World Data announced 3Q24 results. The total revenue of the 3Q24 company increased 17.7% year-on-year to RMB 2.966 billion, mainly due to improved supply and demand conditions in the domestic industry and strong growth in overseas business. The adjusted EBITDA for 3Q24 was RMB 1.296 billion, an increase of 15% year over year, which is basically in line with Bloomberg's agreed expectations (1.295 billion yuan). The company's adjusted EBITDA margin was 43.7% (3Q23:44.7%).

We have observed that, driven by AI demand, the domestic data center industry is showing a continuous recovery trend. Overseas data center construction has maintained a high level of prosperity. The company is expected to benefit and maintain “purchases” as an IDC supplier with leading operating scale and leading overseas layout.

The domestic business listing rate continued to rise; the overseas business continued to be high. By the end of 3Q24, the total operating area of the company's data center reached 647,468 square meters (up 16.8% year-on-year); the supply and demand situation of the domestic IDC business improved, driving the company's domestic cabinet utilization rate to 73.6%, and the unit price stabilized to 2,034 yuan/square meter/month. The company's overseas business expanded rapidly, and its operating IT capacity increased to 103 MW, and the 3Q24 overseas business formed revenue/EBITDA 0.363 billion/0.097 billion yuan. The company expects the operating capacity of its overseas business to increase by 400 MW within 18 months, and the IT capacity of the reserve project will reach 412 MW. Following Malaysia and Indonesia, the company also became the first service provider to deploy large-scale data centers in Thailand. Furthermore, in view of the high prosperity of overseas business and the needs of contracted customers, the company raised it Capital expenditure guidelines for overseas operations to $8 billion in 2024.

The 2024 performance guidance remained unchanged; the international business received another 1 billion US dollars from the Series B financing company to maintain the 2024 performance guidance. The total revenue for 2024 is expected to be RMB 11.34 billion - RMB -11.76 billion (year-on-year increase +13.9%-18.1%), 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, in view of strong overseas demand, the company raised its capital expenditure for the full year of 2024 to around 11 billion yuan, including 3 billion yuan for domestic business and 8 billion yuan for overseas business. Corresponsibly, in order to accelerate its strategic layout in overseas emerging markets, the company is actively promoting the international business equity financing plan and planning a B-round equity financing of 1 billion US dollars. The company expects B3 financing to officially complete settlement by the end of 2024. In this round of financing, the valuation of the company's international business subsidiaries will increase by another 75% compared to the A round.

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

We keep our profit forecast unchanged. We expect the company's revenue for 2024-2026 to be RMB 11.56/13.2/15.03 billion, respectively, and the adjusted EBITDA will be 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 of 15.6 times the company's EV/EBITDA in 2025, considering that the shareholding ratio of listed companies in their international subsidiaries declined after Series B financing, they were given 13 times the 2025 EV/EBITDA, corresponding to a target price of HK$26.40 (previous value: HK$27.49, based on 15.5 times 2024 EV/EBITDA). 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.