Investment Rating - The report assigns a "Buy" rating for VNET Group, with a 12-month price target of US$13, indicating a potential upside of 115.2% from the current price of US$6.04 [13][15]. Core Insights - VNET Group reported strong 1Q25 results, with revenue increasing by 18% year-over-year to Rmb2,246 million, and adjusted EBITDA rising by 26% year-over-year to Rmb682 million, both exceeding consensus estimates [1][3]. - The company is transitioning from a traditional retail IDC operator to a rapidly growing wholesale IDC operator, with expectations of significant revenue and EBITDA growth driven by increased AI investments [13]. - Wholesale IDC revenue is projected to grow at a compound annual growth rate (CAGR) of 52% from 2024 to 2027, while EBITDA is expected to grow at a CAGR of 50% during the same period [13]. Financial Performance - In 1Q25, wholesale IDC revenue surged by 86% year-over-year, accounting for 30% of total revenue, while retail IDC revenue grew by 5% year-over-year, marking its first positive growth since 4Q23 [1][3]. - The average monthly service revenue (MSR) increased by 7% year-over-year but decreased by 19% quarter-over-quarter to Rmb568k per MW per month [7]. - The company maintained its full-year guidance for 2025, with a capex plan of Rmb10-12 billion [1]. Capacity and Orders - VNET secured 119MW of wholesale orders in 1Q25, including significant contracts with leading cloud computing customers [2]. - As of 1Q25, VNET had 573MW of wholesale capacity in service, with a commitment rate nearing 100% [11][4]. - The total capacity under construction decreased to 377MW, while the total capacity held for future development is 670MW [11]. Market Position and Outlook - VNET is positioned as a leading carrier-neutral data center operator in China, with approximately 74% of its 2024 revenue derived from IDCs [13]. - The report suggests that rising contributions from wholesale IDC revenue and EBITDA may lead to continued upward re-rating of multiples and valuation compounding for VNET [13].