2026-03-26 13:20Summary of Conference Call Notes on China Data Centres Equities Industry Overview - The focus is on the data centre industry in China, specifically companies GDS Holdings (GDS) and VNET Group (VNET) Key Points and Arguments Performance Divergence - GDS and VNET reported strong order inflows in Q4 2025, with GDS at 95 MW and VNET at 137 MW - Post-earnings, VNET's share price declined by approximately 10%, while GDS's increased by about 3% - The divergence is attributed to differing order expectations; GDS signed 200 MW of new orders YTD 2026 and has an additional 500 MW under MOU, while VNET did not announce new orders, leading to market disappointment [2][4] Growth Drivers - GDS is shifting focus from CPU to GPU demand, particularly for AI training and inference, with new land and a 3,000 MW power quota secured in Inner Mongolia, Ningxia, and Shaoguan - Expected adjusted EBITDA for GDS is projected to rise to 19% in 2027 from 7% in 2026 - VNET is also positioned to benefit from AI training demand, with a forecasted adjusted EBITDA growth of 21% in 2026 and 24% in 2027 [3][4] Capital Expenditure and Financial Position - GDS's 2026 capex is guided at RMB 9 billion, a 91% increase year-on-year, while VNET's capex is projected between RMB 10-12 billion, a 34% increase - Financing for capex is expected to come from project loans (55%), operating cash flow (25%), and REIT sales (20%) - GDS's pro-forma net debt to adjusted EBITDA ratio is 4.8x, while VNET's is 4.3x as of March 2026 [4][5] Valuation Metrics - GDS and VNET are trading at 15x and 7x 12-month forward EV/EBITDA, significantly lower than their 2021 peaks of 40x and 24x, respectively - Target prices for GDS and VNET have been raised to USD 70.50 and USD 14.50, respectively, reflecting a Buy rating for both [5][9] Financial Forecasts - GDS's revenue is projected to grow from RMB 11,432 million in 2025 to RMB 19,126 million by 2028, with adjusted EBITDA increasing from RMB 5,403 million to RMB 8,599 million over the same period - VNET's revenue is expected to rise from RMB 9,949 million in 2025 to RMB 16,049 million by 2028, with adjusted EBITDA growing from RMB 2,978 million to RMB 5,258 million [10][18] Risks and Challenges - Potential risks include failure to secure large orders, delays in finalizing the 500 MW MOU order, slower-than-expected capacity delivery, and increased competition affecting margins - A chip shortage could also hinder data centre utilization and order growth [32] Additional Important Information - The report emphasizes the strong growth potential in the AI sector, which is expected to drive demand for data centres - The financial health of both companies has improved due to previous deleveraging initiatives, positioning them well for future expansion [4][9]