2Q23 revenue is in line with expectations; adjusted EBITDA profit margin reached 50.0% GDS Holdings Limited announced 2Q23 results, 2Q23's total revenue rose 7.0% year-on-year to 2.47 billion yuan, in line with Bloomberg consensus expectations (2.478 billion yuan), mainly due to domestic and foreign major customers signing contracts and overseas expansion accelerated. 2Q23 adjusted its EBITDA to 1.235 billion yuan, up 16.3% from a year earlier, higher than Bloomberg's consensus estimate of 1.102 billion yuan. Due to the decline in seasonal costs and expenses, the company's adjusted EBITDA profit margin reached 50% (2Q22VR 46%). As of the end of 2Q23, the rate for the company's operating area has risen to 72.1% (2Q22PUR 68.5%). In the long run, in view of the company's sound expansion plans, we expect its 23-25 adjusted EBITDA to be 450, 50.5 and 5.79 billion yuan, taking into account the company's expansion potential in overseas markets, giving it 13.7 times EV/EBITDA for 23 years (comparable company average: 12.1), corresponding to the target price of HK $16.16 (previous value: 24.19), maintaining "buy".
The scale of business is expanding steadily; the overseas expansion strategy continues to advance.
By the end of 2Q23, the total operating area of the company's data center had reached 531216 square meters (an increase of 5.3% over the same period last year); the area under construction was 196702 square meters, an increase of 20.6% over the same period last year, with a pre-signing rate of 74.8% (2Q22VOV 64.1%). 2Q23 won two new large-scale orders, including a contract signed by a large Chinese financial institution in the GDS Holdings Limited Beijing data center of 3200 square meters, and a large Internet company's expansion of 3600 square meters in the Langfang data center. In the international business, the company officially opened its first project in Southeast Asia, and the company expects its computer room utilization rate to continue to improve in the second half of this year. At the same time, the company successfully applied for DC-CFA in Singapore and became the only data center operator with layout in Singapore, Malaysia and Indonesia.
Keep the 2023 performance guidance unchanged; AIGC is expected to drive the demand growth of the IDC industry to maintain the 2023 performance guidance. The total revenue is expected to be 9.94 billion-10.32 billion yuan (year-on-year growth + 6.6% Mel 10.7%) in 2023, and the adjusted EBITDA is RMB 4.43 billion-4.6 billion (year-on-year growth + 4.2% Mel 8.2%). In terms of capital expenditure guidelines, the company expects that capital expenditure for the whole year of 2023 will be about 7.5 billion yuan (2,022 billion yuan 11.27 billion). In the long run, we believe that new applications such as AIGC, the development of new technologies and the gradual improvement of the data factor market are expected to drive the demand growth of the IDC industry, and we are optimistic about the long-term growth potential of the company as a domestic third-party IDC leader.
Be optimistic about the long-term development of the company; maintain the "buy" rating
We estimate that the company's revenue in 2023, 2024, and 2025 will be RMB 11.33 billion, 12.85 billion respectively, and the adjusted EBITDA forecast will be RMB 45.0, 50.5, and 5.79 billion respectively. We are optimistic about the company's long-term development. With reference to Bloomberg's consensus expectation of 12.1 times the company's average EV/EBITDA in 2023, and considering the company's expansion potential in overseas markets, we give it 13.7 times the 2023 EV/EBITDA, corresponding to the target price of HK $16.16 (previous value: HK $24.19). Maintain a "buy" rating.
Risk tips: 1) the growth rate of the cloud computing industry is weaker than we expected; 2) the financing interest rate rises; 3) the market competition intensifies.