2025-12-08 00:41Summary of Conference Call Notes on China Data Centres Equities Industry Overview - The focus is on the China data centre industry, specifically companies GDS Holdings (GDS) and VNET Group (VNET) - The industry is expected to experience a slowdown in 2026, with potential recovery in 2027 driven by AI demand and clarity on chip supply issues [2][10] Key Points and Arguments 1. 2026 Slowdown and 2027 Recovery: - A slowdown in new wholesale orders was noted in 3Q25, attributed to large clients delaying capital expenditures due to uncertainties regarding chip resolutions [2] - GDS's adjusted EBITDA growth is forecasted to slow from 10% in 2025 to 6% in 2026, while VNET's growth is expected to decelerate from 21% to 19% in the same period [2] 2. Market Resilience: - Despite disappointing order numbers in 3Q, GDS and VNET's share prices remained resilient, with GDS up 15% and VNET up 8% post-results announcement, indicating that the market has already priced in the anticipated slowdown [3] 3. REITs as Valuation Benchmarks: - Both GDS and VNET completed their C-REIT and Private REIT issuances, which are seen as providing valuation benchmarks and future financing channels [4] 4. Preference for VNET: - VNET is expected to outperform GDS in growth due to better wholesale capacity utilization and lower electricity costs in Inner Mongolia, which is advantageous for securing large AI orders [5] - VNET is trading at a lower valuation of 10x 2026e EV/adj. EBITDA compared to GDS at 13x [5] 5. Target Price Adjustments: - Target prices for both companies have been raised, with GDS's target price increasing from USD 44.10 to USD 46.90 and VNET's from USD 11.40 to USD 14.40 [6] Financial Highlights - GDS Financials: - Revenue projections for GDS are CNY 10,322 million for 2024, increasing to CNY 14,053 million by 2027 [11] - Adjusted EBITDA is expected to decline from CNY 6,889 million in 2025 to CNY 5,275 million in 2026 [11] - VNET Financials: - VNET's revenue is projected to grow from CNY 8,259 million in 2024 to CNY 14,424 million by 2027 [19] - EBITDA is expected to increase from CNY 2,268 million in 2024 to CNY 4,913 million in 2027 [19] Additional Important Insights - Risks: - Potential risks include failure to secure new large orders, chip shortages affecting data centre utilization, and a slowdown in AI data centre investments [34] - Valuation Methodology: - GDS is valued using a sum of the parts (SOTP) approach, with a target EV/EBITDA multiple of 13x for its mainland China business and 21x for its international business, DayOne [27][31] - Market Context: - The report highlights the competitive landscape, comparing GDS and VNET with peers like Equinix and Digital Realty, indicating a need for strategic positioning in the evolving market [35] This summary encapsulates the critical insights from the conference call regarding the China data centre industry, focusing on GDS and VNET, their financial outlook, market dynamics, and potential risks.