GDS reported in-line FY2Q22 results with adj. EBITDA growth of +19% YoY to RMB1.06bn. However, GDS guided down on FY22E revenue/ adj. EBITDA growth to +19%/ +14% (prior +22%/ +18%), largely due to 1) 45% of capacity originally scheduled for delivery in FY22E has been pushed back to 2023 and 2) utility price hike continues to drag margin. Meanwhile, GDS is setting up China Data Center Fund to de-stress its balance sheet. Trading at over 1-SD below three-year mean, we maintain BUY.
FY2Q22 in-line but growth in net area committed continued to slow down.
GDS delivered revenue growth of +24% YoY to RMB2,310mn in FY2Q22 as area utilized rose by 23% to 346k sqm. Total area in-service increased by +19% YoY to 504k spm. MSR declined -1.3% QoQ although utilization rose to 68.5% (vs. 67.4% in FY1Q22) as more edge of town capacity were being added. Adj.
EBITDA margin was 46.0% (-2.1 pct pts YoY), mainly on higher utility cost (30% of service revenue). As a result, FY2Q22 net loss widened to RMB388mn (vs. -RMB325mn in FY2Q21).
Guided down on FY22E with delivery schedule delay. GDS guided down
FY22E revenue and adj. EBITDA as delivery schedule is being affected by weak macro environment and recurrent pandemic. To quantify, 45% (38.8k sqm) of capacity originally scheduled for delivery in 2022 has been pushed back to 2023 or beyond. Mid-point of new FY22E guidance implied revenue growth of +19.3% to RMB9,325mn (-1.8% vs. prior guidance) and adj. EBITDA growth of +14.4% YoY to RMB4,240mn (-2.9% vs. prior) respectively.
Setting up China Data Center Fund to de-stress the balance sheet. GDS announced to have entered into a framework agreement with a sovereign wealth fund to form a China Data Center Fund. GDS and the Investor will commit US$1bn of capital to the fund (30% from GDS, 70% from the Investor) to acquire data center projects from GDS’s portfolio or third parties. For financial impacts, GDS will record one-off disposal gain and earns recurring management fee in the future. This could help GDS in capital recycling and de-stress its balance sheet.
Trading at over 1-SD below three-year mean. We largely maintain FY22 forecast but cut FY23-24E adj. EBITDA by 6-13% on slower move-in. Trading at over 1-SD below three-year mean, we maintain BUY with new target price of HK$33.96 (prior HK$44.55), based on lowered 16x FY23E EV/EBITDA.