Conference Takeaways: Project delivery on schedule to catch rising demand
- Delivery schedule unchanged for three new data centres with sales in progress
- Data centre demand remains strong in Hong Kong
- Court of Appeal recently allowed SUNeVision’s appeal
- No intention to change the current dividend payout ratio
Salient points in management presentation:
1. Delivery schedule unchanged for three new data centres. MEGA Fanling was recently in service. MEGA Gateway (Tsuen Wan) is scheduled to be in service in 2HCY22, most likely around Sep to Oct 2022. Phase 1 of MEGA IDC (Tseung Kwan O) will be ready for operation in 1HCY23.
2. Court of Appeal allowed SUNeVision’s appeal against HKSTP. The Court of Appeal has directed Hong Kong Science and Technology Parks Corporation (“HKSTP”) to reconsider SUNeVision’s complaints regarding the subletting of operators inside HKSTP, in accordance with the meaning of the Occupation Restriction in the Lease Restriction Policy. HKSTP could further appeal by the end of Jun 2022. Otherwise, there will be three possible outcomes, which are (1) HKSTP to ask the data centre operators to cease operations, (2) HKSTP to pay up the premium for the land, or (3) court to apply the Grandfather clause. The customers inside these facilities are aware of the potential compliance issues, which could benefit the data centre demand for SUNeVision.
3. No intention to change the dividend policy at the moment. The company does not have any intention to change the dividend payout ratio of c.100%, as clarified during the 1HFY6/22 results announcement. The company has ongoing discussions with stakeholders regarding the interest rate hike.
Three key questions
1. What is the data centre demand outlook in Hong Kong?
The connectivity and hyperscale demand are the main drivers. The COVID-19 outbreak has boosted the connectivity demand in Hong Kong, which has benefited MEGA-i (Chai Wan) and is highly likely to benefit MEGA Gateway. The hyperscale demand is driven by increasing cloud adoption from enterprises. Overall, management is bullish on the future demand, which could benefit the three new data centres.
2. What is the latest sales progress for the three new data centres?
MEGA Fanling has been 100% pre-committed by a single cloud customer and the data centre has recently started operation. Based on the latest disclosed number, MEGA Gateway is 35% pre-committed by several customers. Phase 1 of MEGA IDC has received firm interest from several cloud service providers and pre-commitment discussions are on track. The company might further disclose the updated sales progress during the FY6/22 results announcement.
3. How will the development of cable landing stations benefit the company?
SUNeVision has launched its first cable landing station in Chung Hom Kok and will develop a second one nearby, which are only carrier-neutral cable landing stations in Hong Kong. The two cable landing stations, which will also be bundled with MEGA-i and MEGA Gateway, are well-positioned for the new international subsea cables landing in Hong Kong, strengthening SUNeVision’s position as a leading Asia connectivity hub. The development of cable landing stations does not need massive CAPEX.