The results for the second quarter exceeded expectations, and the guidance remained unchanged for the whole year. In the second quarter of 2024, the company achieved revenue of about 2.826 billion yuan (RMB, same below), a year-on-year increase of 17.7%. The adjusted EBITDA was 1.312 billion yuan, an increase of 14.9% year-on-year. Our previous forecast was about 28.2% of 4.65 billion yuan, which is slightly higher than expected. The company maintains its annual performance guidelines unchanged. The annual revenue is expected to be between 11.34 billion yuan and 11.76 billion yuan, with a year-on-year growth rate of 13.9-18.1%, and adjusted EBITDA between 4.95 billion and 5.15 billion yuan, with a year-on-year growth rate of 7.0-11.4%.

China business: Benefiting from faster entry and maintaining steady growth. The company's China business achieved revenue of 2.58 billion yuan in the second quarter, up 8.9% year on year, and adjusted EBITDA profit margin increased 0.8 percentage points month-on-month to 47.8%. The new usage area in the second quarter reached a three-year high of 20,265 square meters, mainly benefiting from the faster entry speed of large Internet companies. By the first half of 2024, the company had put in use an area of 45,002 square meters in China, and is expected to invest an additional 32,433 square meters in the second half of the year to support the new demand brought about by the development of artificial intelligence. Furthermore, in China, the company is trying to launch a real estate investment trust with a data center as the underlying asset. Under the assumption that 80% of the shares are sold, the company is expected to reduce its debt holdings by 1 billion yuan, which will help the company accelerate deleveraging.

International business: Continued acquisition of large-scale orders and the launch of Series B financing. In the second quarter of 2024, the company received a total of 205 MW of capacity in its two parks in Johor, Malaysia, and recently signed a large-scale sales contract with a global technology company in Batam, further consolidating the company's leading position in the Southeast Asia region centered around Singapore-Johor-Batam. Management said that, benefiting from the spillover of demand from the US artificial intelligence industry, Johor is still in short supply, and the company is confident of doubling its international business within three years. Furthermore, in order to support the expansion of overseas markets, the company plans to complete Series B financing of 0.6-0.8 billion US dollars by the end of 2024 to reduce capital costs.

Maintain the purchase and raise the target price. We raised our 2024-26 revenue forecast to 11.51/13.31/14.89 billion yuan. The CAGR for the period was 14.4%, and the adjusted EBITDA forecast was increased to 4.85/5.39/6.1 billion yuan, and the CAGR was 9.7%. Considering the company's second-quarter results slightly exceeded expectations and its potential for expansion in overseas markets, we gave a valuation closer to our international peers and raised the target price to HK$20.18, corresponding to ~13 times the 2024 EV/EBITDA, maintaining the purchase rating.

Risk warning: 1) The data center launch rate falls short of expectations due to the slowdown in industry growth; 2) construction of new data centers is slower than expected; 3) Unexpected cost increases; 4) Customer behavior patterns have changed.