Q4 2023 GDS Holdings Ltd Earnings Call
Okay.
Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Limited fourth quarter and full year 2023 earnings conference call. At this time all participants are in a listen only mode. After management's prepared remarks, there'll be a question and answer session.
Today's conference call is being recorded.
Ill turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.
Thank you.
Ladies and gentlemen, thanks for standing by for GDS holidays.
<unk> fourth quarter and the full year 2023 earnings conference call at this time all participants.
Yeah.
Alright, well come to the fourth quarter and full year 2023 earnings conference call of GDS Holdings Limited. The company's results were issued via Newswire services earlier today and are posted online.
Summary presentation, which we'll refer to as journeys conference call can be viewed and downloaded from our IR website at investors GDS services don't call leading today's call is Mr. William Huang GDS founder Chairman and CEO, who will provide an overview of our business strategy and performance Mr. Dunn Human T F G D as CFO.
Then review the financial and operating results Ms. Jamie Cook Our C. O O is also available to answer questions. Before we continue please note that today.
Okay.
These statements.
Made under the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 95 forward looking statements involve inherent risks and uncertainties as such the company's results may be materially different from the views expressed today.
Information regarding these and other risks uncertainties is included in the company's prospectus as filed with the U S. SEC.
The company does not assume any obligation to update any forward looking statement.
Required under applicable law. Please also note that Gds's earnings press release, and this conference call include discussions of unaudited 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.
Audited most directly comparable GAAP measures.
Now I'll turn the call over to <unk> founder Chairman and CEO William Huang. Please go ahead William please thank you.
Hello, everyone. This is William Thank you for China.
Yeah.
The number one priority of GDS.
And in <unk> share price recovery.
Today, we are delighted to announce the landmark U S dollar.
The 87 million equity raise.
Our international business.
It is a big step forward in our strategy.
On a stand alone basis.
The equity raise also highlights how much value we have already created for our owners through international expansion.
We have been developing our business in China for many years.
Market leader with over one five gigawatts of capacity in service and under construction.
Confident that we will maintain our competitive position.
And enjoy further gross.
Particularly when you.
Take it takes off.
Yes.
We initially thought.
Sure.
Okay.
Of time it has become.
Second the gross.
EG with almost 330 megawatts in service and under construction.
<unk> in the 220% of what we have in China.
GDS, China <unk> International <unk>.
We'll see a very different stage of development.
We are therefore pursuing distinct strategies for each part of our business.
For China, we will have two major financial objectives.
Objective number one is to grow EBITDA.
As a steady rates in.
In 2020 Street.
Our adjusted EBITDA grew by 9% year on year.
All of which was from China.
Objective number two is to deleverage our balance sheet.
Our target is to get to below five times within three years.
In order to achieve these objectives for China, we're targeting new business, which fits our capacities.
We are increasing asset utilization by delivering the backlog.
We are spending capex, only where it is needed for customer movie.
We are preparing for <unk> when the market allows.
For international our.
<unk> ambition is to create.
And exceptional data center platform with.
Emanates emulates our success in China.
By leveraging our industry leader.
Capability strategic business relationships and the scale and scale economics.
In 'twenty.
<unk>, we set up a new international holding company.
And in Singapore.
It acts as the vehicle for all our assets and appreciate all sides, meaning China.
We have assembled.
Stand alone management T and today, we announced that Jamie cool, our very capable <unk> COO will transfer to become the CEO of CSC.
Internationally.
As we started to expand the oversea with folks focused initiative initially two region hub market.
Kong and a single boat you hold pattern.
Which is the hub for southeast Asia.
These two markets rank in the top 10 data center market globally.
We collectively.
Anticipated it where demand will fall through.
We secured the rights to resource and executing it well.
As a result, we quickly established a market leading presents in both space.
We have secured over 200 megawatts of commitments and then reservations fall from global.
As well as China customers.
As well as China customers and us.
As of today, we already have over 70 megawatts in service and not revenue generating.
We see tremendous opportunities for growth.
In these markets, we are very well priced.
With our proven track record development pipeline and a time to market to build to build on this success.
We are actively evaluating several several new markets and an expense make foot further commitments in the near future.
Now, let's review our performance in more detail.
In 2023, we won 68000 square meters of new customer commitments.
50000 square meters came from which was similar to the.
Yeah, and then nearly 20000 square meters or 30% of total bookings came from international.
During <unk>, we won two large orders in China and a one four international both of the China orders fits our strategy of matching commitments, which with the capacity and have movie period.
Less than less than two years.
The International order was from a global cloud service provider for the whole of our Hong Kong two project.
As a result, our first of two projects in Hong Kong.
Actively sold out with long term.
Binding commitments.
Looking forward the demand outlook in China has not picked up noticeably no display AI demand is coming but it will take more time. Meanwhile, our sales pipeline in southeast Asia is very strong.
We expect a significant new bookings for both of our kind of campus temperatures into hole in the near future.
Yeah.
And.
Undoubtedly it.
A big factor driving demand in this market.
In 2000 to industry.
Most moving was around the.
69.
<unk> thousand square meters.
19% higher than in 2020 to.
China moving was around 56000 square meters.
Which once again was similar to the prior year.
On top of this there was the first time contribution from international up 12 square meter a 12000 square meters.
As well as one data center in Hong Kong and the Street data centers in the Hall.
<unk> into service and started ramping up.
In 2023, we brought around that 57000 square meters of new capacity into service across seven data centers.
In China.
And three international.
By the end of the year. These street data center had an overall utilization rate of 77%.
Which is a consistent and consistent with our target for fast moving and higher utilization.
During 2024.
Specs to bring about 81000 square meters into service driven by delivery commitments to customers. The overall commitments right for this capacity is 92% and the moving schedule is confirmed.
I will now pass on to Dan for the financial and operating review.
Sure.
Thank you Brian.
Turning to slide 17.
We just announced today.
Our wholly owned subsidiary <unk>.
So land holdings.
Which we referred to for now.
GDS International GSI.
Has entered into definitive agreements with certain institutional and private equity investors.
So the new issue of $587 million of <unk>.
Series, a convertible preferred shares.
His first external equity capital raised for Tds International demonstrates our ability to access dedicated financing for our international business with.
Without further funding from GDS holdings.
The series a subscription price.
<unk> is a pre money equity valuation for GDS international $750 million.
In terms of our share price.
This is equivalent to approximately.
$3 92.
So GDS holdings.
Yes.
The implied post money enterprise valuation of GSI.
Including forecast net debt of around $935 million at the end of 2024.
Around $2 3 billion U S dollars.
This is equivalent to around 24 times <unk>.
<unk> forecast adjusted EBIDTA.
For the full year 2025.
As mentioned by William.
GDS International currently has over 330 megawatts of data center capacity in service or under construction across strategic locations in Hong Kong Singapore.
Malaysia and Indonesia.
The total development cost for this portfolio is around $2 5 billion.
Out of which approximately 40% has been incurred up to the end of 2023.
As of the end of last year.
GDS H had provided a total of around $595 million of.
Of intercompany funding to GSI.
Comprising $411 million of paid up share capital and.
$184 million.
Shareholder loans, and other payables, which will be repaid immediately after the proceeds of the series a new issue.
This will benefit GDS H in terms of higher liquidity.
On a pro forma basis, including $411 million of permanent equity from GDS H.
And $587 million.
From the series a.
Gtsi, we'll have total paid up share capital of approximately 1 billion U S dollars.
As a result, gtsi will be sufficiently well capitalized with equity to.
To complete the development of it.
The current 330 megawatt portfolio.
Post closing <unk>.
<unk> will own approximately 56, 1% of GSI in the form of ordinary shares.
And the remaining 43, 9% equity will be held in the former series a shares.
Investors, including Hillhouse rather partners.
You Princeville capital and technique capital.
Gsh and certain investors will have the right to appoint directors to the board of GDS side proportionate with their ownership.
William will continue in his role as chairman of the board of GSI, as well as chairman and CEO of <unk>.
Other key deal terms, including lockup, Q, IPO and liquidation preference amongst others can.
Can be found in the transaction documents, which we will file with the SEC.
With this capital raising.
It starts to make sense for us to look at GTS business in two parts.
As we go through the financials I will highlight selected numbers for international on a standalone basis.
And for the GDS holdings, excluding international.
Turning to slide 18.
For 2023 revenue increased by six 8% and adjusted EBITDA increased by eight 8% year on year.
And for Q2 'twenty three.
Revenue increased by six 3% and adjusted EBITDA increased by five 7% year on year.
For the full year 2023 international has negative adjusted EBITDA of around 100 million RMB.
The year on year growth rate for GDS holdings, excluding international would have been two percentage points higher than the consolidated number.
International recorded positive adjusted EBIDTA for the first time in <unk> 'twenty three.
Turning to slide 19 I.
Speaker Change: I will discuss the two main drivers of revenue growth, namely area utilized.
For 2023.
Net additional area utilized was 48000 square meters.
The annual net adds.
Slightly less than 2022.
Speaker Change: As a result of higher churn.
Nonetheless.
It'll area utilized at year end.
13% higher.
The end of the prior year.
Gearing <unk> 23, we achieved net additional area utilized a 20000 square meters, which.
Which is the highest level for many quarters.
This was mainly due to ramp up of our first two data centers into hall.
And a minimal level of churn.
For 2024.
We expect net additional area utilized to be higher than last year's 48000 with.
With steady growth in China and increased contribution from international.
Speaker Change: Turning to the MSR metric.
Over the course of 2023.
Comparing <unk> to <unk>.
MSR decreased by 5%.
For 2024, we expect MSR in China to decrease by around 3%.
It shows it is bottoming out.
The MSR for international is currently higher than for China, Hence on a consolidated basis, we expect MSR to remain at around current levels.
Speaker Change: Turning to slides 22 and 'twenty three.
For 2023 consolidated adjusted EBITDA margin was 46, 4%, which was slightly higher than for 2022.
Despite the fact, the power tariffs in China increased again during last year.
For 2024, the midpoint of our guidance range implies a consolidated adjusted EBITDA margin of <unk>.
<unk> 43, 7%.
Which is a more than two percentage point drop compared with 2023.
The margin for GDS holdings, excluding international.
Would it be similar to 2023.
Speaker Change: We expect to drop in the coming year.
Therefore, mainly due to international growth track.
Turning to slide 24.
In 2023, our China Capex totaled $3 5 billion RMB.
We have brought China, capex down significantly from historic levels and.
Speaker Change: And we are only spending where it is necessary to generate growth.
In 2024, as William mentioned, we plan to bring a further 58000 square meters of new capacity into service in China, most of which is committed to customers with firm moving schedules.
Meanwhile, our capex guidance for China in 2024 is only $2 5 billion RMB.
The very low implied capex per square meter is because we have already incurred.
Substantial part of the development cost.
Speaker Change: What is left is cost to complete.
This pattern will continue over the next few years.
Giving us the ability to grow in China with relatively low incremental capex.
In 2023.
International Capex was around $2 8 billion RMB.
Our current backlog for international stands at over 130 megawatts of committed and reserve capacity.
A large part of which is yet to be built.
Our capex guidance for international in 2024 is RMB 4 billion.
Which is largely driven by fixed delivery commitments to customers.
Speaker Change: On slide 25.
In 2023.
Speaker Change: <unk> holdings, excluding international.
Had negative cash flow before financing of just over 1 billion RMB.
Our objective is to maintain positive cash flow before financing.
Organic basis.
We have already been positive and some quarters.
For 2024, as a whole we expect to be close to breakeven.
In 2023 international on a standalone basis has negative cash flow before financing of over 3 billion RMB.
In 2024, we forecast negative 4 billion RMB, which can be fully financed by the equity raise and project debt.
Speaker Change: Looking at our leverage on slides 26 and 27.
At the end of 2023, our consolidated net debt to last quarter annualized adjusted EBIDTA multiple was eight five times.
Excluding international.
Speaker Change: Pro forma for the repayment of shareholder loans, the multiple was seven five times.
Turning to slide 28.
During 2024, we have $2 3 billion RMB.
Lower amortization for China.
We expect to generate an equivalent amount of new financing cash flow.
As a result of the repayment of shareholder loans from GSI to GDS age.
And drawdown under existing facilities to finance around 50%, but China incremental capex.
Speaker Change: Turning to slide 29.
Before I talk about guidance.
I'd like to flag the impairment loss of long lived assets of around 3 billion RMB.
Which we recorded during <unk> 23.
We are required to test for impairment whenever events or changes in circumstances indicate that the carrying amount of long lived assets.
Not be recoverable.
The impairment loss was mainly associate us with data centers located in properties, which we lease for a fixed term and Ah.
A few data centers, which we plan to consolidate.
Speaker Change: Turning now to guidance.
For the full year 2024, we expect total revenues to be between 11, three 4 billion RMB to.
To $11 76 billion RMB.
Implying a year on year increase of between approximately 13, 9% to 18, 1%.
We expect adjusted EBIDTA to be between $4 95 billion RMB to 515 billion RMB.
Speaker Change: Implying a year on year increase of between approximately 7% to 11, 4%.
On a standalone basis, we expect international.
To contribute around 100 to 150 million RMB.
Adjusted EBITDA in 2024.
As I mentioned earlier, we expect total capex of around $6 5 billion RMB for the full year.
Comprising $2 5 billion RMB for China, and 4 billion RMB to international.
I would now like to open the call to questions. Operator, please thank you.
Ill begin the question and answer session. If you would like to ask a question. Please press star one on your telephone.
If you would like to cancel request. Please press star one again for the benefit of all participants on today's call. Please limit yourself to one question. If you have more questions. Please re enter the queue.
One moment for the first question.
Our first question comes from the line of Frank Louthan from Raymond James. Please go ahead.
Yes.
Great. Thank you.
Really quickly.
Can we expect to see some some more full breakouts of the international business that would be the first thing and then secondly, if you can characterize the meager in schedule of the international customers relative to what you've seen historically.
And how quickly we can expect to see.
Customers billing inside the new development. Thank you.
Yes.
This is Stan.
Sure.
We have started to provide a breakout of the capex and of the leverage.
Well there is clearly a significant difference looking at GDS Holdings consolidated GDS Holdings, Inc.
Two parts.
It verbally give the numbers for EBITDA.
Last year.
International had negative EBITDA of 100 million RMB for the full year and this year, we expect positive EBITDA.
100 150 million RMB.
It's not yet.
Material not material.
Context, with GDS holdings numbers so.
We don't propose.
To report segment financials, but as we move through this year and the materiality increases we will certainly consider that.
Commonwealth movement as.
As compared with China.
I think tier one.
Six.
International morphine.
Better than what we have in China in General I think D.
To people.
All one.
Time to market more faster.
Other breaching so it's very good.
And the general revenue more more faster in.
China.
Okay, great. Thank you.
Okay.
Thank you for the questions one moment for the next question.
Our next question comes from <unk> Liu from Goldman Sachs. Please go ahead.
Thank you management for taking my question.
Asking question on behalf of Timothy Zhao.
The question will.
Comparable.
Some part of the AI related demand.
Especially for TTS International.
Also another question.
Oh to take to achieve the high end of your guide.
In terms of revenue guidance for next year. Thank you.
Yes, I think in that.
International business of <unk>.
Cause I think.
Excellent we don't know what our what our customer will be because it's there.
Very competition, so based on our.
Current.
Speaker Change: Probably Paul.
Profile.
We do have see some high density.
Rapid requirement plus but I think the international.
Requirement demand is very various people, including a lot of the Internet and Internet company OTT and also traditional Jeep.
Speaker Change: <unk> <unk> as well so it's mix I think that we do see.
Maybe AI AI type demand is already there.
Okay.
Yes.
A question about.
How do we achieve the high end of our guidance.
So we split the guidance into two parts for.
China.
We are expecting.
Standalone adjusted EBIDTA growth rate of around mid single digits.
This is consistent.
Consistent with the run rate that we've seen over the past couple of years in terms of.
Quarterly move in and.
Speaker Change: The trend in MSR and EBIDTA margins.
We forecast assuming the current market conditions continue through this year.
Speaker Change: Maybe next year I think the outlook could be.
More positive in 2025.
For the international part of business clearly.
The turnaround from negative $100 million to 100 to 150 million RMB positive as pipe.
Quite significant and that elevates fee.
Both rates.
For international.
The forecast and bottom up based on the time schedule for.
Individual data centers to enter service.
And the customer contracts associated with those data centers, which have a fixed moving schedule.
So we based the forecast largely on.
What is it what are the terms of the.
Both of those contracts the international businesses is very dynamic.
Uh huh.
Speaker Change: Early stage, that's already achieved significant scale.
Typically for business at this stage of development that could be a wider range of outcomes just because.
Things are moving so fast so I think there is.
There is potential upsides.
In the international business.
Okay.
As more data centers come in come into service.
Okay.
Thank you for the questions.
Our next question will come from the line <unk> Yang Liu from Morgan Stanley. Please go ahead.
Thanks for the opportunity.
I have three questions the first.
In terms of the overall international revenue contribution.
Could management elaborate or breakdown.
The current guidance.
For 2024.
International revenue contribution.
Question is that.
Hi.
Some comparison versus full disclosure at the end of third quarter last year.
You had 370 <unk>.
Two megawatt.
Megawatts pipeline megawatt data center pipeline in overseas market and now increased dramatically.
In one quarter.
Can management update us of income off the pipeline.
Development, whereas the new pipeline.
Speaker Change: And.
Yes.
What will be the potential timeline to deliver that or.
What would be the type of business are hyper scaler or retail business et cetera.
As for the incremental overseas pipeline and the third question is regarding Bob.
Additional sales for 2024.
Do you think that is the total sales are area booked.
In 2024, if there is any chance to see a turnaround or.
Speaker Change: From the megawatt perspective.
It'd be a turnaround.
Q.
Revenue.
Speaker Change: I'll take the first question yes.
Yes.
Hi, young used on him.
<unk>.
I think we provided revenue guidance for.
The full year 11, three four to 11.
76 billion.
We expect the.
Revenue of international stand alone.
To be about one.
One 1 billion.
Speaker Change: RMB.
Speaker Change: Plus or minus.
Speaker Change: So that explains answering the previous question.
Yes.
Gross pipeline yet.
Yes, I think the pipeline very very strong in general what I.
I see.
The other is from the all of the World Global and also we see a lot of pop.
Earnings from China as well so.
So I think D.
This.
This shoe Steve International business.
Has a huge momentum.
The big moment.
So.
I think.
In.
Speaker Change: The current.
Large customer asking for deliver efficacy as much faster as possible.
So I think the.
This is the overall demand profile.
On other hand, I think the customer type actually as I, just mentioned and very very simple.
No.
A lot of local tax company.
A lot of the global tanker company and also a lot of D E Commerce company as well.
So this is not only.
From China.
What we have been seeing is that from the globally. So I think the.
This is this is a very net asset.
Feel very very excited so I think the.
National business.
Will gross fair very faster than what we expect.
Okay.
So asking about.
<unk> expectation for clothes, Yeah, we don't want setups.
Because every quarter has changed.
So I think it is to maintain the last two years average level.
Speaker Change: You mean 50 megawatts per year.
It's our base.
But based on our current.
Our pipeline where.
Well, we can maybe go.
Very very high number maybe double or something like that.
Speaker Change: But we don't want us to catch up.
Too much hype is potentially on that Phil.
50% 50 megawatt.
Our base in.
International model.
Yes, but of course as I just mentioned this is just the southeast Asia market. We are also very look very closely with the two for four other new market like.
Speaker Change: Now North Asia, and also European market as well.
Okay.
I think yes.
Just want to check your question about increase in pipeline. If you were referring to the secured development pipeline.
<unk>.
The reason why that has gone up very significantly is because.
At all.
Established campuses referred to as <unk>.
TP.
Speaker Change: We acquired additional lines and secured additional power.
And at the same time, we have established a second campus.
Sure.
Quote ATP.
Where we are have started.
Construction around 20 megawatts.
But.
We plan and a single phase two.
To go to around 100.
Megawatts and we also.
Look forward to obtaining some commitments that site.
In the next few quarters.
Got it. Thank you. Thank you thank.
Thank you for the questions. Our next question comes from Daily Lee from Bank of America Securities. Please go ahead.
Hi management, Thanks for taking my question.
I have two questions.
First of all inbound.
Data Center business.
Could management share some the demand trend for our clients, maybe four public cloud providers and the internet companies and as in financial companies on the demand trend and gum in D C.
Speaker Change: Obviously more policy to spot.
The ideas into et cetera.
How do we see the competition.
Speaker Change: And my second question about the.
The overseas business.
Congrats on the.
It is listen to songs regime.
How do we see future.
Speaker Change: Financing channel in the overseas market and <unk>.
But you know.
Trying to divert the morbidities after like a two to three years.
In terms of financing channel. Thank you.
Okay I'll take your first question I think in China I think.
Speaker Change: We do see some.
<unk>, that's AI demands are increasing.
Based on our current.
<unk> supply.
Demand actually is already our EBITDA, but it does not fulfill the baidu chips. So when we can tally.
<unk> supply in terms of like a new project.
Nvidia <unk> and also some.
China China.
Chips.
Supply profile, what do we can see is maybe.
The end of this year or early next year.
China.
Data center.
Demand will.
<unk>.
Well.
Speaker Change: Recover in a significant way so what I think the this year still.
You can see a lot of demand.
Demand as of Friday, right, now, but actually ever people waiting for the chips, so impact to our data center real demand.
I will say it will start from next year.
Yes.
Question about.
On the financing.
Requirements and options for <unk>.
For international.
So the rationale behind the capital raising which we announced today is to ensure.
Ensure that we have adequate.
Equity capital for.
The existing portfolio, which is in service and.
Under construction.
But we are.
Moving forward rapidly.
And the requirement for additional capital will depend on how the business plan evolves.
Yes.
Take a view as.
New opportunities come up and new commitments.
<unk>.
Okay.
We've spoken before about our strategy of.
Limiting the amount of capital, which GDS holdings.
Allocates two international we've allocated 411 million U S dollars now.
Now, we're starting to leverage our equity investment with external equity.
A premium valuation.
I think Pete this first series a capital raising has required us to.
Establish gd.
<unk> international on a standalone basis and put in place the governance and all the aspects.
Intercompany relationships and so on which is quite a challenge.
Pete: I think it's.
After having done this deal with the.
The Investor Group, who are now partnering with us.
I think GDS international is very well placed to do further capital Raisings.
And that could guide to be at a country level as we've done already in Indonesia without joint venture with IAA or it could be at the international Holdco level.
Speaker Change: Thank you management.
Thank you for the questions. Our next question comes from Robert <unk> from Jpmorgan. Please go ahead.
Okay. Thanks, Thanks, Dan Thanks, Robin So IMAX screen on behalf of <unk>.
Robert: So I have.
Two parts of my questions first of all on news on the competitive landscape in the IR. So can you help bonds as I understand.
For once.
The IR looks like for the international business, given we have seen many regional.
You should know players or local players word Chinese player competing in this market.
Secondly, I think you've kind of guided their international business through army contribution for.
Sure It will be probably a 90, 10%. So you mentioned that you guys can see Andrew expand beyond this southeast Asian markets, probably your reward in North Asia. So how should we think about the revenue contribution from international business.
Probably three five years uptime.
Robert: Yes.
Thanks.
Yes, Thank you Robert Pursel.
So the IRR.
Yeah.
We have undertaken projects in Hong Kong and endure.
But Tom.
Okay.
Each market has a different cost of capital.
If we look at it in a very general way.
Borrowers have been.
Within the range that we've.
Robert: Target.
Target historically.
Unlevered post tax IRR.
Robert: Not less than 10% up to.
<unk> in the in the low teens.
Robert: This currently compares really quite favorably.
What is achievable.
In China the current.
Staging these and the cycles.
Robert: Yes.
Yeah fleet contribution of.
International.
Ah.
The.
Okay.
Without giving giving out forecast I think we've talked before about.
15% of consolidated revenue.
Adjusted EBITDA within within three years.
<unk>.
I think that is definitely achievable.
And then maybe that maybe.
And then may be higher than that.
Thank you.
Thank you for the questions one more for the next question.
Okay.
Our next question comes from the line of Bora Lee from RBC capital markets. Please go ahead.
Thank you Hi, this does tomorrow on for Jonathan.
Edison Lee: I think forum had mentioned GDS expects to enter additional markets.
Are you at on how you're thinking about the markets or regions and what you'd like to expand and the timeframe you had in mind.
And secondarily.
Any update on that second part development.
Thanks.
Yes.
Yes.
I think our strategy is first of all I think we see tremendous growth seen in southeast Asia, and the Asia whole Asia Pacific.
Switch to market, we are very familiar with I think the first step we will still focus on the southeast Asia to Canada.
Maintained.
Market, leading position. So I think this is our.
First priority.
Meanwhile, we are really.
Start to get back to a chip pan market for a while and I think we're maybe.
<unk>.
In the.
In the near future, maybe we can.
<unk> announced some progress so I think the Japan Korea.
<unk> also very attractive.
Edison Lee: <unk>.
Top top top market data center market in the world and we see the demand so in general with follow up D.
A big market, we will also update.
This high growth market in the future.
Edison Lee: Im just mentioned, we do see some opportunity in Europe as well.
This is another.
<unk> target market.
But of course, including Middle East.
Yeah.
Singapore, Yes.
We target to deliver the launched if data center by the end of the 2026, so thats our timeframe and we made some progress.
Edison Lee: Yes.
Coupled shortlisted, we already tried to do the final decision to choose.
The site.
So I think.
We will we will.
Kayla tailed kelda investor.
We may be.
Making a final decision.
Speaker Change: Okay. Thank you.
Thank you for the question one moment for the next question.
Our next question, we have Sara Wang from UBS. Please go ahead.
Thank you for the opportunity I have two.
Two questions first one is on China business, so what's the trend of MSR or cure rate when you renew contracts with existing customers.
Xinyi Wang: Over the past two quarters and then how shall we think about the trend going forward.
Second question is.
Still on AI, So maybe port both China and international projects, because AI requires a higher density racks or or even more advanced cooling.
Our methodology is.
Is there any difference between maybe high density power rack in terms of revenue or margin profile compare.
Phil maybe cloud demand we have.
Previously.
Okay.
The first one.
Yes.
First question, maybe I think.
I think the general I think did tend to AI of course.
Definitely in the future that the main driver to drive the Adidas and demand is what is happening in U S. What is happening in Europe and also the southeast Asia in the Japan market.
Already but it's just a start in terms of the difference I think year to AI guys need more big Big capacity, we have calculated when we talk to our guys demand. If we used a single deal size, let's see.
Internet is always asking for 10 megawatts 20 megawatts signed some excellent NDA.
Hi, guys.
Normally ask for lets say 30 megawatt 40 megawatts, but I know what we can see that the deal provides a total different.
A lot of.
Our customer they ask for 100 megawatts 200 megawatts.
Campus, so that means they need more power capacity in one site.
So this is a one.
A difference the second of all of course I think in general average power density is goes.
Very high.
Xinyi Wang: So we are well prepared for that in terms of quoting I think.
Everybody know once do you get if.
If you want to get it.
And to your product like Prereq above 2020 kw per rack.
<unk> expanded to start to use try to statin use the liquidity right. So the in terms of technology, we are very familiar.
Nickel coding because five years ago, we stopped to use the nickel coding solution for in China. So I think were perpetual.
Catch up.
Demand in the future whatever size.
Xinyi Wang: In terms of size and capacity of the size or.
Xinyi Wang: Our power density or cooling technology with a good add to that.
So your question about.
MSR.
Can be affected by it.
A number of different factors, it's not just a reflection of the change in market pricing this will slow.
Dependent on location and type of data center.
Rather than talk about pricing on renewals.
Xinyi Wang: I always give some guidance or direction from the trend in MSR.
Mentioned during the prepared remarks.
For the past four quarters.
<unk> 22 to <unk> 23.
The MSR decreased by 5%.
Over the next four quarters, that's <unk> 23 to <unk> 24.
The MSR to decrease by 3%.
Most of that decrease is due to delivery of the backlog.
A smaller part.
As do too.
Lower pricing on renewals.
We were to look further forward beyond 2024 to 2025.
Yes.
Xinyi Wang: MSR is bottoming out.
Xinyi Wang: Which means that.
As you project.
Further into the future our revenue growth will be mainly driven by the increase in net additional area utilized with.
MSR decrease.
Becoming less and then the.
Becoming flat.
Speaker Change: Got it thank you.
Thank you for the questions we have come to the end of the Q&A session I would like to now turn the call back over to the company for closing remarks.
Thank you once again for joining US today. If you have further questions. Please feel free to contact <unk> Investor relations with the contact information on our website and the <unk> Financial Commission Communications.
Speaker Change: You next time.
Goodbye.
You may now disconnect your lines. Thank you.
Okay.
[music].
Yeah.
Okay.
Okay.
Speaker Change: Okay.
[music].