On the evening of October 19, GDS Holdings Limited updated the post-hearing data set, including JPMorgan Chase & Co, Bank of America Merrill Lynch, CICC and Haitong as co-sponsors of the company's secondary listing in Hong Kong, according to the Hong Kong Stock Exchange.

Company profile

GDS Holdings Limited was founded in 2001, focusing on the development and operation of high-performance data centers.

According to data from iResearch Consulting,The company is the largest neutral third-party data center service provider in ChinaAccounting for 21.9% of operator-neutral market revenue market share in 2019.

From the client point of view, as of June 30, 2020, the company provided services to 673 customers, including very large cloud service providers and large Internet companies, a wide range of domestic and foreign financial institutions, as well as telecom operators and IT service providers, large domestic private enterprises and multinational corporations.Many are vertical market leaders in their respective industries.Including BABA, Tencent, Baidu, Inc., NetEase, Inc, Microsoft Corp, byte beat, JD.com, Meituan, DiDi Global Inc., Ping an Technology and other major cloud service providers and head Internet enterprises.

According to the financial data, the prospectus shows that from 2017 to 2019, the company's net income was 1.616 billion yuan (unit: RMB, the same below), 2.792 billion yuan and 4.122 billion yuan respectively.

The adjusted EBITDA in the same period was 512 million yuan, 1.047 billion yuan and 1.824 billion yuan respectively.As of June 30, 2020, the company's performance reached a new high, with net income of 2.583 billion yuan, an increase of 37.59% over the same period last year, and an adjusted EBITDA of 1.205 billion yuan, an increase of about 48.52% over the same period last year.

One of the core beneficiaries of the domestic cloud market

CITIC said in a research report that he benefited from the demand driven by cloud computing and the Internet.It is expected that the medium-term demand of the domestic IDC industry will remain strong, while the improvement of the market supply and demand structure and the downward movement of interest rates are also expected to promote the continuous improvement of corporate profitability.

GDS Holdings Limited is currently the largest third-party IDC manufacturer in China, with downstream customers covering domestic first-tier Internet and cloud computing enterprises such as BABA, Tencent and byte jump; the company also has shareholders such as STT, Hillhouse and Ping an, and has won domestic banks' intention to grant credit support of more than 20 billion yuan.

In the medium term, the expansion of resources, the improvement of shelving rate, the prominent effect of scale and the reduction of financing costs will continue to support the growth and profitability of the company.

CITIC saidContinue to be optimistic about the company's medium and long-term development prospectsGive the company a target price of $100 / ADR for US stocks, covering it for the first time and giving it a "buy" rating.

Domestic IDC Market: the Macro Environment continues to improve

CITIC believes that since the beginning of this year, with the acceleration of enterprise digitization, cloud process, and the further acceleration of online penetration of the consumer Internet, the global market has continued to increase its attention to the IDC plate, but there are still some differences in the medium-and long-term logic of the industry, mainly reflected in the long-term demand of the industry, supply and demand structure, market competition pattern and other aspects.

IDC industryDemand growthMainly affected byTwo core factorsImpact of:

1) online data traffic.There is a strict positive correlation between IT computing power and the growth of online data traffic, which also determines the scale of final demand for IDC.

2) technological progress.On the whole, technological advances, such as the improvement of server computing power, mean that under the same physical area occupation, the server can handle more data computing requirements and correspondingly reduce the demand for IDC.

At present, the global online data traffic is still in the rapid growth channel, but with the continued slowdown of Moore's Law, the short-and medium-term technical progress is relatively not obvious. Compared with foreign countries, the domestic market, as the region with the fastest growth of data flow in the world, lags far behind the stock scale of IDC in Europe and the United States, and the growth of domestic IDC market is still optimistic by the industry.

从Supply and demand structureSince the beginning of this year, a large number of traditional enterprises (steel, real estate, etc.) and private industrial capital are rapidly entering the IDC market, the imbalance between supply and demand structure, and questioning the core competitiveness of the IDC industry have become the most worrying areas of the market.

However, CITIC believes that based on the comprehensive consideration of domestic network topology, IDC resource constraints and other factors, IDC resources in first-tier cities are still persistently scarce, and a large number of new IDC supply in remote areas will not have a substantial impact on the supply and demand structure of the market.

Competition patternIn terms of downstream demand structure, cloud manufacturers and Internet giants have become the main source of incremental demand in the global IDC market. At the same time, relying on the advantages of scale and power consumption, super-large data center is gradually becoming the main development direction of data center.

In addition to the demand, supply and competition pattern of the industry, CITIC saidThe downward trend of market interest rates，Enterprise's own operational efficiency(PUE index), etc., alsoIt is expected to promote the continuous improvement of the profitability of the domestic IDC industry and major enterprises.

Company IDC: sufficient stock of core areas and sufficient reserves of new resources

By the end of 2020Q2, GDS Holdings Limited had 106500 cabinet resources (calculated according to 2.5m2 / cabinet), with an increase of 14500 in the quarter.The number of storage cabinets is far ahead of other third-party IDC enterprises in China.And about 90% of the resources are concentrated in domestic first-tier cities. At the same time, in terms of capital expenditure, which reflects the progress of the company's short-term expansion, GDS Holdings Limited plans to spend 10 billion yuan on capital in 2020, more than double that of 2019, and the scale of expenditure is far higher than that of other third-party manufacturers.

In addition, GDS Holdings Limited currently operates IDC project resources of more than 220000 square meters in China's first-tier cities, and reserves a lot of undeveloped resources in Beijing (65000 square meters), Shanghai (122000 square meters) and Greater Bay area (82000 square meters). In order toOther core areas represented by Chengdu and Chongqing are also the key layout direction of the company.At present, the company has a reserve area of 55000 square meters in Chengdu and Chongqing.

By the end of 2020Q2, the company's IDC operating area is 266300 square meters (+ 48%), the area under construction is 133200 square meters (+ 70%), and the reserve area is 323000 square meters.

Corporate performance: multiple factors support continuous improvement in profitability

CITIC said that as the largest third-party IDC manufacturer in China, 2020Q2 GDS Holdings Limited achieved 1.34 billion yuan in revenue, 99% of which was IDC revenue.The scale of stock resources and the volume of income far exceed those of other third-party IDC enterprises in China.

Growth characterOn the other hand, the company has maintained a compound revenue growth rate of more than 40% over the past four years.

ProfitabilityOn the other hand, with the gradual increase in the shelving rate of the project, the company's net loss has gradually narrowed. As the core indicator of IDC's profitability, EBITDA Margin rose to 47.2% in 2020Q2.It is basically close to the level of the global industry leader Equinix.。

Customer resourcesAt present, in the domestic market, cloud computing manufacturers and Internet giants are the main demand for IDC incremental market. CITIC believes that GDS Holdings Limited has reached a solid partnership with major domestic cloud manufacturers and Internet giants: as of 2020Q2, 71.8% of the company's revenue comes from cloud manufacturers and 17.1% from large Internet companies.A good customer base is expected to provide basic support for the company's medium-and long-term resource expansion and business growth.

Sales orderIn terms of the strong demand from downstream Internet and cloud computing manufacturers, 2020Q2 added 46500 square meters of contract area, of which 27000 square meters were signed internally and 19500 square meters contributed by M & A projects, a record high. The overall signing rate of in service projects remained above 90%, reaching 94% in the second quarter, with good sales. At the same time, the pre-signing rate of projects under construction is maintained at more than 60%.

CITIC said that taking into account the medium-term domestic cloud computing, Internet companies continue to strong demand, the company's sales data is expected to continue to maintain excellent performance.

Scale efficiencyOn the other hand, from 2015 to 2019, the per capita income of the company increased rapidly from 1.4 million yuan to 4.2 million yuan, and due to the cost dilution brought about by the scale effect, the per capita operating profit also climbed rapidly to 500000 yuan, which significantly diluted the corresponding cost. magnifies the growth of the company's revenue and profits.

Profit forecast

CITIC said that combining the above core judgmentIt is estimated that the company's operating income from 2020 to 2022 will be 77.398.3 billion yuan, corresponding to a growth rate of 38.0%, 35.9% and 27.1%.

With the gradual increase in the shelving rate of the company's projects, operational efficiency and profitability are expected to continue to improve.It is estimated that the company's gross profit margin from 2020 to 2022 will be 28.0%, 29.5%, 32.0%, and the adjusted EBITDA will be 26.3%, 36.5 / 4.83 billion yuan, corresponding to an EBITDA Margin of 46.3%, 47.2%, 49.1%.

Outlook for the third quarter financial report

Yesterday, China International Capital Corporation released a research report saying that GDS Holdings Limited has a sound multi-level customer base and continues to contribute to strong growth, while benefiting from the increase in the shelves rate driven by the growth of orders. GDS Holdings Limited's income is expected to continue to record double-digit growth in the third quarter of 2020, up about 40.6% from a year earlier.

In terms of cloud customers, leading companies such as BABA and Tencent will continue to release strong demand in the north, Shanghai and Guangzhou areas, and GDS Holdings Limited is expected to get 30% and 40% of orders; at the same time, after the introduction of byte jump and Pinduoduo two new customers in the first half of this year, the company has basically formed a sound core customer coverage system; it is expected that the company will continue to benefit from downstream digital upgrades in the next few years.

In terms of profit margins, China International Capital Corporation believes that GDS Holdings Limited's scale effect is prominent, and its adjusted EBITDA profit margin in the third quarter is expected to be about 46.0%, an improvement of 0.6% over the same period last year, mainly due to the improvement of operational efficiency driven by large-scale management and dilution of fixed costs.