Earnings Alert: 1Q22 results exceeded market expectations; lockdown impacts to continue in 2Q22
- Adjusted EBITDA grew by 21.9% y-o-y in 1Q22, higher than market expectations
- FY22 guidance and expansion target are unchanged
- Lockdown impacts on project delivery and customer move-in to continue in 2Q22
- Maintain BUY for its promising wholesale transformation, TP lowered to US$12.4
1Q22 results highlights
Revenue increased by 18.6% y-o-y to Rmb1,645m in 1Q22. Project delivery and customer move-in during 1Q22 were impacted by lockdowns in major cities in China. Total cabinets in service increased by 41.2% y-o-y to 79k, with net additions of 0.4k cabinets in 1Q22. Utilised cabinets increased by 28.1% y-o-y to 43k. Utilisation rate dropped 5.5ppts y-o-y to 54.5%. Retail monthly recurring revenues (MRR) increased by 1% y-o-y (-0.7% q-o-q) to Rmb9,301 in 1Q22.
Adjusted cash gross profit increased by 13.1% to Rmb685m, with adjusted cash gross margin contracting 2ppts y-o-y to 41.6%.
Adjusted EBITDA increased by 21.9% y-o-y to Rmb506m, with adjusted EBITDA margin expanding 0.9ppt y-o-y to 30.8%.
Net profit was Rmb91m in 1Q22, compared to a net loss of Rmb85m in 1Q21, with the swing coming from the increase in fair value of convertible promissory notes and foreign exchange gains.
Outlook
The company’s FY22 guidance for revenue and adjusted EBITDA remains unchanged at Rmb7,450m-Rmb7,750m and Rmb1,975m-Rmb2,125m, with midpoints implying 22.8% and 16.9% y-o-y growth respectively. The higher than expected adjusted EBITDA in 1Q22 was largely due to better operating cost control and a one-time other operating income. Management expects the margin to normalize in subsequent quarters.
Management has kept the expansion target of 14.4k-17.4k in FY22. There is no significant change for customer verticals from the retail side. The company expanded its wholesale capacity by c.16MW with 4 contracts in 1Q22, including an extended pre-committed order of 11MW from a leading social platform operator. As of the end of 1Q22, the company has 252MW wholesale capacity in service & under MoU. VNET recently exclusively partnered with People Data in Apr 2022 to build and operate People Cloud, serving local governments and SOEs’ need for cloud computing. The partnership demonstrates VNET’s solid government relationship and ability to serve SOEs.
Looking forward, project delivery and customer move-in in 2Q22 are still adversely impacted by lockdowns in major cities in China. We expect customer move-ins to recover in 2H22 when strict control measures are gradually removed.
We have cut our adjusted EBITDA forecasts by 2.6% and 4.1% for FY22 and FY23 respectively, as project delivery and customer move-ins would be adversely impacted by lockdowns in major cities in China. We project adjusted EBITDA to grow by 13.4% and 20.5% in FY22 and FY23 respectively. We maintain our BUY call on VNET for its steady capacity expansion and promising wholesale transformation. Our TP of US$12.4 is based on 12x FY22 EV/adjusted EBITDA (unchanged).