Summary of China Data Centers Conference Call Industry Overview - The conference call focuses on the China Data Centers industry, particularly the domestic capital expenditure (capex) cycle related to artificial intelligence (AI) and data centers (DC) [1][2]. Key Companies Discussed - VNET: Expected to be a core beneficiary of the domestic AI demand due to strong landbank resources [1][2]. - GDS: Anticipated to benefit from rapid domestic DC move-in and increasing overseas DC deployment [1][2]. Core Insights and Arguments 1. Early Stages of Domestic AI Capex Cycle: - Rising AI and DC-related capex from domestic cloud service providers (CSPs) indicates the beginning of a domestic AI capex up-cycle, expected to last for 2-3 years [1][2]. - Anticipated GPU-derived AI demand is projected to reach at least 500MW in 2025 [2]. 2. VNET's Competitive Advantage: - VNET's strong landbank in Ulanqab and Huailai (over 1.5GW) positions it well to capitalize on the AI capex cycle [2]. - The company is expected to see a 25% CAGR in EBITDA from FY24 to FY26, outperforming regional peers [4]. 3. GDS's Market Position: - GDS is expected to experience a faster move-in and higher utilization rates, benefiting from overseas DC deployment despite limited near-term domestic AI demand [1][2]. - GDS's target price has been raised from US51.20, reflecting a 15x FY25E EV/EBITDA valuation [4]. 4. DeepSeek's Role: - The development of DeepSeek is enhancing cost efficiency and performance of small to medium-sized AI models, positively impacting VNET's retail business, which is projected to grow by 5% in FY26 [3]. 5. Valuation Metrics: - VNET and GDS are trading at approximately 12-13x FY25E EV/EBITDA, significantly lower than Asia/global peers averaging 25x/23x [4]. - VNET's target price has been adjusted from US16.10, while GDS's target price has been adjusted to US$51.20 [4]. Additional Important Insights - Utilization Rates: - GDS's utilization rate is expected to exceed previous highs, indicating strong operational performance [16]. - VNET's utilization rate is projected to gradually improve following significant build-out [23]. - Capex Estimates: - VNET is expanding its capex to capture AI demand, supporting a robust EBITDA growth trajectory [26]. - Revisions to Financial Estimates: - VNET's revenue estimates for FY24-26 have been revised upwards by 1.4% to 6.4%, with EBITDA estimates increased by 2.5% to 13.8% [34]. - GDS's revenue estimates for FY24-26 have been adjusted downwards, reflecting challenges in achieving previous growth targets [36]. This summary encapsulates the key points from the conference call, highlighting the dynamics within the China Data Centers industry and the positioning of VNET and GDS amidst the evolving market landscape.
China Data Centers_ Likely In Early Domestic Capex Cycle, Race Ahead, Buy VNET_GDS
2025-02-18 05:16