- Expect 30%+ revenue growth supported by 30-40% capacity expansion in 2022
- Negative impact of electricity price increase over-estimated by the market; environmental related regulations will benefit leading players
- Southeast Asia expansion a long-term catalyst; demand of 200MW+ from Chinese companies
- GDS (9698 HK) is our top pick for its well-positioned data centres in tier 1 cities and poten tial in Southeast Asia market
30-40% capacity expansion in 2022, leading to an average of 30%+ revenue growth for GDS, VNET and Chindata. Despite rapid capacity expansion, both GDS and Chindata have maintained high commitment rate (c.90%) and pre-commitment rates (60-80%), supported by strong demand from cloud service providers and new emerging wholesale customers like financial institutions.
Environmental related regulations benefit leading players. Power quota restriction could increase the barriers of entry in tier 1 cities and maintain the tight supply. The elimination of small scattered and old data centres in tier 1 cities due to strict power usage effectiveness (PUE) requirements could see more M&A opportunities emerge for leading players. We believe negative impact from potential electricity price increase is over-estimated by the market. Based on our sensitivity analysis, 20% electricity price increase would only lead to 2.4-5ppts decrease in EBITDA margin, depending on the pricing model for electricity.
Southeast Asia expansion overlooked by the market. We expect GDS and Chindata to announce more Southeast Asia projects in 2022 to serve 200MW+ demand from the Southeast Asia expansion of Chinese internet companies and cloud service providers.
GDS is our top pick. We prefer wholesale data centre operators as they ride on strong demand from cloud service provider and large internet companies with higher growth visibility. Our top pick is GDS for its pure wholesale business model, well positioned data centres in tier 1 cities and surrounding areas, as well as its growth potential in Southeast Asia market.
