Q4 2022 GDS Holdings Ltd Earnings Call
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Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Limited fourth quarter and full year 2022 earnings conference call.
At this time all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded.
I'll now turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.
Thank you Hello, everyone welcome to the fourth quarter and full year 2022 earnings conference call of GDS Holdings limited. The company's results were issued today use why services earlier today and are posted online.
Summary presentation, which we will refer to the conference call can be built and downloaded from our IR website at investors GDS services don't know.
Leading today's call is Mr. William Huang GDS, founder Chairman and CEO will provide an overview of our business strategy and performance Mr. Daniel GDS CFO will then review the financial and operating results. Please Jamie cool. Our COO is also available to answer your questions before we continue.
Please note that today's discussion will contain forward looking statements made under the safe Harbor provision of the US Private Securities Litigation Reform Act of 1995.
Looking statements involve inherent risks and uncertainties as such the company's results may be materially different from the views expressed today.
Other information regarding these and other risks is included in the company's perspective prospectus as filed with U S. S E C.
Company does not assume any obligation to update any forward looking statements, except as required under applicable law.
Also note that Gds's earnings press release, and this conference call include discussions of audited GAAP financial information as well as unaudited non-GAAP financial measures.
GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.
I will now turn the call over to GDS founder Chairman and CEO William Huang. Please go ahead with them. Thank you.
Hello, everyone. This is William Thank you for joining us on today's call.
Despite the challenging environment, our business continues to deliver solid results in 2022.
Grew revenue by 19% and adjusted EBITDA by 15% year on year.
We won significant new business in China.
While at the same time adjusting our development program to the current pace of growth.
We accelerated our international expansion.
Notable success.
And on the funding side, we took steps to access new sources of capital and strengthen our financial position.
Entering compete with these three we're looking forward to a recovery.
Customers are more positive about their business outlook.
When their business pick up it will flow through to us quite quickly.
We could we could see this happen over the next few quarters.
Meanwhile, we are continuing to strengthen our.
I appreciate it and our finances.
Looking further ahead.
Fundamentals for our industry remain very strong.
On one hand.
And the other new technologies are driving waves of demand.
On the other hand.
Data Center supply, China, China tier one market is gradually become more constrained due to the limitations.
Lynn and Pablo.
As market conditions improve we are well positioned to outperform with our customer relationships contract backlog and established asset basis.
In 2020 to $1 74000 square meters or 178 megawatts of net new bookings.
All of which was for our organic data center developments in tier one markets.
A big highlight was our.
64 megawatts.
Joel.
Yes.
With significant contribution from the international.
Our full year bookings were up to the level of the past few years.
This highlights the importance of our strategy to follow the customer.
Volatility can be street, we are targeting a similar level of new bookings.
Which is once again a significant contribution from international.
In <unk> 'twenty, two we went to new larger Hyperscale orders.
<unk> is the first order for our new campus.
Schenker in landfall copay properties there.
The order is from large internet companies, which is which is migrating from our downtown sites in Beijing.
Customer is locating too.
F 15, and the two one of our other campus in long form.
BJ.
<unk> phase II is the second six months.
<unk>.
Development.
Our greenfield sites.
The <unk> district.
<unk>.
The other is from first most of the.
Time large internet customer in their recruitment sector.
This way.
Typify.
Our strategy of matching resource inventory with high potential customers.
The new commitment come with confirmed moving schedules.
Over the past three years, we have made a significant progress with new customer wins and the diversification.
Large internet companies accounted for 63% of new bookings in <unk> and.
As compared with 23% in <unk>.
Enterprise and our financial customers.
Average it averaged around 20 or 20% of new bookings.
Sure, how we have been able to evolve our strategy to capture growth from the different customer segments and different locations.
Customer moving in 2022.
Affected by the Lockdowns and other macro factors.
Going forward, we are focusing on customers, who can commit to fast moving schedules tipping.
Typically large internet customers moving faster than car customers.
Some of the larger Internet orders, which we won in 2022 have related and Relatedly shot more peak periods.
Has that moving rates could pick up.
These new contracts.
Towards the end of this year.
We have a large backlog totally totaling 260000 square meters nearly half of it related to data center, which move being ready.
This gives us high visibility for future growth with reduced capex.
So adjusted to the current environment, we have slowed down our capacity expansion.
It can be it can be too.
We brought 28 southern square meter speed us into service.
Integrated discrete we print a bit.
Bring a further 58000 square meters in service.
All of them.
So there's 33500 square meters in mainland, China, and attentive for southern 500 square meters internationally.
Going forward, we will target to reduce the lead time from investment to a customer will be.
Looking beyond our current construction program.
Over 300000 square meters of area held for future development in mainland, China, which can support multiple years of future demand.
Is it mainly consists consist of land and a powerful campus type development after the location.
In National Harbor market.
Our pipeline aligns with governments Easter data west the computed policy.
This is a valuable resource which will give us.
Significant competitive advantages as supply becomes tight become tighter in year ahead.
All of the resist priorities directly to execute a further strengthening our strategy, our strategic market position and improving our operating and financial efficiency.
The initial phase of our international expansion is folks folks to our Hong Kong as the region regional hub for greater China and.
And the Singapore Jehol pattern as the regional Harbor for Southeast Asia.
Two hubs ranked among the 10 data centers, they're 10 largest data center market globally.
By leveraging our whole market customer relationships.
Cost advantages from our prefab product and the proven execution capability in Hyperscale development.
We can accelerate the delivery to our customers and the rapidly established a market leading position.
Our first self developed a data center in Hong Kong will enter service in the next couple of months.
We have secured anchor customer commitments from leading China, and a global cloud service providers.
One is the first in a multiyear development pipelines of fault purpose built data center.
Cost.
An ideal location for serving both Hyperscale and enterprise customers.
From a cost position.
As the primary Gateway network connectivity.
Between China, and the rest of the world assures its long term positions as the data center hub.
<unk> put together a unique step up assets ideally suit suited to meeting new waves of demand.
We are making great progress with both land acquisition and the customer commitments in southeast Asia.
In general we are constructive.
Constructive three data centers for delivery later this year and early next year.
We're going from break breaking ground to deliver up 64 megawatt over five quarters.
We have applied all secured.
Options over the <unk>.
Over the adjustment.
Sites to enable us to scale up in.
In the next few months.
<unk> received an additional order, which would take us to nearly 100 megawatts of commitments in Japan alone.
For existing projects.
Priorities are to win further orders for <unk> in the background.
Build up our location local management team and delivered the initial capacity.
At the same time, we aim to establish new projects in parallel Pope Jakarta, and other new markets in southeast Asia and beyond.
While we our position in mainland China as well step for years to come.
We believe that GDS international can become a significant second growth engine.
No I will not I will now pass on to Dan for financial and operating review.
Thank you.
Starting on slide 22, where we strip out the contribution from equipment sales.
The effect of FX changes.
And for Q2 'twenty to.
Service revenue grew by one 5%.
And underlying adjusted EBITDA was slightly down by one 2%.
For one quarter.
For FY 'twenty two.
Service revenue grew by 19, 2%.
And underlying adjusted EBITDA grew by 14, 5% year on year.
Turning to slide 'twenty three 'twenty four.
Service revenue growth is driven mainly by delivery of the committed backlog.
Net additional area utilized <unk> 22.
Around 10700 square meters.
Around 7950 square meters was in tier one markets.
The remaining 2700 square meters approximately was from POC projects.
Net additional area utilized for FY 'twenty two was around 51000 square meters.
Around 29000 square meters was in tier one markets and the remaining 22000 square meters approximately from PLT projects.
For FY2023 we expect additional area utilized net churn.
To be similar to the levels seen in FY 'twenty two.
Around 50000 square meters of net adds.
Yeah.
We disclosed on our last earnings call.
One large internet customer.
We'll move outs about downtown data centers in Beijing.
As a result, we.
You will recall, a 17000 square meters of churn spread across the first three quarters of 2023.
We have already won more than 17000 square meters of new commitments from this customer for two sites in line with plan.
They will start to move into new sites.
223.
I was wondering you mentioned towards the end of the year. We will also start to deliver some other new contracts with fast to move into schedules.
The cadence would move in FY 'twenty, three will be quite heavily weighted to the packet.
The good news is that a pick up later this year will feed into FY 'twenty for growth.
Monthly service revenue per square meter was RMB two 194.
<unk> 22.
Paired with RMB two to three seven for the previous quarter.
A decline of one 9% quarter on quarter.
Over the course of FY2023.
We expect MSR per square meter.
To decline by around 4%.
Comparing <unk> to 'twenty three with <unk> 22.
This forecast decline is mainly due to change in location mix, including further potm movement.
Turning to slides 25 and 26.
<unk> 22.
<unk> adjusted gross profit margin.
Lightening up on the prior quarter at 59%.
While our underlying adjusted EBITDA margin was down 44%.
But FY 'twenty two.
Underlying adjusted gross profit margin.
It was 51, 2%.
Compared to 53, 3% in FY 'twenty one.
And our underlying adjusted EBITDA margin was 45, 6% compared to 47, 5% in FY 'twenty one.
The margin decrease was mainly due to elevated power tariffs.
Last year.
Which we estimate about two five percentage points of our margin.
And growth track from international expansion of around a third of one percentage point.
The midpoint of our guidance for total revenue and adjusted EBITDA implies an adjusted EBITDA margin for FY2023.
Which is similar to levels seen in <unk> 'twenty two.
We have assumed no reduction in power tariffs through the course of this year and continuing growth from international expansion.
Turning to slide 27.
2022 was a transition year in terms of bringing down our capex in mainland China on the one hand I think.
<unk> international investments on the other hand.
Our organic capex in mainland China was around $5 8 billion RMB for FY 'twenty two which.
Which is a few billion dollar.
Past couple of years.
International Capex was 2 billion RMB.
Acquisition Capex was around $3 5 billion RMB.
We are guiding to total capex in FY2023 of around seven 5 billion RMB.
Uprising, a further reduction to $3 5 million RMB for mainland China.
<unk>, two 4 billion RMB three internationally.
Replacement Capex included in the mainland China number is running at around 200 million RMB in 2023.
On slide 28, we provide some further phase points relating to capex.
Starting with mainland China.
At the end of 2022.
Around 152000 square meters under construction.
The total cost to complete this capacity is RMB seven 4 billion.
Which we expect to incur over the next three years.
With this additional expenditure.
Total capacity and service will increase to around 667000 square meters.
Sufficient for us to grow billable area by around 71%.
As you can see a relatively small amount of incremental investment is required to support large amounts of growth because much of the investment has already been incurred.
Turning to international.
Our total cost to date for the five data centers under construction in Hong Kong and Joel totaling over 100 megawatts is RMB, four 1 billion or U S dollars $590 million.
The total cost to complete is RMB three 4 billion.
<unk> dollars $490 million.
Looking at our financial position on slide 29.
At the end of 2022 net debt to last quarter annualized adjusted EBITDA ratio.
Eight zero times on a consolidated basis.
If we exclude the debt of the international business.
Net assets to our cash.
Our net debt to last quarter annualized adjusted EBITDA.
Ratio was seven one times.
If we further exclude capital work in progress for our construction program and mainland China.
Our net debt to last quarter annualized adjusted EBITDA ratio would've been 5.0 times.
Our effective interest rate for FY 'twenty to drop to four 7%.
Over the course of 2022, we maintained our cash position and ended the year with $8 6 billion RMB one throughput in U S dollars of cash on our balance sheet.
In accordance with our Treasury policy.
We put cash on deposit with banks.
Which are investment grade rated and pre approved by our board.
In addition, we hold cash and equity and debt service reserve accounts as required by our project financing facilities.
We previously had a small amount of cash and accounts with SPP for short term operational purposes.
As of today this amounts to $2 million, which is in the process of withdrawal.
Turning to slide 13.
In January of this year, we raised $580 million gross proceeds.
I assume maybe new CB with seven year maturity.
We have subsequently repaid.
$150 million of working capital items.
In June of this year, we expect to repurchase 300 million U S dollars.
With an existing CB when it should approach.
As a result, we will have almost no debt repayable at GDS holdings level until 2020.
The debt, which is repayable over the next few years.
So I think northern term project level loans.
We refinance on a regular basis.
On slide 31, we provide some more color on current year funding requirements.
Starting with mainland China.
We expect our operating cash flow to be around one 5 billion RMB to FY2023.
And as I mentioned organic capex to be around $3 5 billion R&D.
Negative free cash flow before financing.
Around $2 2 billion RMB.
We aim to fund this gap using a combination of project debt and asset monetization.
At the end of 2022.
We had RMB eight 5 billion committed but undrawn project facilities.
Non China.
We have recently obtained regulatory clearance for our offshore Chinese data Center fund.
We expect to sign the limited partnership agreements and the sale and purchase agreements for the first stage center asset shortly.
The net cash proceeds will be approximately 145 billion RMB after deducting, our 30% capital commitment to the phone.
We will have the option to do more such transactions to release equity if we choose to do so.
We are also to the process assigning a formal framework agreement with a leading Chinese insurance company for onshore version of the China Data Center Fund.
Over the next couple of years, we expect our operating cash flow for mainland China to increase while capex remains at similar levels to the guidance for FY2023.
Hence, we expect to become free cash flow positive.
For mainland China within three years.
Turning to international.
As mentioned previously we expect total Capex for international a 4 billion RMB for FY2023.
We expect to finance 50, 50% of this say 2 billion RMB or 290 million U S dollars with project debt.
For the balance we are evaluating a number of options for raising equity at subsidiary level, including private equity at our international Holdco level.
And by bringing in local partners at country, Holdco or project Holdco level.
Turning to slide 32.
For the full year 2023.
We expect total revenues to be between 994 billion RMB.
To 10, three 2 billion RMB.
Imply a year on year increase of between approximately six 6% to 10, 7%.
We expect adjusted EBITDA to be between $4 four 3 billion RMB four 6 billion R&D, implying a year on year increase of between approximately four 2% to eight to eight 2%.
In addition, as.
As previously mentioned, we expect capex to be around $7 5 billion RMB for the full year.
I'd now like to open the call to questions operator.
Thank you if you would like to ask a question over the phones. Please press star one and one on your telephone and wait for your name to be announced until mature. Your question you can press star one and one again.
All participants on today's call. Please limit yourself to one question and if you do have more questions. Please re enter the queue.
And we'll now take our first question.
Please standby.
First question is from the line of Jonathan Atkin from RBC. Please go ahead.
Thank you so.
So my question was mainly around southeast Asia.
And wondered if you could maybe talk a little bit about where you see relatively greater challenges to develop the capacity.
Core versus versus the baton.
As well <unk>.
Virtually in those markets.
Setting aside kind of the initial customer discussions that you've had in commitments.
Commitment that you have in your core.
What are the prospects for those markets to serve.
Sort of Singaporean requirements are acted a greater kind of Singapore availability zone versus serving kind of domestic and regional demands on a standalone basis in other words, how how tightly coupled do you see Asian demand and maybe prospectively western demands.
Dror.
Tom.
With respect to kind of a Singaporean.
How tightly coupled that with Singapore versus the other.
On their own it so.
Hubs. Thank you.
Yes.
Hi, Jonathan.
Ill start with the second part of your question.
And the way, we view the Singapore market.
The surrounding areas.
As a proxy for the southeast Asian markets.
The majority of the data center capacity in Southeast Asia is concentrated in and around Singapore and a large part of that is there to serve the region not just Brazil.
Singapore.
When we look at the situation in Singapore is well known because of the.
Historic.
Moratoriums since 2019.
Developable capacity in Singapore has largely been built out.
And what we've seen from third party market research is the utilization rate for capacity in Singapore has gone to.
Low to mid 90, percents, which is.
More than full.
And industry terms.
The Singapore government is going through a process they may allocate.
Some additional quota to allow some growth in Singapore will be.
That's really going to address a very small part of the incremental demand. Therefore, as we've seen in other markets, where we have a presence like Beijing, Shanghai, Shenzhen and so on.
The excess demand.
Will spillover and.
So we believe that it will spill over to Jojo and platform, we think they will both be.
Vibrant high growth large scale data center markets, we think that.
If you look at it from the perspective of how the.
Hyperscale customers, particularly cloud service providers deploy they need the diversity.
Get them to their patients and I think having options on both sides of the Singapore is.
Operationally very beneficial.
Uncertainty.
Pace of development.
I think we are.
Went out on our own in terms of making commitments to close to home and whatnot.
Frankly, I think we leapfrogged.
Many other players in doing that.
I think that having that dual fuel.
Our strategy will give us a marketing edge.
Solution that others cannot offer.
So far what we've seen is that true.
<unk> has taken off a little faster.
Primarily because of the existing infrastructure that I'm talking about power infrastructure and network productivity.
Productivity.
We are very confident that.
At the time was coming and maybe one year or so.
Behind.
We've been talking to the government and the Singaporean government, Indonesia, there's a very strong commitments to making autonomous successful location for data centers and.
Yeah, we.
We are happy to be a pioneer.
And the next few quarters, we'll be able to I think make progress in solving.
Solving some of the basic infrastructure challenges.
Even if it necessitates investing and submarine cable networks ourselves too to kick start that and then I think the market will start to complement.
Thank you if I could just ask a brief follow up inside of China can you talk a little bit about customer availability.
Obtaining servers are there supply chain constraints that are affecting their ability to procure equipment and ultimately move in and with respect to central Beijing, what are your prospects for re filling that capacity with other demand.
Yeah.
I think.
I think in China.
Yes.
As I mentioned <unk> is transitioning for China business.
But based on the in last couple of weeks.
Came back to China, and the visit a lot of governments and our customers as well I think.
Try to encourage the bite of our customers, especially the large internet.
Cost service provider.
Based on our current pipeline I think the demand we can see the leading indications pipeline I think it is very strong.
For the cloud.
When when I visit the cloud service providers. They all very ambition steel and I think they are they are the kind of maybe slightly a little bit later than that.
All the Internet company and financial institution.
If you come to China, I think I see the splits of tube.
Plus the two month the leading.
Data of which.
The consumer data rebound very fast.
Is it the leading indication the order.
Sure.
We'll.
Catch up at the camera, but still need time I think.
So in terms of the.
Tier one market or the resource I think we are very confident we have just a very limited inventory right. So I think this is very very valuable asset.
I believe and are confident we will sell them easily.
This year. So this is a question.
Thank you.
Thank you.
Well now take our next question.
Please standby.
Yeah.
This is from the line of Yang Liu from Morgan Stanley . Please go ahead.
Thanks for the opportunity to ask questions.
I have two questions here the first one answer regarding the demand.
Thanks.
It is one of the reasons to see divergence.
Demand from cloud and the Internet companies that a lot of big Internet companies are moving away from public cloud. So if we combine the cloud and internet together.
When do you expect to see that.
The overall demand recovery.
Oh, yes.
Or put it another way.
<unk> full year kind of what is.
Assumption of demand recovery behind it.
And then my second question is.
Uh huh.
Competition.
Are you seeing more or more competitive.
Bidding or of a.
Price from Chinese telco in front of your big customer.
Thank you.
Okay.
I'll answer your first question I think in general I think.
We just we just mentioned.
The structure of the new bookings is that changed.
Looking at last year last two years right, we used to be leading the by the or 90, almost 85% or 90% incremental demand from the cloud service provider.
This year last year.
Almost zero.
Zero from this.
<unk> has provided so we still reached it.
78000 square meters.
This is all from the structurally changed to the Internet plus enterprise. So we still maintain this.
Assumption for our Dcs new bookings so we just wait.
Carl.
<unk> recovered that that's for upside.
So that's that's the profile.
Our country, what do we make.
Okay.
Yep.
You asked about what was the assumption.
And our guidance and our business plan.
So I think the key the key driver of revenue and ultimately of EBITDA has been moving.
I mentioned that we have.
Sure.
Yeah, we're expecting over the full year moving to be about 50000 square meters. So we have some.
Exceptional churn keep talking about it but if you add that back.
As you can see that the move in this year will be over 60000 square meters, which is around.
<unk> 15000 square meters plus.
Per quarter, which is.
A little higher the last few quarters, but similar to what it's been over the last six or eight quarters. So that doesn't really imply much of a recovery.
One of the factors, which is behind that number is.
As we mentioned a few contracts, which start delivery in around September October November December .
Have.
Faster than typical move in schedule some of it could be quite front ended.
Which means that we may see quite a bit of moving towards the end of the year.
January of next year.
For the full year number without really boosting the revenue much this year, but it does set up I think for potentially a good good rates year on year growth in 2020.
2024.
I know you under I I want to add one more point I think.
The focus for the new booking 75000 square meters in our new guidance. This is all organic.
Organic historically when we.
When we reached a 990000 square meters, including lab acquisition right. So this is a still very high level compared with the.
All the other global.
Top top player steel.
Bigger than that.
Most of you.
Data center in the World.
I think we provided some disclosure as well.
Okay.
In terms of the competition from the telco I think KEPCO.
Yes.
Our strategy is.
Tier one market.
We built out all of our asset in a tier one market or adds up to top the tier one market visits.
This is I think in the last there's nothing changed in terms of subscriber telco still less investment in this region right. So I think we're not worry about it.
On the other hand, we don't compete directly they also our customer I think we have very good relationship with our work with the <unk> telco.
Net loss of 10 years, so recently.
And then I mean, a few tentacles came to us and try to.
Discuss some completions.
Because they also did probably the top service.
Deposit service in timber market.
Some of them won't want to deploy car service in tier one market.
Definitely <unk> will be the.
We'll be the first choice for them to partner with otherwise no.
No possibility to two provided that they have cost savings in this city.
Yes.
Okay.
Okay. Thanks, a lot for the answers.
Thank you.
Well now take the next question.
Please standby.
Yeah.
This is from the line of Harry <unk> from Jpmorgan. Please go ahead.
Yes, hi, Thanks for taking my question first.
Could you talk a little bit about what are you hearing in the last couple of months I believe I think you mentioned some excitement.
But typically on the cloud side.
A significant part of your.
Backlog, if you think about the.
The next couple of years.
I'm starting to see utilization pick up in their existing infrastructure that they need to know from reading. The movement are you being the cloud acceleration.
Going to take.
Let me be more time.
Secondly, also on the.
EBITDA.
Brent.
We have seen some.
EBITDA because of power club.
I think mix related.
Yes.
Do we see the guidance that we gave for FY2023.
Kind of like the sustainable level amongst EBITDA didn't know and we think there could be further pressure.
Our international business comes online in 2020 and.
And beyond.
Yeah.
Hello this.
This is when I say in subsidy or cloud service provider I think number one the all making new business plan right now based on the currency.
Environment.
The this is it.
Our previous there are a lot of overhead.
In China like.
Lockdown policy now is call it move up and I know there is a new new new government et cetera, all the audience.
Our structure and.
All of the platform.
A couple of times statements to support the platform and the social media as a private company.
Support their growth.
Continued growth in China, So I think that our customer also incur.
Encouraged by the current environment, so they made it.
They should or Shouldnt made and they are making a new business plan right now in general I think that based on my composition with our largest customer went out top topsy customer. It all very encourage it I think in terms of business plan definitely will boost in the next in the next few quarter, but in terms of moving.
There is a lot of that effect.
Effects to impact moving in terms of shipment in terms of bad debt.
Previous they still have the inventory right. So I think in general I think the Skus, that's why we still very conservative.
Assume a cloud service provider moving.
<unk> still maintain.
A solid level.
New chip level not aggressive so it's normal so I think the.
But given the given the whole environment looks like it will improve in the next few quarter.
Yeah.
Gone too.
Adjusted EBITDA margin.
I feel like this year's margin is probably the trough.
So it does depend on several.
Different drivers.
One of course is pricing.
So that's another topic for discussion, but we feel like pricing.
And.
There's a set up which could see pricing recover in future years.
Secondly, the power tariffs.
Uh huh.
Yes.
Input fuel costs have started to come down, but we haven't seen that reflected in power times yet.
Even if it is reflected it will benefit us this year.
It could benefit us in future years.
And Chinese government policy.
So it's not to say that.
With government, which is to see powerhouse.
Come down as it was there.
Inflammation historically the tendency historically.
And then the third part is international.
I believe we are creating.
Significant value, we will create significant value in future.
At the moment is EBITDA negative.
I think it will be.
EBITDA breakeven.
In the first half of next year, but thats too.
On the margin.
So it will take until.
Our 2025 before the EBITDA amongst the international sales in the 30% right.
<unk> will persist for some time I think for forecasting purposes, maybe just.
She is a trough in that slide.
The slight step up over the next couple of years.
Yes.
Got it thank you.
Thank you.
We'll now take our next question.
Please standby.
Thank you from the line of Frank Louthan from Raymond James. Please go ahead.
Great. Thank you could you comment on the state of the market cap.
Capital recycling and the appetite for those assets.
Same or better or worse than when you originally sort of put this plan together and.
And I apologize if I missed this quad.
Quantify the amount of capital recycling you expect June each of the next few years.
Capex is still at a low for Capex. This year. Thank you.
To start with.
Number three what I should.
First.
In 2023.
<unk>.
Free cash flow before financing is negative.
Hi.
Ours is around.
Just over $2 5 billion.
And.
Some of that can be financed by drawing down on <unk>.
Finance facilities.
And then the remainder.
Needs to be financed with our capital.
Uh huh.
Having done that convertible bonds in January .
We go ahead and.
Repurchase.
The CBS as possible.
On a net basis, we increased our financial resources.
So I think pro forma we have around 9 billion RMB cash.
So that is available to be allocated to China to be an occasion to international if we choose to do so.
We try to prioritize.
Raising additional capital recycling capital at the country level.
And before we take it out.
Our cash.
In China, if we assume that the target for this year is to recycle around one 2 billion.
RMB.
We are already 10 months down the road of working on our onshore and.
Offshore China adjacent to fund.
We got regulatory approval.
Signs of limited partnership agreement, we also signed the sale and purchase agreement for the firm.
<unk> asset to be transferred to that fund and that.
We'll realize cash.
Cash proceeds to us net.
To fund the $1 5 billion for five full five days.
So that goes with substantial way to fulfilling whatever requirement we have this year.
I think the chances are that next year the requirement will be similar if not less because operating cash flow was going to increase and capex I didn't expect to be higher it might be lower.
Uh huh.
Negative.
Cash used for financing might be smaller.
I think it's very challenging for us to do monetization.
It was scale.
Substantial amounts of our capacity in this offshore China adjacent funds to do more deals.
We've been working for some time.
Sure equivalents.
Now in the process of signing the formal term sheets.
Framework agreements.
So it has been.
Gentrified and initial diligence online by the Investor.
Which would also recycle at least 200 million RMB or additional capital.
And then just looking more.
Broadly.
The REIT market in China is beginning to really.
Take shape as well so a lot of interest we're being approached continuously.
Hi.
Hi, Chris.
Looking to structure looking structure.
Evolving data center assets.
I think some asset classes charts, a lot of interest in China.
I think for the China reached market regulations, it's really designed for stabilized assets with these funds we made the decision.
Suited our purposes to focus on people.
Projects that were still.
Underdevelopment de risked to a degree but.
Under development.
But that could be a stepping stone.
Towards virtually being able to access the REIT market. So I think we are.
Very comfortable I think discovery.
Profitable anymore than having potentially.
On offshore or onshore and a lot of banks chasing those predictions.
So actually in April .
Yeah.
Okay, great. Thank you.
Thank you, we'll now take our next question.
Please standby.
Okay.
This is from the line of Joe Yang from Nomura. Please go ahead.
Oh, hi, Thank you for taking my questions I have just one quick one question about the China market. So we are seeing.
Latest news about AI technologies constantly too.
So could we actually see any.
Ensuring a demand driver market.
And we expect that yes that makes sense as well.
With outsourcing.
Companies like GBS pathways are for some of the cloud company. If you go to the south.
Self building things that will be all sorts of there'll be something thank you.
Right.
Turning to clinical trials.
Yeah, I think you're right I think they're now everybody focused on the chaps TTP right, but then the forget it in China. This is already a lot of the big.
Prayer already start to use it gets used AI AI is also very hot topic in China and we also believe this will be the new will drive a new wave of the demand and the debt definitely GTS our product our location all fit AI type game.
In future.
In terms of power density in terms of total power capacity and locations, where we are so I think we are we are very very encouraged by the new wave of the demand it will affect our business in next few years and that just sort of what is happening in the labs.
Eight years ago, when the clock stop.
Thats right. So I think we are very happy I think.
Definitely I think the.
Against it.
The AI.
AI type demands asked for more high power density.
Very difficult to build by themselves, but also it will be to check.
That's what we believe.
Thank you very much.
Thank you, we'll now take our next question.
Please standby.
This is from the line of Edison Lee from Jefferies. Please go ahead.
Hi, Thank you very much for taking my questions.
My first question is about the build out schedule you ought to be rescheduled and I found that in 2023, 85% of the new three so can you taking place in the second half for only 15% of the first half.
I Wonder if that is driven by your demand assessment or driven by your construction schedule. Okay. That's number one number two is on your guidance for 2023 offices of EBITA growth next behind the revenue growth.
If you take our international business, what do you think the EBITA growth countries in 2023.
And then lastly.
One of your peers recently said that.
A major cloud service providers in China is still building.
And I don't know how true that is but what is your view on the cloud service providers food program.
The current state of the market. Thank you.
Okay.
Yeah.
Yeah.
First part of that.
Terrific scheduled.
So.
Slow down pretty much on tower construction program I think there is more than 20 projects in that program.
But as you know with projects customer commitments.
Those customer commitments have a delivery date.
Our ability to slow down it depends on the customer agree.
Take delivery.
Hey, Steve.
Oh yeah.
Which that's happened with Samsung and that comes to keep to the original delivery schedule, which is perfectly fine.
Buy offs were just trying to.
Manage out the current occurrence about capex to shorten the lead time between.
When we spend money and when customers stop to stop start to generate generate income. So that's really what's behind that.
The numbers, we do have.
A substantial amount of capacity in service, which is not yet revenue generating I mean, our utilization rate is 71% when you have a.
The portfolio and service as large as ours.
And the commitment raised 95% utilization rate to 71% so that means a 24% which is committed.
So don't use lies.
That's a big number that Sal.
Backlog for air and services of 120000 square meters.
That could move in.
Practically with no additional capex.
Yes.
You could take that into consideration.
Completion of the projects under construction is not driving.
It's not the only group trying but when we have a pretty much move in move in ready.
Capacity.
We got asked a question about self built with most clients will look like.
Yes.
Okay.
The question is that one of your peers recently introduced since then.
Very good cloud service providers.
We will stop self built.
Yes, I think this is the topic I think Lee.
It's not only one.
Cloud service providers in kind of a discussion I think.
Yes, I think.
I remember in the last couple of days.
The earnings call I think.
We are the largest computer he China, we have a scale advantage I think finally, our some of our <unk>.
Customers start to realize that.
So I think in terms of the economics.
Perspective.
They realize it's not very efficient so I think this is the topic.
Yeah.
Discussing the E.
They're internally so we are willing to.
Uh huh.
Inc.
We have tried to encourage it.
For the future and some of the some of them can also talk about the gas sell some asset to US. We are also consider this option.
It's not about the year.
EBITA growth rate excluding into March.
We undertake SG&A too to international using some sound accounting.
Principles.
With that allocation.
The EBITA of international is negative about 100 million RMB.
In 2023.
If you like keeping at that at that back in that sport.
Tds looks like without without incident.
Okay. So on the <unk>.
Revenue side.
Do you have anything projected for 2023.
I think about.
I was looking at one 7% of our revenue comes from international is kind of a year.
Okay.
Okay.
Got it yes, thank you very much Dan.
Okay.
Thank you I'd now like to turn the call back over to the company for closing remarks.
Thank you all once again for joining US today. If you have further questions. Please feel free to contact GDS investor relations through the contact information on our website or the piece.
Investor Relations.
Next time, thank you bye bye.
Thank you. This concludes this conference call you May now disconnect. Your line. Thank you.
The conference will begin shortly.
Lower Johan during Q&A, you can dial star one one.
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