2Q24 Revenue grew steadily; overseas business grew strongly

World Data announced 2Q24 results. Excluding the one-time impact of 2Q23, 2Q24's total revenue increased 17.7% year-on-year to RMB 2.83 billion, up 8.6 pcts from the 1Q24 revenue growth rate, mainly due to improved supply and demand conditions in the domestic industry and strong growth in overseas business. Excluding one-time factors, 2Q24's adjusted EBITDA was RMB 1.312 billion, up 15% year over year, and the company's adjusted EBITDA profit margin was 46.4% (2Q23:47.6%). By the end of 2Q24, the billing rate for the company's operating area had risen to 73.3% (2Q23:72.1%). In the long run, given the company's steady expansion plan, we expect its 24-26 adjusted EBITDA of $5.046/5.856/6.848 billion, giving it 15.5 times EV/EBITDA for 24 years (comparable company average: 15.5 times), corresponding to a target price of HK$27.49, to maintain “buying”.

The domestic business supply and demand situation improved; the overseas business shaped the second growth curve. As of the end of 2Q24, the total operating area of the company's data center reached 630,963 square meters (up 18.8% year-on-year); the supply and demand situation of the domestic IDC business improved, driving the company's domestic cabinet utilization rate to 72.4%, and the unit price steadily rebounded to 2,088 yuan/square meter/month. The company is actively expanding overseas business. The IT capacity of the data center under construction and operation in Southeast Asia reached 385 MW, and the IT capacity of the reserve project reached 412 MW. In addition, the IT capacity layout of the company's data centers in Hong Kong/Japan reached 67 MW/36 MW, respectively. By the end of 2Q24, the company's overseas business had an operating IT capacity of 101 MW, generating 0.256 billion yuan of revenue and an adjusted EBITDA of 84.5 million yuan. The utilization rate of overseas data center projects reached 84.1%, and the unit price was about 135 US dollars/kw/month.

The 2024 performance guidance remained unchanged; domestic business capital expenditure gradually declined, and the company maintained the 2024 performance guide. The total revenue for 2024 is expected to be RMB 11.34 billion - RMB 11.76 billion (+13.9%-18.1% year-on-year increase), and the adjusted EBITDA is RMB 4.95 billion - 5.15 billion yuan (year-on-year increase +7.0%-11.4%). In terms of capital expenditure guidelines, the company expects capital expenditure for the full year of 2024 to be around 6.5 billion yuan, including 2.5 billion yuan for domestic business and 4 billion yuan for overseas business. In the long run, we believe that new applications such as AIGC will drive the IDC industry into a new boom cycle, and we are optimistic about the company's growth potential as a third-party IDC leader.

Optimistic about the company's long-term development; maintaining a “buy” rating

We expect the company's revenue for 2024-2026 to be RMB 11.56/13.2/15.03 billion, and the adjusted EBITDA forecast is RMB 5.046/5.856/6.848 billion, respectively. We are optimistic about the long-term development of the company. Referring to Bloomberg's consensus estimate in 2024, the average EV/EBITDA value can be compared to 15.5 times the company's EV/EBITDA, which is 15.5 times the 2024 EV/EBITDA, corresponding to the target price of HK$27.49. Maintain a “buy” rating.

Risk warning: 1) The growth rate of the cloud computing industry is weaker than we expected; 2) financing interest rates have risen; 3) market competition has intensified.