2026-01-13 11:56Summary of Conference Call on China Data Center Sector Industry Overview - Sector Performance: China data center stocks, specifically VNET and GDS, showed significant gains with VNET up by 11% and GDS by 8% due to an improving demand outlook for data centers as internet/cloud companies in China initiate new project bidding processes [1][2] - Future Outlook: The sector is expected to see stronger new orders in 2026 compared to 2025, easing AI chip supply issues, and potential support for rental pricing due to supply tightening [1][2] Key Points Order Recovery - Recent Trends: The China data center sector experienced a slowdown in new orders from April to July 2025, attributed to U.S. restrictions on H20 chips. However, a recovery began in August 2025, led by ByteDance, with total demand potentially exceeding 1GW [2][3] - Beneficiaries: Companies with ample land and power resources, particularly in western China or around Beijing, are expected to benefit from this recovery [2] AI Chip Supply Issues - Current Situation: The limited availability of advanced GPUs has led Chinese cloud service providers to increasingly procure domestic AI accelerators. The listing of more domestic AI accelerator companies is expected to enhance competition in the market [3] - Future Prospects: The potential resumption of advanced GPU offerings from overseas could alleviate the current supply issues [3] Rental Pricing Dynamics - Market Trends: Data center rental pricing was on a downward trend in 2023-2024 but stabilized in 2025. The Chinese government has tightened approvals for new data center projects since Q2 2025, which may help rationalize supply and support rental pricing [4] - Projected Changes: By the end of 2025, a limited number of new projects are expected to receive approvals, particularly in northern and western China, which may further tighten supply and support pricing [4] Valuation Comparisons - Valuation Metrics: China data center stocks are trading at lower valuations compared to global peers, with VNET and GDS at 11x and 14x FY26E EV/EBITDA respectively, compared to around 20x for global counterparts [1][8] - Price Objectives: The price objective for VNET is set at US$15.1, while for GDS it is US$50.0 / HK$49.1, reflecting a discount for lower profitability in the China business [7][17][19] Risks Upside Risks - Faster-than-expected growth in new wholesale orders - Quicker ramp-up in utilization levels - Supportive government policies for the data center industry [18][19] Downside Risks - Increased competition leading to lower service prices - Slower client onboarding - AI chip shortages due to further overseas restrictions [18][20] Conclusion - The China data center sector is poised for a recovery with improving demand and potential support for pricing. Companies like VNET and GDS are recommended as "Buy" due to their compelling valuations and growth prospects in the evolving market landscape [1][7][19]