GDS delivered strong FY4Q20 results with revenue and adj. EBITDA growth of 38% and 43% YoY respectively. The growth momentum in FY21E is expected to continue with adj. EBITDA growth guidance of +40% YoY. We like GDS long-term growth prospect given its strongest customer portfolio among China IDC (77% of total area committed contributed by cloud service providers). Maintain BUY.
- FY4Q20 in-line. GDS reported strong FY4Q20 results with revenue growth of +38% YoY to RMB1,632mn as area utilized rose by 45% to 226k sq m (71% utilization) despite 5.4% decline in MSR. Adj. EBITDA was at RMB758mn (+43% YoY), beating top-end of its prior guidance by 2%. Net loss widened to RMB299mn on higher effective interest rate at 6.9% due to one-off refinancing expense (vs. 6.4% in FY3Q20).
- Strong backlog to support FY21E +40% EBITDA growth guidance. GDS FY21E mid-point of guidance suggested revenue and adj. EBITDA growth of +37% and 39% respectively while Adj. EBITDA margin is guided to improve further by +1pct pts YoY. FY21E capex plan is at RMB12bn (+28% YoY with 30% of which related to M&A). Total area committed increased strongly at +52% YoY to 402k sq m in FY20 and this could suggest area utilized to grow at +40% YoY in FY21E as total area committed is the leading indicator to area utilized in 1.5-2 years forward.
- Raised FY21-22E EBITDA but net loss to widen. We raised FY21E revenue/ adj. EBITDA by 3%/ 2% respectively on 11% higher area utilized but 3% lower MSR. GDS targets a similar level of net additional total area committed in FY21E (vs. FY20 of +134k sq m of which 28k sq m from M&A) and will do RMB15bn new debt financing (incl. refinancing portion) to support organic capex/ M&A plans. As such, we expect higher interest expense despite GDS effort to lower effective interest rate (long-term target 5%). We believe net loss will widen in FY21-22E (vs. prior estimate that bottom line could turn profitable in FY22E).
- Maintain BUY. We continue to like GDS for its leadership in China IDC, ability to penetrate new customers (+Bytedance, PDD, iQiyi in FY20) and solid EBITDA margin improvement track record. Maintain BUY with new target price of US$123.34, based on unchanged 32x FY22E EV/EBITDA. Catalysts include new M&A, customer win and overseas expansion plan announcement.
