225 due to the H20 ban in April, with NVIDIA indicating a potential resumption in July, but the Chinese government's stance remains uncertain [2] - Market demand is characterized as "2+X", where "2" refers to ByteDance and Alibaba, noted as the most aggressive investors in AI [2] Utilization and Financial Performance - GDS and VNET are expected to see steady utilization ramp-up, forecasting an 8% and 22% year-over-year increase in adjusted EBITDA, respectively [3] - China Mobile reported a GPU utilization rate increase from 20% before the DeepSeek shock in January to 55% in Q225, indicating a shift in deployment methods [3] Future Catalysts - Key factors to monitor include: 1. Hyperscalers' capital expenditure outlook, particularly from Alibaba and ByteDance, which may focus more on inference demand [4] 2. The release of DeepSeek R2, with a noted market focus on 2C applications, despite 90% of token usage being on the 2B side [4] 3. Cloud revenue growth, with expectations for acceleration due to lower digital penetration in China compared to the US [4] Financial Projections - VNET's revenue for Q225 is projected at RMB 2,330 million, reflecting a 16.9% year-over-year increase, while GDS's revenue is expected to be RMB 2,794 million, an 8.3% increase [7] - Adjusted EBITDA for VNET is forecasted at RMB 699 million, a 21.8% increase year-over-year, while GDS's adjusted EBITDA is expected to be RMB 1,336 million, also an 8.3% increase [7] Valuation Insights - The inaugural year of IDC C-REITs is expected to provide a valuation benchmark, potentially driving sector re-rating in the long term [5] - GDS's C-REIT traded 30% higher on its first day, but GDS's share price did not react, indicating a tech-focused investor base prioritizing growth over returns [5] Risks and Challenges - **Downside Risks**: Weaker-than-expected AI demand, faults at data centers, higher interest rates, and unfavorable regulatory environments [8] - **Upside Risks**: Stronger-than-expected AI and cloud business growth, lower electricity costs, and tighter control on licensing [8] Valuation Methodology - VNET is valued based on target EV/EBITDA multiples, with key risks including refinancing challenges and customer churn [9] - GDS is valued using a sum-of-the-parts (SOTP) approach, with risks including slower cloud/AI growth and reputational damage from outages [10] Additional Important Information - The report emphasizes the importance of monitoring hyperscalers' cloud revenue growth, which is crucial for understanding the overall health of the IDC sector [4] - The visibility of IDC tenders by hyperscalers is expected to improve in Q325, suggesting a potential recovery in new orders [4]