China Core Internet Trip Takeaways

Summary of GDS Holdings Ltd Conference Call Company Overview - Company: GDS Holdings Ltd - Industry: Greater China Telecoms - Market Cap: Rmb26,936 million - Current Share Price: US$19.69 (as of Nov 29, 2024) - Price Target: US$30.00, representing a 52% upside Key Points Business Outlook - Positive outlook for both overseas and domestic business [1] - GDS aims for a committed capacity of 1GW by 2027, with a sales pipeline increasingly focused on overseas customers [4] Capacity and Demand - Current committed capacity stands at 430MW, with an additional 100-200MW reserved for hyperscale customers expected to convert to contracts in upcoming quarters [4] - Customer demand in 2024 has exceeded management expectations, particularly from two short video customers and the largest customer [5] - Anticipated solid demand from key customers for 2025, with expectations of rising demand in remote sites driven by inference [5] Financial Projections - Management projects a higher capital expenditure (capex) of Rmb2-2.5 billion for 2025, with a focus on inventory cleanup and a high threshold for new projects (~11% yield on cost) [5] - Management expects a 10% compound annual growth rate (CAGR) in EBITDA from 2025 to 2027, which is faster than the low-to-mid single-digit growth expected in 2024 [5] - Free cash flow (FCF) for 2025 is expected to be a meaningful positive number [5] Pricing and Revenue - Management anticipates a 4% decline in market share revenue (MSR) for 2024, with an additional 2% drop expected in 2025 [5] - Spot prices are stable, but a higher revenue mix is expected from recent year orders [5] REITs and Asset Management - Private REITs are expected to see asset injections materialize sooner than public REITs, with an enterprise value (EV) of Rmb3 billion [7] - Public REITs are targeting regulatory approvals for asset injections by mid-2025, with an EV of approximately Rmb2 billion [7] - GDS aims to reduce debt by Rmb1 billion and recycle capital by over Rmb1 billion if the asset injection materializes [7] Risks - Upside Risks: - Progress in asset monetization via REITs at favorable valuations - Volume recovery in China leading to a pricing rebound - Accelerated sales in overseas markets or entry into new markets - Potential interest rate cuts in China or the US [14] - Downside Risks: - Reduction in capex by hyperscalers, particularly in AI investments - Increased competition and pricing pressure - Reversal of the downward trend in interest rates in China and the US [14] Additional Insights - The time from contract signing to full utilization is approximately 18 months, including 12 months of construction and 6 months of move-in [6] - The company has a target EV/EBITDA multiple of 11x for GDS China and 20x for GDS International, reflecting a discount due to GDSI's shorter track record [13] This summary encapsulates the key insights from the conference call, highlighting GDS Holdings Ltd's strategic direction, financial outlook, and the associated risks within the Greater China Telecoms industry.