Q3 2024 GDS Holdings Ltd Earnings Call

November 19, 2024

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[music].

Okay.

Speaker Change: Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Ltd that caused that 'twenty 'twenty four earnings conference call.

Operator: 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 will now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.

Speaker Change: At this time all participants are in listen only mode. After management's prepared remarks, there will be a quick.

Speaker Change: Jen and answer session.

Speaker Change: Today's conference call is being recorded I will now turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.

Laura Chen: Thank you. Hello, everyone. Welcome to the Q3 2024 Earnings Conference Call of GDS Holdings Limited. The company's results were issued via newswire services earlier today and are posted online. A summary presentation, which we'll refer to during this conference call, can be viewed and downloaded from our IR website at investors.gds-services.com. 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. Dan Newman, GDS CFO, will then review the financial and operating results. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today.

Speaker Change: Thank you Hello, everyone and welcome to the third quarter 2020 full earnings conference call of GDS Holdings Ltd.

Speaker Change: Company's results were issued via Newswire services earlier today and I hope.

Speaker Change: Online and some brief presentations, which you referred to during this conference call.

Speaker Change: And downloaded from our IR website at investors GDS services Com.

Speaker Change: Leading today's call is Mr. William Huang GDS, founder Chairman and CEO.

Speaker Change: An overview of our business strategy and performance.

Speaker Change: Mr. Dan Newman Gds's CFO will then review the financial and operating results before we continue. Please note that today's discussion will contain forward looking statements made under the safe Harbor provision of the U S. Private Securities Litigation Reform Act of 1995 forward looking statements involve inherent risks.

Speaker Change: Uncertainties as such the company's results may be materially different from abuse expressed today further information regarding these and other risks and Stephane says it's 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, except as required.

Laura Chen: Further information regarding these and other risks and uncertainties is included in the company's filings as filed with the US SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that GDS 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 unaudited most directly comparable GAAP measures. I'll now turn the call over to GDS Founder, Chairman, and CEO, William. Please go ahead, William.

Speaker Change: Under applicable law.

Speaker Change: 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.

Speaker Change: Or does it most directly comparable GAAP measures I'll now turn it over to Nicole <unk> founder Chairman and CEO.

William Huang: Okay, thank you. Hello, everyone. This is William. Thank you for joining us on today's call. In Q3 2024, we achieved a revenue growth of 18% and adjusted EBITDA growth of 15% year-on-year. This growth rate is quite remarkable in current market condition. It reflects the progress we have made in turning around our China business, plus the uplift from the successful execution of our international strategy. From the beginning of this year, the move-in rate has clearly stepped up. In Q3 2024, gross additional area utilized was over 25,000 square meters. It is the highest level we have ever achieved. It is all organic and all in tier one markets. The main reason for this improvement is AI demand.

Speaker Change: Please go ahead William.

William Huang: Thank you.

William Huang: Hello, everyone.

William Huang: William Thank you for joining us on today's call.

William Huang: In <unk>, we achieved a revenue growth of 18% and adjusted EBITDA growth up 15% year on year.

William Huang: This growth rate is quite remarkable in current market conditions.

As it reflects the progress we have made in turning around our China business.

William Huang: Yes.

Speaker Change: Lift from that.

Speaker Change: Successful execution of our international strategy.

Speaker Change: From the beginning of this year.

Speaker Change: Great.

Speaker Change: Clearly status step stepped up.

Speaker Change: <unk> 24.

Speaker Change: Gross additional area utilized was over 25.

Speaker Change: <unk> thousand square meters.

Speaker Change: It is the highest level we have achieved.

Speaker Change: It is all organic and all in tier one markets.

Speaker Change: The main reason for this improvement is a high demand.

William Huang: About half of the moving is coming from the recent new orders and half from orders which have been in the backlog for longer time. For the full year of 2024, we expect net additional area utilized of around 60,000 sq m, which is similar to our peak year of 2020. Looking forward, we have better visibility on the deployment plans of our customers, which gives us a high level of confidence. Therefore, we expect this level of moving to be sustained. The first wave of AI demand is for machine learning. For this use case, customers can deploy in remote area where land and power are available. The second wave of AI demand is for inferencing. For this use case, customers must deploy in the tier one markets. This has been confirmed with our customers in multiple communications.

Speaker Change: About half of the movie is coming from the recent the new orders and half from orders, which have been in the backlog for longer time.

Speaker Change: For the full year of 'twenty 'twenty four we expect net additional area utilized of around 60000 square meters, which is similar to our peak year of 2020.

Speaker Change: Looking forward, we have better visibility on the deployment plans of our customers, which gives us a high level of confidence.

Speaker Change: Therefore, we expect that this level of moving to be sustained.

The first wave of AI demand is for machine ready.

Speaker Change: For this use case.

Speaker Change: Customers can deploy in the area.

Speaker Change: And then in a power.

Speaker Change: Available.

Speaker Change: The second wave of AIG is full infancy.

Speaker Change: For this use case customers must have deployed in the tier one market is it has been confirmed with our customers in multiple.

William Huang: So far, the volume of AI new orders in tier one markets is quite small. Customers are typically looking for move-in-ready capacity. This fits with our current sales strategy, which is target orders which match our inventory. In the coming year, we expect AI deployments in tier one markets to increase in scale. This will help bring the market back into balance. Some of the new demand will be for hyperscale campuses. We are uniquely well-positioned for this. We have large blocks of land and power at diverse sites around Beijing, Shanghai, Shenzhen, and Guangzhou. This kind of resource is scarce. In order to capture the AI wave in tier one markets, we will carefully consider sales opportunities which require us to initiate new deployments.

Speaker Change: Communications.

So far the volume of new orders in tier one markets is quite small customers are typically looking for move in ready capacity.

Speaker Change: This fits with our current sales strategy, which is target order, which matched our inventory.

Speaker Change: In the coming year, we expect AI deployments in tier one markets to increase in scale. These.

Speaker Change: This will help bring the market back into balance.

Speaker Change: Of the new demand will be for hyper scale campuses.

We are uniquely well positioned for this.

Speaker Change: We have a larger blocks.

It's a blend and a power at a diverse diverse sites around the Beijing, Shanghai Shenzhen Guangzhou.

Speaker Change: This kind of the resource is scarce scarce.

Speaker Change: In order to capture the captured the AI week in tier one markets.

Speaker Change: We will carefully consider sales opportunities, which will require us to.

Speaker Change: [noise] initiated new deployments.

William Huang: This is a more expansionary business plan with a higher investment and a higher growth. It goes hand in hand with the execution of our China REIT strategy. We made a decision to establish our international business as a standalone entity. We believe that this approach will maximize value for our shareholders. The vision for GDSI is to become a leading international data center platform. We pioneer the creation of new markets to fulfill AI demand. As of Q3 2024, we have 431 megawatts of total customer commitments. The sales pipeline is very strong. During Q3, we signed a contract with a new customer, which is a leading global tech company, for capacity at our campus in Batam. 34 megawatts is committed and 38 megawatts is reserved.

Speaker Change: This is a more expansionary.

Speaker Change: Expansion or a business plan.

With higher with the <unk>.

Speaker Change: Higher investment and a higher gross.

Speaker Change: As it goes hand in hand, with the execution of our China strategy.

Speaker Change: We made a decision to.

Speaker Change: Our international business as a stand alone entity.

Speaker Change: We believe that this approach will maximize value for our shareholders.

Speaker Change: The vision for GDS II is to become a leading international data center platform.

Speaker Change: We pioneered the creation of new markets.

Speaker Change: Fulfill AI demand.

Speaker Change: As a street Q 'twenty four we have 431 megawatts of total customer commitments.

Speaker Change: The sales pipeline is very strong.

Speaker Change: During the third quarter, we signed a contract with a new customer, which is a leading global Tech Tech company for capacity at our campus in <unk>, but <unk>.

Speaker Change: So the 34 megawatts is committed and the 38 megawatts.

William Huang: This is the first data center of its kind in Asia, designed for the most advanced AI technology. The ramp-up is very fast. We already delivered the first phase in the past few days. It's an incredible achievement by our management and the perfect illustration of how we are able to create new markets. During the current quarter, we officially entered into another new market, Thailand. We are the first data center operator to undertake the first hyperscale project in Thailand. We received strong support from the Thailand government. We think that this is the next big opportunity in Southeast Asia. In the past few months, all the global tech leaders have announced large investment plans in Thailand.

Speaker Change: This is the first data sense of it's kind of it's kind of in Asia.

Designed for the most advanced technology.

Ramp up is very fast we are really deliberate delivered the first phase in the past few days.

Speaker Change: It's an incredible achievement by our management and the perfect.

Speaker Change: Illustration.

Speaker Change: How we are able to create new markets.

Speaker Change: During the current quarter.

Speaker Change: Officiary into the into another new market Thailand.

Speaker Change: We had our first data center Hyperscale.

Speaker Change: We are the first data center operator to undertake the first hyperscale.

In Thailand.

Speaker Change: We have received strong support from the Thailand governments.

This is the next big opportunity in Southeast Asia.

Speaker Change: In the past few months.

Speaker Change: All the global Tech leader.

Speaker Change: <unk> announced large investment in Thailand.

William Huang: We have acquired the land for a data center campus in Chonburi Province, near Bangkok, which is the focus area for hyperscale deployment. We plan to develop around 120MW of total IT power capacity on our first land site. We expect to serve the domestic demand for Thailand's fast-growing digital economy. We are very confident to make Thailand another success story. I will now pass on to Dan for the financial and operating review.

Speaker Change: We have acquired the land for a data center campus in Chonburi Province near Bangkok.

Speaker Change: Which is the focus a focus area for hyperscale sketch to scale their deployments.

Speaker Change: We plan to divest around the 120 megawatts of total power capacity on our first one land sites.

Speaker Change: We expect to serve the domestic demand.

Speaker Change: For Thailand.

Speaker Change: Fast growing digital economy.

We are very confident to make talent another success story.

Speaker Change: I would now have pass on to Dan for the financial and operating review.

Dan Newman: Thank you, William. I'll run through the China segment first, followed by international. Starting on slide 16. In Q3 2024, GDSH segment revenue increased by 6.1% and adjusted EBITDA increased by 3.6% year-over-year. GDSH revenue growth was mainly driven by an increase in total area utilized of 11.6% year-over-year. MSR per square meter has declined moderately over the past four quarters. Adjusted EBITDA margin for Q3 2024 versus Q3 2023 was down by 1 percentage point. The main reason for this is the increase in power tariffs, which occurred in the second half of last year. Looking forward, we expect net additional area utilized to continue at around 15,000 square meters per quarter. We expect MSR to decline slightly over the next year and assume that power tariffs remain at current levels.

Dan Newman: Thank you Ian.

Dan Newman: I'll run through the China segment first followed by international.

Dan Newman: Starting on slide 16.

Dan Newman: $302 24.

Dan Newman: <unk> segment revenue increased by six 1% and.

Dan Newman: And adjusted EBITDA increased by three 6% year on year.

Dan Newman: DSA revenue growth was mainly driven by an increase in total area utilized of 11, 6% year over year.

Dan Newman: MSR per square meter.

Dan Newman: This decline moderately over the past four quarters.

Dan Newman: Adjusted EBITA margin was <unk> 24 versus <unk> 23 was down by one percentage point.

The main reason for this is the increase in power tariffs.

Dan Newman: This occurred in the second half of last year.

Dan Newman: Looking forward, we expect net additional area.

Dan Newman: <unk> to continue at around 15000 square meters per quarter.

Dan Newman: We expect MSR to decline slightly over the next year and assume that power tariffs remain at current levels.

Dan Newman: For the first nine months of 2024, our China CapEx totaled RMB 2.6 billion. We originally guided for around RMB 2.5 billion for the full year. However, as we had higher move-in, we had to bring forward a small amount of CapEx. As a result, we are revising up our China CapEx guidance to around RMB 3 billion for 2024. In our base case business plan for next year, we envisage China CapEx within the RMB 2 to 3 billion range. For the first nine months of 2024, cash flow before financing for GDSH is RMB -293 million. Q4 of the year is usually a good quarter for collections. Therefore, we expect the cash flow before financing for the full year to be positive. This is in line with our financial target.

Dan Newman: For the first nine months of 2020 for China, Capex totaled $2 6 billion RMB.

Dan Newman: We originally guided for around $2 5 billion RMB for the full year.

Dan Newman: However, as we had higher move in we had to bring forward a small amount of capex.

As a result, we are revising our China capex guidance to.

Dan Newman: Around 3 billion RMB for 2024.

Dan Newman: And our base case business plan for next year.

Dan Newman: We envisaged China Capex within the two to 3 billion RMB range.

For the first nine months of 2024.

Dan Newman: Cash flow before financing for GDS age is negative two.

Dan Newman: 293 million RMB.

Dan Newman: The fourth quarter of the year is usually a good quarter of collections.

Therefore, we expect the cash flow before financing for the full year to be positive.

Dan Newman: This is in line with our financial targets.

Dan Newman: This remains a key financial objective to deliver steady growth while generating positive cash flow before financing. As shown on slide 20, at the end of Q3 2024, the cash balance of GDSH decreased to RMB 7.8 billion, and the net debt to last quarter annualized adjusted EBITDA multiple was 7.4 times. Over 60% of our gross debt is RMB-denominated project term loans. The interest on these loans is floating rate linked to the over 5-year LPR. This benchmark came down by 25 basis points at the end of Q3 2024 to see some benefit as our interest cost resets. As William mentioned, we are fully committed to establishing a China REIT. This is strategic for a number of reasons.

Dan Newman: This remains a key financial objective to deliver steady growth, while generating positive cash flow before financing.

Dan Newman: As shown on slide 20.

Dan Newman: At the end of <unk> 20 for the cash balance of GDS age decreased to $7 billion 8 billion RMB.

And the net debt to last quarter annualized adjusted EBITDA multiple was seven four times.

Dan Newman: Over 60% of our gross debt.

Dan Newman: Is RMB denominated project term loans.

Dan Newman: The interest on these loans is floating rate.

Dan Newman: To the over five year LPR.

Dan Newman: This benchmark came down by 25 basis points.

Dan Newman: End of <unk> 'twenty four.

Dan Newman: To see some benefit as our interest cost resets.

Speaker Change: As William mentioned, we are fully committed to establishing a China rights.

Speaker Change: She will stretch for a number of reasons.

Dan Newman: 1, it will give us continued access to equity with a lower cost of equity. 2, it will increase our liquidity and enable us to generate deleveraging. 3, it will provide us with an additional source of capital to capture attractive new sales opportunities as AI demand takes off. 4, it will benchmark the valuation of stabilized data centers in China and give us the means to recycle capital on an accretive basis. We are approaching China REITs with two transactions in parallel. The first involves the creation and IPO of a listed C-REIT, which holds stabilized data centers. The second involves the creation of asset-backed securities, ABS, which holds ramping up data centers. The ABS is the form of security which can be injected into a C-REIT once the underlying data centers are stabilized. Hence, we call the ABS a pre-REIT.

One it will give us continuously.

Speaker Change: So the old.

Speaker Change: Yes.

Speaker Change: Lower cost of equity.

Speaker Change: Two.

Speaker Change: <unk> increased our liquidity and enable us to accelerate deleveraging.

Speaker Change: Three it will provide us with an additional source of capital to.

Speaker Change: To capture attractive new sales opportunities.

Speaker Change: AI demand takes off.

And four it will benchmark evaluation of stabilized data centers in China.

Speaker Change: And give us the means to recycle capital on an accretive basis.

Speaker Change: We are approaching China rights.

Speaker Change: With two transactions in parallel.

Speaker Change: The first involves the creation and IPO.

Speaker Change: C REIT, which holds stabilized data centers.

Speaker Change: The second involves the creation of asset backed securities ABS, which holds ramping up data centers.

Speaker Change: The ABS as a form of security.

Speaker Change: Which can be injected into a series once the underlying data centers stabilized.

Hence we call the ABS a pre reach.

Dan Newman: For the C-REIT, we have already completed a very thorough review process at provincial level. Our application is now subject to a national level re-review by NDRC, CSRC, and the Shanghai Stock Exchange. We are aiming to obtain all the necessary approvals by the middle of next year. This would create the possibility of launching the C-REIT in the second half of 2025. For the purposes of listing, we've selected one large site which fits the typical C-REIT offering size of around CNY 2 billion. However, once established, we would intend to inject additional data centers if it creates shareholder value. Currently, C-REITs are trading on significantly higher multiples than the current implied multiple for our China business. For the pre-REIT, we are at the final stage of obtaining all the necessary approvals. The pre-REIT delivers many of the same benefits as the C-REIT, but it's a one-off transaction.

So the theory that we have already completed a very thorough review process a provincial level.

Speaker Change: Our application is now subject to a national level review by and DRC CSR C and the Shanghai stock exchange.

Speaker Change: We are aiming to obtain all the necessary approvals by the middle of next year.

Speaker Change: This will create the possibility of launching the series in the second half of 2025.

Speaker Change: For the purposes of listing with selection, one large sites, which fits the typical see REIT offering size of around 2 billion RMB.

Speaker Change: However, once established we would intend to inject additional data centers, if it creates shareholder value.

Speaker Change: Currently <unk> to trading on significantly higher multiples than the current implied multiple for our China business.

Speaker Change: For the pre reach.

Speaker Change: We're at the final stage, obtaining all the necessary approvals.

Speaker Change: The pre REIT delivers many of the same benefits as <unk>, but it's a one off transaction with.

Dan Newman: We're trying to get it done as soon as possible. Turning to the international segment on slide 23. In Q3 2024, GDSI revenue increased by 42% and adjusted EBITDA increased by 15% quarter-over-quarter. Currently, we have around 103MW of IT power utilized. As the delivery schedule for most of the backlog is very short and customers undertake to move in quickly, we expect to have around 400MW of utilized capacity within the next 18 months. For the first 9 months of 2024, international CapEx was around CNY 4 billion. We originally guided CNY 4 billion for the full year, but due to the extraordinary ramp up, we now expect full year CapEx for international to be around CNY 8 billion. Turning to slide 29.

We're trying to get it done as soon as possible.

Speaker Change: Turning to the international segment on Slide 23, and <unk> 24, Gtsi revenue increased by 42% and adjusted EBITDA increased by 15% quarter on quarter.

Speaker Change: Currently we have around 103 megawatt solar power utilized.

Speaker Change: As this delivery schedule for most of the backlog is very short and customers undertake to moving quickly. We expect to have around 400 megawatts of utilized capacity within the next 18 months.

Speaker Change: For the first nine months of 2024 International Capex was around 4 billion RMB.

Speaker Change: We originally guided 4 billion RMB for the full year.

Speaker Change: But due to the extraordinary ramp up we now expect full year capex for international to be around 8 billion RMB.

Speaker Change: Turning to slide 29.

Dan Newman: On 29 October, we announced that GDSI has raised $1 billion from the issue of Series B convertible preferred shares. The issue is expected to close by the end of the year. Post-closing and on an as converted basis, GDSH will own approximately 37.6% of GDSI. The value of our equity interest implied by the Series B subscription price is approximately $1.3 billion, representing a 75% premium over the Series A valuation and equivalent to approximately $6.75 per GDS ADS. The private equity valuation of data centers is typically based on the sum of installed capacity, contracted backlog, and near-term sales pipeline. As GDSI ramps up its installed capacity, wins new orders, and adds to its supply of highly marketable capacity, we expect the equity valuation to increase significantly.

Speaker Change: On 29 as of October we announced the GDS side has raised $1 billion from the issue of series B convertible preferred shares.

Speaker Change: The issue is expected to close by the end of the year.

Speaker Change: Post closing and all that.

Speaker Change: As converted basis, GDS H will own approximately 37, 6% of GSI.

Speaker Change: The value of our equity interest implied by the series B subscription price is approximately $1 3 billion U S dollars, representing a 75% premium over the series a valuation.

Speaker Change: And equivalent to approximately $6 75.

Speaker Change: So GDS.

Speaker Change: Yes.

Speaker Change: The private equity valuation as data centers is typically based on some of installed capacity.

Speaker Change: Contracted backlog.

Speaker Change: Near term sales pipeline.

Speaker Change: As GDS, alright ramps up its installed capacity wins, new orders and as tourists supply of highly marketable capacity, we expect the equity valuation to increase significantly.

Dan Newman: In this round, we aimed to secure enough capital to build and deliver over 1 gigawatt of capacity. Including the sale of the proceeds of Series B, we will have $2.1 billion of equity. With the addition of a moderate amount of mezzanine debt, we should be able to achieve our 1 gigawatt target. Post-closing, GDSH will deconsolidate GDSI. However, we will continue to disclose enough key information for you to track GDSI's performance. To ensure that the value of our equity investment accrues to GDSH shareholders, our plan A is to IPO and spin off GDSI. We will give you a better sense of the timing on our next earnings call. Finishing on slide 30. We are maintaining our formal guidance for FY 2024 consolidated revenue and adjusted EBITDA.

Speaker Change: And this round, we aimed to secure enough capital to build and deliver over one gigawatt of capacity.

Speaker Change: Including the sale of the proceeds of series B, We will have $2 1 billion in U S dollars of equity.

Speaker Change: With the addition of a moderate amount of mezzanine debt, we should be able to achieve a one gigawatt target.

Speaker Change: Post closing <unk> will de consolidate GDS side.

Speaker Change: However, we will continue to disclose enough key information for you to track <unk> performance.

Speaker Change: To ensure that the value of our equity investments accrues to <unk> shareholders.

Speaker Change: Plan, a is to IPO and spin off GDS side.

Speaker Change: We will give you a better sense of the timing on our next earnings call.

Speaker Change: Finishing on slide.

Speaker Change: Gotcha.

Speaker Change: We are maintaining our formal guidance for FY 'twenty for consolidated revenue and adjusted EBITDA.

Dan Newman: However, as I mentioned before, we are raising our CapEx guidance to 11 billion RMB, which includes 3 billion RMB for China to support the faster move-in and 8 billion RMB for international, reflecting its accelerated expansion. We would now like to open the call to questions. Operator?

Speaker Change: However, as I mentioned before we are raising our capex guidance to 11 billion RMB.

Speaker Change: Which includes 3 billion RMB for China to support the fast to move in and.

Speaker Change: <unk> 8 billion RMB for international reflecting its accelerates your expansion.

Speaker Change: We would now like to open the call to questions operator.

Operator: Thank you. If you would like to ask a question, you'll need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and 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. Thank you. We will now take our first question. First question is from the line of Yang Liu from Morgan Stanley. Please go ahead.

Speaker Change: Thank you.

I'd like to ask a question you will need to move.

Speaker Change: One on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: The benefit of all participants on today's call. Please limit yourself to one question. If you have more questions. Please reenter the queue.

Speaker Change: Okay.

Speaker Change: Thank you.

We will now take our first question.

Speaker Change: First question is from the line of Yang Liu from Morgan Stanley. Please go ahead.

Yang Liu: Thanks for the opportunity. I have one question about the China strategy. First we saw pretty strong demand, good momentum and good booking. At the same time, we saw the upward revision of the CapEx. Is that push forward of the previous plan to this 25 or 2026 China CapEx or is that new? You have just mentioned that the China future investment will be linked to the REITs strategy in China. Now, they mean that if you deliver the REITs listing, then you can invest more aggressively in China. Without a REITs, you're still in a tight control mode of the CapEx. Does that mean this kind of? Thank you.

Speaker Change: Yeah.

Speaker Change: Thanks for the opportunity.

Speaker Change: One question about the China strategy.

Speaker Change: First we saw pretty strong demand.

Speaker Change: Good will be.

Speaker Change: Bookings.

Speaker Change: At the same time, we followed them.

Speaker Change: Upward revision of our Capex.

Speaker Change: Is that.

Speaker Change: Forward all small premium between the two.

Speaker Change: New client bookings between six kind of capex or is that new.

Speaker Change: Okay.

Speaker Change: Just mentioned.

China's future R&D investment will be limited to the risks.

Speaker Change: Our strategy in China that didn't mean that to you.

Speaker Change: Liver weight lifting UK invest more aggressively in China without risks.

Speaker Change: Still.

Speaker Change: Tight control mode.

Speaker Change: Thanks.

This kind of growth.

Speaker Change: Thank you.

William Huang: Yeah, Lu, I think number one, we still stick on our previous strategy, try to stabilize our business in China and maintain the, like, let's say, sort of the growth organically, right? Digest our inventory. This is our first priority. In the meanwhile, we always talk about we selected to do the new business. That means very high quality business.

Speaker Change: Yeah.

Speaker Change: Yes, I think Ian I think.

Speaker Change: Number one we still.

Speaker Change: Stick on our previous strategy trying to stabilize our.

Speaker Change: Our business in China.

Speaker Change: Maintain.

Speaker Change: Yes.

Let's see.

Speaker Change: Sort of.

Speaker Change: Growth organically right.

Digest.

Speaker Change: In the.

Speaker Change: Inventory. This is our first priority, but in the Meanwhile, we always talk capital we selected to do the new business.

Yang Liu: Mm.

William Huang: Of course, everybody know we are currently in a try to recycle capital in an efficient way and then create more value for our shareholder. In the meanwhile, if we can get we can do recycling capital in a sufficient way in the future, then we will start to more aggressive to take some new order, seeking the growth again. Yeah. This is, I think, we try to make the growth and stabilize more balance in the future.

Speaker Change: Very high quality business.

Speaker Change: Of course, everybody knows.

Speaker Change: Currently tied to recycle capital.

Speaker Change: <unk> way and then to create more value for our shareholder in the Meanwhile, if we can get there.

Speaker Change: We can do <unk>.

Speaker Change: Recycling capital sufficient way in the future.

Then we will start to.

Speaker Change: More aggressive to take some new order.

Speaker Change: Seeking growth again, yes. This is I think we tried to make that growth and.

Speaker Change: Stabilized more balanced in the future.

Yang Liu: Mm-hmm. Thank you.

Operator: Thank you. We'll now take our next question. This is from the line of Jonathan Atkin from RBC. Please go ahead.

Speaker Change: Thank you.

Speaker Change: We will now take our next question.

Speaker Change: This is from the line of Jonathan Atkin from RBC. Please go ahead.

Jonathan Atkin: Thanks. A couple questions. If you could maybe talk a little bit about the development of the Batam market. It's happening more rapidly than I would have expected. Do you expect there to be a lot of kind of smaller internet and enterprise demand, or will it largely be large deployments of the type that you've recently gotten commitments for? Secondly, on GDSI, can you talk about the ongoing financial commitment that GDS would have post-IPO?

Jonathan Atkin: Couple of questions. If you could maybe talk a little bit about the development of a bond market.

Speaker Change: Any more rapidly than I would've expected.

Speaker Change: Do you expect there to be.

Speaker Change: A lot of kind of smaller internet enterprise demand largely.

Speaker Change: Large deployments of the pipe.

Speaker Change: We've got a commitment for.

Speaker Change: And then secondly.

Speaker Change: Judy you talked about the ongoing financial commitment that Cvs would have hoped.

Speaker Change: Thank you.

Speaker Change: Yes.

[Company Representative] (GDS Holdings): Jon, your line is not that clear.

Laura Chen: Jon, your line is not that clear.

Speaker Change: Okay.

Dan Newman: I think the first question was about the kind of demand that. Was Jonathan talking about Batam?

Speaker Change: Joe Your line is not that clear.

Speaker Change: The first question was about kind of demand patterns.

[Company Representative] (GDS Holdings): Yeah. I think so, yeah.

Dan Newman: Yeah. I think so, yeah.

Dan Newman: Like what kind of customers interested in Batam, I think Jonathan was asking.

Yes, yes, yes.

Dan Newman: Like what kind of customers interested in Batam, I think Jonathan was asking.

Speaker Change: So.

Speaker Change: So what kind of customers.

William Huang: Let me answer the first question, Adina. In Batam, we still view it as a majority area, majority data center hub. I think that this, whatever is in the Johor or Singapore or Batam, all the hyperscale customers, whether from the US or domestic or China, are very interested in Batam. So far we have the very strong pipeline from the different country.

Speaker Change: Dresses and pattern I think Tom was asking yeah. Okay. Let me ask as it first of all question anemia infotainment with steel.

Jewelry area surgery.

Speaker Change: They just didn't hop I. Thank you.

Speaker Change: Think that this whatever in that you all are the Singapore office tenants.

Speaker Change: All the customer hyperscale customer whatever from the.

Speaker Change: U S a.

Speaker Change: Domestic ore.

Speaker Change: China.

Speaker Change: All very interesting in pattern, so far we have there.

Speaker Change: Yes.

Speaker Change: We have very strong pipeline from the different country.

Dan Newman: I think Jonathan's second question.

Jonathan Atkin: Can you talk about?

Speaker Change: Okay.

Dan Newman: Ongoing.

Jonathan Atkin: Yeah, ongoing commitment to GDSI international from GDS Holdings.

Speaker Change: Thanks Rajiv.

Speaker Change: Yes ongoing commitment to the GDS in Nashville from PBF Holdings.

Dan Newman: Yes. Okay. On that one, I think we can be clear that the decision was made, I think at the beginning of last year, that we would cap our allocation of capital to international. At the level then was around $400 million. In the course of the Series A capital raising, actually part of the use of proceeds was to repay some shareholder loans from GDSH to GDSI to bring that number back down to the $400 million level that we had established as our limit in terms of capital allocation. From that point forward, our motivation is to make our $400 million investment as valuable as possible.

Speaker Change: Yes, okay.

Speaker Change: I think we can be clear.

Speaker Change: The decision was made.

Speaker Change: At the beginning of last year.

Speaker Change: Our allocation of capital to <unk>.

Speaker Change: International.

Speaker Change: At the level, then was around $400 million.

And.

Speaker Change: And of course with the series a.

Speaker Change: Capital raising.

Speaker Change: Actually part of the use of proceeds was to repay some shareholder loans from <unk> did you decide to bring that number back down to the 400 million dollar level.

Speaker Change: We had established is.

Speaker Change: Al.

Speaker Change: I'll limit in terms of capital allocation.

Speaker Change: To that point forward, our motivation is to make a $400 million investments as valuable as possible based on the series B price we have to.

Dan Newman: Based on the Series B price, we've turned that $400 million into $1.3 billion of value. I personally think that will continue to increase at a rapid rate. Every shareholder of International has preemption rights, but we don't expect that GDS Holdings will exercise preemption rights in future. GDS Holdings portion will be available for allocation to other investors, particularly investors who can add value to the international business.

Speaker Change: That $400 million into $1 $3 billion of value that personally think that will continue to increase at a rapid rate.

Speaker Change: Every shareholder.

Speaker Change: International has preemption rights, but we don't expect the GDS holdings will.

Speaker Change: Exercise preemption rights in future GDS holdings portion will be available to Alex allocation to other other investors.

Speaker Change: Vessels, you can add value to the international business.

Jonathan Atkin: Lastly, the Singapore CSA process, you know, Equinix just announced within the past hour or so the progress on what they're gonna be doing with their build. What is your visibility around timing, magnitude, location of where you're gonna be building in Singapore?

Speaker Change: Lastly, the Singapore CSA process.

Speaker Change: Equity consisting out within the past hour so some progress on there.

Speaker Change: What they're going to be doing with their sales.

Speaker Change: What is your visibility around timing magnitude location of where youre going to be building in Singapore.

Operator: Location.

Jonathan Atkin: Location.

William Huang: Yeah, I think, yeah.

Operator: Location.

Jonathan Atkin: Location.

Speaker Change: Keith.

Keith: Yes, I think so.

William Huang: Yeah. I think the Singapore location, we choose a site, a very good location, which is another cluster, data center cluster in the western part of Singapore. I think in the future, we will link them to our Johor and the Batam data center campus as well. We will create a very good platform in a security area and which our customer very like. This is number one. I think. We target, of course, by the end of 2026, we will complete the construction. This is our kind of schedule.

Keith: Okay.

Keith: No.

Keith: Yes, I think.

Keith: Simple little kitchen, which was a cited very good location, which is there and then the cost to data center across the Internet.

Keith: In the western part of Singapore, I think here.

Keith: In the future we will lead them.

Keith: Linked linked them to the outlet Johan and at that time.

Keith: Data center campus as well.

Keith: So we will create.

Keith: Very good platform.

Keith: In our <unk> area and in which our customer very very like.

Keith: And that is number one I think you were talking of course, we target.

Keith: And of the 2026, we will competed construction this is our kind of the schedule.

Dan Newman: The size of that building is.

Keith: Yes.

William Huang: Yeah.

Dan Newman: quite large relative to the

Speaker Change: The size of that building is.

William Huang: Yeah.

Dan Newman: power quota which we have as of now. That was a deliberate decision because, with a relatively small amount of incremental investment, it give us the option and potential

Speaker Change: Quite large relative to the power quota, which we which we have as of now.

Speaker Change: And that was a deliberate decision because.

Speaker Change: With a relatively small amount of incremental investment to give us the option of the potential to be able to expand.

William Huang: Yeah.

Dan Newman: to be able to expand

William Huang: Yeah.

Dan Newman: in a number of different ways.

Operator: Right.

Dan Newman: On that same site.

Speaker Change: A number of different ways.

William Huang: Right.

Speaker Change: On that same site right.

Jonathan Atkin: Thank you.

Speaker Change: Yes.

Operator: Thank you. We'll now take our next question. This is from Louis Tsang from Citi. Please go ahead.

Operator: Thank you. We'll now take our next question. This is from Louis Tse from Citi. Please go ahead.

Speaker Change: Thank you.

Speaker Change: We will now take our next question.

Speaker Change: This is from Louise Chen from Citi. Please go ahead.

Louis Tsang: Hello. Thank you. Thank you, management, for taking my question. Congratulations on the strong lease plans. I think overall the domestic momentum is really solid. They're very positive and encouraging. Today I have two questions. The first one is about regarding the GDSI. Could you please further elaborate on the rationale of entering the Thailand market? Or let me put it this way. How should we think about like the future demand and the availability of the resources like connectivity, power, land, water? And do you think that if there's any like possibility that Thailand could be another DC hub similar to Johor? That's my first question. Maybe I should go.

Louis Tse: Hello. Thank you. Thank you, management, for taking my question. Congratulations on the strong lease plans. I think overall the domestic momentum is really solid. They're very positive and encouraging. Today I have two questions. The first one is about regarding the GDSI. Could you please further elaborate on the rationale of entering the Thailand market? Or let me put it this way. How should we think about like the future demand and the availability of the resources like connectivity, power, land, water? And do you think that if there's any like possibility that Thailand could be another DC hub similar to Johor? That's my first question. Maybe I should go.

Louise Chen: Hello. Thank you. Thank you management for taking my question congratulation on the strong results.

Louise Chen: I think overall the macro movements really what your thoughts are very positive and encouraging.

So today I have two questions. The first one is that regarding the GDS side could.

Louise Chen: Could you please elaborate on the rationale of Antero A&D talent market.

Louise Chen: Or let me put it this way how should we think about like a future did now.

Speaker Change: The ability that the resource is like.

Speaker Change: Connectivity power Lang water and do you think that.

Speaker Change: If there is any possibility that Thailand could be another DC hub similar to a halt at that's my first question, maybe I should go one by one.

William Huang: Yeah.

Louis Tsang: One by one. Thank you.

Louis Tse: One by one. Thank you.

William Huang: Okay. I think the rationale to entering to Thailand is, there's a. We always think about Thailand's 80 million population and the economy grows very healthy. If you noticed it recently, in this year, a lot of the hyperscaler announced the investment in Thailand. We also understand that digitalization develops a digital economy is a key driver. It's a national, let's say national strategy to drive the Thailand economy. The government very support all the foreign investment to Thailand. We are very proud of we are the first hyperscale player enter into this market. We always enter into a market more early than anyone else.

Speaker Change: Okay, I think the rational tool and team two highlights.

Speaker Change: We always think about it.

Speaker Change: Palin said 80 million popular.

Speaker Change: Population.

Speaker Change: And the economy grows very healthy and.

Speaker Change: If you notice if you noted did recently in the region.

Speaker Change: This year a lot of the Hyperscale.

Speaker Change: Announced it.

Speaker Change: <unk>.

Speaker Change: Thailand, and we also understand that.

Speaker Change: <unk>.

Speaker Change: Good utilization.

Speaker Change: Digital economy is the key driver is the nationals.

Speaker Change: Let's say national strategy to Jive.

Speaker Change: Thailand economy. So the government are very very support all the foreign investment in best investment to Thailand. So we are very proud of.

Speaker Change: First hyperscale payer in the entry into this market we always.

Speaker Change: Yes.

Speaker Change: We are entering to a market more early than anyone else and then we definitely confident there is a lot of good demand. We are coming so I think this is rational in terms of the I think currently we are more targeted to our customer the mainly service so some local domestic market.

William Huang: We definitely confident there's a lot of the demand will coming. I think this is the rationale. In terms of the currently we are more targeted our customer, they mainly service local domestic market. I think Thailand has the potential to grow up another data center hub in Asia-Pacific in terms of the local e-economy, plus their influence for the country around them, right? In Asia-Pacific, we believe there's not only one data center hub, right? In the future, I think the more, maybe there's another two or three data center hub will grow up. I think this is our rationale to think about.

Speaker Change: I think did.

Speaker Change: Thailand has the potential to grow up another data center hub in Asia Pacific in terms of.

Speaker Change: Yes.

Speaker Change: The low coal.

Speaker Change: Economy plus.

Speaker Change: The inference.

Speaker Change: <unk> for that.

Speaker Change: The country around that right. So I think in the.

Speaker Change: Sure.

Speaker Change: In Asia Pacific, We believe they have said not only one data center.

Speaker Change: In the future I think the more maybe another two or three data center hub rollout. So I think the thesis.

Speaker Change: This is our net rational to think about.

Louis Tsang: Okay. Thank you so much. The second one is about the domestic one, because I think the domestic move-in target that I just heard was really good. I just want to know, like, how should we, like, recalibrate the outlook for the domestic moving, like, next year? Because it's not that the demand is going to sustain, but just, like, if there's any chance, like, that the moving will see, like, a further acceleration next year, or would you think that, like, maybe it will maintain, like, a similar level? Because to me, like, based on my understanding, right, the CapEx cycle of the domestic giants similarly will accelerate in next year, the first half maybe. I just want to know more about the outlook for that. Thank you so much.

Louis Tse: Okay. Thank you so much. The second one is about the domestic one, because I think the domestic move-in target that I just heard was really good. I just want to know, like, how should we, like, recalibrate the outlook for the domestic moving, like, next year? Because it's not that the demand is going to sustain, but just, like, if there's any chance, like, that the moving will see, like, a further acceleration next year, or would you think that, like, maybe it will maintain, like, a similar level? Because to me, like, based on my understanding, right, the CapEx cycle of the domestic giants similarly will accelerate in next year, the first half maybe. I just want to know more about the outlook for that. Thank you so much.

Speaker Change: Okay. Thank you so much. Thank you so much and the second one is about the domestic one because I think.

Speaker Change: The dramatic moving target that I, just heard was really good and.

Speaker Change: I just wanted to know like how should we calibrate the outlook for the domestic movie slate next year again, the fact that the demand is going to.

Speaker Change: Sustain but just like if there is any chance that the moving we see like a further acceleration next year or would you think that like maybe you would maintain like Eric similar level I guess, you mean like <unk>.

Speaker Change: Based on my understanding right the Capex cycle off the domestic Giants simoni.

Speaker Change: Alright, and next year the first half so I just want you know one that I'll look for that thank you so much.

William Huang: Yeah. You know, to clarify, because I think Yang Liu asked earlier, the slightly higher than guided CapEx this year is brought forward. It doesn't indicate that that's the kind of level of next year. In fact, I'd say if we were giving guidance for next year now, it would probably be the same as our original guidance for this year, around RMB 2.5 billion. The move-in, we're talking about net additional area utilized. So the

Dan Newman: Yeah. You know, to clarify, because I think Yang Liu asked earlier, the slightly higher than guided CapEx this year is brought forward. It doesn't indicate that that's the kind of level of next year. In fact, I'd say if we were giving guidance for next year now, it would probably be the same as our original guidance for this year, around RMB 2.5 billion. The move-in, we're talking about net additional area utilized. So the

Speaker Change: Yes.

Speaker Change: To clarify because.

Speaker Change: And Australia.

Speaker Change: Slightly higher than guided Capex. This year is putting towards it doesn't indicate that that's the kind of level of nextgen impact.

Speaker Change: If we were giving guidance for next year now we would probably be the same.

Speaker Change: Our original guidance for this year around $2 5 billion RMB.

Speaker Change: So the move in which will give out net additional area utilized.

Dan Newman: The gross level is the 25,000 square meters in Q3 and then net of churn on an annual basis. We expect 60,000 square meters this year. You know, we're confident enough at this time to say that we expect that level next year as well. This rate of growth, as William was talking about, our strategy is really the result of continuing to be very selective in terms of new business and focusing on delivery of the backlog and minimizing CapEx to prioritize cost to complete and increase asset utilization. Utilization rate, we expect to increase to the high seventies from low seventies at the moment to high seventies by the end of next year. That's our base case.

Speaker Change: At the gross level is the 25000 square meters in the third quarter and then net net of churn.

Speaker Change: Annual basis, we expect 60000 square meters this year.

Speaker Change: And we are confident enough.

Speaker Change: At this time.

Speaker Change: We expect that level next year as well.

Speaker Change: This raised gross within minutes talking about our strategy is really.

Speaker Change: The result of.

Speaker Change: Continuing to be very selective in terms of new business.

Speaker Change: And focusing on delivery of the backlog.

And minimizing capex to.

Speaker Change: Prioritize.

Speaker Change: Cost to complete.

Speaker Change: Increased asset utilization utilization rate, we expect to increase by the highest <unk> from low seventy's at the moment to <unk> by the end of by the end of next year.

Dan Newman: What we can't be certain about is the opportunity to undertake new campus development, because undoubtedly there will be demand from hyperscale coming to tier one markets, which requires new development. You know, we have a land bank with power quota, multiple sites around Beijing, Shanghai, Shenzhen, Guangzhou. That kind of resource is scarce and it will be in demand. It's our choice, you know, to proceed with those kinds of opportunities if they're attractive enough and we choose to do so. But ideally that would go in sync with having established a mechanism and vehicle for monetizing stabilized assets. I think that's ideal from the point of view of our shareholders.

Speaker Change: That's our base case.

Speaker Change: What we call <unk>.

Speaker Change: Certain about is the.

Speaker Change: The opportunity to.

Speaker Change: <unk>.

Speaker Change: Undertake new campus development, because undoubtedly there will be demand from hyperscale coming to tier one markets.

Speaker Change: Which requires new development.

Speaker Change: And we have a land land bank planned with power quota.

Speaker Change: Multiple sites around Beijing, Shanghai, Shenzhen Guangzhou.

Speaker Change: And.

Speaker Change: That kind of resources scarce.

Speaker Change: And it will be in demand.

Speaker Change: It's our choice.

Speaker Change: To proceed with those kinds of opportunities if they are attractive enough.

Speaker Change: And we choose to do so but ideally that would go.

Speaker Change: In sync.

Speaker Change: With having established.

Speaker Change: Mechanism and vehicle for monetizing stabilized assets I think that's ideal for them.

Dan Newman: The timing may not be exactly matched, but I think both are. You know, we expect to see those kind of new development opportunities next year. We talked about the progress we expect to make with our asset monetization, both the pre-REIT and the C-REIT over the next few quarters.

Speaker Change: Point of view about shareholders, the timing may not be exactly match, but I think.

Speaker Change: Both.

Speaker Change: We expect to see those kind of new development opportunities next year, and we talked about the progress we expect to meet with our with our asset monetization, both the <unk> and the series over the next few quarters.

William Huang: Yeah.

Louis Tsang: Okay. Thank you so much. Like, looking forward to the further development. Thank you so much, gentlemen.

Louis Tse: Okay. Thank you so much. Like, looking forward to the further development. Thank you so much, gentlemen.

Speaker Change: Yes.

Speaker Change: Okay. Thank you so much like looking for <unk> to further development. Thank you so much. Thank you.

Dan Newman: Yeah. Thank you.

Louis Tsang: I have no further questions. Thank you.

Louis Tse: I have no further questions. Thank you.

Operator: Thank you. The next question is from the line of Frank Louthan from Raymond James. Please go ahead.

Speaker Change: The question. Thank you.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Frank Louthan from Raymond James. Please go ahead.

Frank Louthan: Great. Thank you. On the Beaune design, can you give us some idea of what makes that so advanced? When you do a build like that, how much of that CapEx are you paying for on your book that's sort of at risk versus customers that are building in that what you charge them to pay for, you know, what I assume is additional cooling or other things like that? Thanks.

Frank Louthan: Great. Thank you.

Frank Louthan: Mccann design can you give us some idea of what makes that so advance and when you. When you do a build like that how much of that Capex are you paying for on your book, that's sort of at risk versus customers that are building in what you charge them to pay for what I assume is is additional cooling or other things like that.

Frank Louthan: Thanks.

Dan Newman: What kind of design?

Frank Louthan: Okay.

Frank Louthan: What kind of design.

William Huang: This is a liquid cooling design, based design. Yeah, this is definitely all the new design for the AI. We call it AI-ready data center, right?

Frank Louthan: Sure.

This is according to design.

The design here, yes. This is definitely it is.

Frank Louthan: Or the new new.

Frank Louthan: Is it design for the <unk> we.

Frank Louthan: We call the AI ready data centers right.

Dan Newman: That is, yeah.

William Huang: Yeah. I think the, of course, a lot of the designs are mainly customized by the customer. They pay everything, right? In print. Yeah.

Frank Louthan: Obviously.

Frank Louthan: Yes.

Frank Louthan: Yeah.

Frank Louthan: Okay.

Frank Louthan: Sure.

Sure.

Frank Louthan: Okay.

Frank Louthan: Of course a lot.

Frank Louthan: Signs of mainly.

Frank Louthan: The customer either by the customer pay everything right.

Frank Louthan: Okay. What sort of power density are you able to get with this design? Is there a limit to it or how should we think about that?

Frank Louthan: Yes.

Frank Louthan: Okay.

Speaker Change: And what sort of power Gen. Z are you able to get with this design is there a limit to it or how should we think about that.

William Huang: It's around, I think it's around the, let's say averages around the 10kW per rack. If I remember, maybe, yeah, it's roughly, I think. Yeah.

Ron: Ron I think it's around <unk>.

Ron: Let's say every case unbounded.

Ron: Hey debate.

Ron: Brett.

Ron: Okay.

Ron: Maybe it's a rough rate I think yes.

Frank Louthan: Okay, great. Thank you.

Ron: Okay, great. Thank you.

Operator: Thank you. The next question is from the line of Edison Lee from Jefferies. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Edison Lee from Jefferies. Please go ahead.

Edison Lee: Hi. Thank you for taking my questions and congrats again on a very good quarter. I think I want to focus on China because, well, I'm very impressed by

Speaker Change: Thank you for taking my questions and congrats again on North America.

I want to focus on China because Mr.

Dan Newman: When-

Edison Lee: When I looked at the net area utilized, it actually grew by 11, 12% on a year-over-year basis. Your China revenue only grew by 6% on a year-over-year basis. Can you help us understand the trend of that unit pricing going forward?

Bye.

Speaker Change: But when I looked at.

Speaker Change: And in that area.

It's nice to the cool by 11, 12% on a year on year basis.

Speaker Change: China revenue only grew by 6% on a year on year basis. So can you help us understand the trend of that unit pricing going forward.

Dan Newman: Yeah. The reason for the disparity between increase in area utilized and revenue is that there's always a lag, right? Because, you know, the move-in happens over a period of time. I think from Q3 2023 to Q3 2024, there was a 4% decrease in the MSR. If you do that comparison on a like-for-like basis, the decline over the past year has been less than that in most quarters. Q3 to Q3 it was 4%. It was also during Q3 2023 that power tariffs, both the tariff charged by the generator and by the grid, both went up in Q3 2023.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: The reason for the disparity between increase scenario you fly assumes revenue is that.

There's always a lag right because the.

Speaker Change: Moving happens.

Speaker Change: Over a period of time.

Speaker Change: I think for Q2, 'twenty threes for so sorry, <unk> 23.

Speaker Change: Two three Q2 2004, there was a 4% decrease in the MSR if you do that.

Speaker Change: Comparison.

Speaker Change: On a like for like basis.

Speaker Change: The decline over the past year has been less than that in most.

Most quarters.

Speaker Change: Third quarter to the third quarter it was 4%.

Speaker Change: And.

Speaker Change: It was also during the third quarter of 2023.

Speaker Change: Powerhouse both Steve.

Speaker Change: The tariff charged by the generator and by the grid both went up.

Dan Newman: That results in like 1 percentage point reduction in the adjusted EBITDA margin when we compare Q3 2024 versus Q3 2023. I think those two together are, you know, explain the disparity between the increase in the area utilized and the revenue and EBITDA growth rates. Going forward, I think over the next 4 quarters, you can expect the MSR to decline by something like 2%, if you compare the same quarter of each year.

Speaker Change: In the third quarter of 2023.

Speaker Change: And that resulted in a one percentage point.

Speaker Change: The.

Speaker Change: A reduction in the adjusted EBITDA margin.

Speaker Change: We compare.

Speaker Change: <unk> 24 versus three.

<unk> 23, putting those two together.

Speaker Change: Yes explain.

Speaker Change: The disparity between the increase in the <unk> slides and the revenue and EBITDA growth rates.

Speaker Change: Going forward I think over the next hour.

Speaker Change: Four quarters you.

Speaker Change: You can expect the MSR to decline by <unk>.

Speaker Change: Something like 2%.

Speaker Change: If you compare the same quarter of each year.

Speaker Change: Yes.

Edison Lee: Does it mean that assuming that, as you said earlier, the net additional utilized next year would be, let's say 60,000 sq m, and then you have price erosion of 2%.

Speaker Change: So it doesn't mean that a similar debt.

Speaker Change: You said earlier.

Speaker Change: Net.

Speaker Change: Okay.

Speaker Change: <unk> would be best is 50000 square meters and that you have.

Dan Newman: Yeah.

Edison Lee: Final revenue can actually grow at high single digits by next year.

Price erosion of 2%.

Speaker Change: Good afternoon, and thank you Nicole at high single digit next year.

Dan Newman: That's right. I mean, we, you know, aim for 10%. Yeah.

Speaker Change: But yes, that's right.

Speaker Change: Aim for 10%.

Edison Lee: Aim for 10%. Okay. A quick follow-up. I mean, given slightly higher capacity on China, and then you're talking about maybe investing in some high potential new projects. Does it change your objective or previous target to be free cash flow breakeven in 2025?

Speaker Change: Yes.

Speaker Change: 10% Okay.

Speaker Change: And then as a quick follow up on me Kevin.

Speaker Change: Plenty of high Capex this year on China and then.

All care about making investing in some high potential new projects.

Speaker Change: Sure, Jeff, Jeff our previous target to be free cash flow breakeven in 2025.

Dan Newman: No, it doesn't. Like, for starters, that's not reflected in the numbers, right? It's a upside opportunity that we're just flagging, but it would require additional investment. I think we will, in our base case, be comfortably positive in terms of cash flow, before financing next year, as indeed we will this year. If we incur additional investment and the CapEx is higher than, say, the CNY 2.5 billion number that I mentioned, hopefully that will be in conjunction with having completed some asset monetization. That net should result in us still being positive. Yeah.

Speaker Change: No. It doesn't stop that's not reflected in the numbers say upside opportunity that we're just flagging, but it would require additional investments.

Speaker Change: I think we will face.

Speaker Change: Base case be comfortably.

Speaker Change: Positive in terms of cash flow.

Before financing next year as indeed, we will we will this year.

If we.

Speaker Change: Incur additional investment in the Capex is higher than say the $2 5 billion RMB number that I mentioned.

Speaker Change: Hopefully that will be in conjunction with having completed some asset monetization.

Speaker Change: And.

Speaker Change: Net.

Speaker Change: Should result in our stoping holster.

Edison Lee: I see. Okay. Got it. Okay, great. Thanks.

Yes.

Speaker Change: Okay got it okay, great. Thanks.

Operator: Thank you. The next question is from the line of Sara Wang from UBS. Please go ahead.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Sara Wang from UBS. Please go ahead.

Sara Wang: Hi, congratulations on the solid set of results. I have two questions. First is on China. Would you please elaborate more on the potential outlook of China business? Meaning, I think as management just mentioned, if we want to grab the AI opportunity in tier one markets, that involves new investments. But at the same time, we are also having quite a decent backlog. Previously, we were talking about cost to complete existing backlog. Is there any change in the cost to complete assumptions given now the demand is driven by AI, but maybe some of the backlog is entered one or two years ago in the late cloud cycle? My second question is on international business.

Sara Wang: Hi, congratulations on the solid set of results.

Sara Wang: Two questions first is on China. So.

Sara Wang: Could you please elaborate more on the potential outlook of China. Many.

Sara Wang: I think as management just mentioned we.

Sara Wang: We want to grab.

Sara Wang: Opportunity in tier one markets in Boston Zachman, and Edison time, we are also having quite a decent backlog. So previously we were talking about our cost to complete our existing backlog.

Speaker Change: Is there any change in the cost to complete assumption given.

The demand is driven by AI, but maybe some of the back office and one.

Speaker Change: One or two year cycle in that late cycle.

Speaker Change: Then my second question is on international business.

Sara Wang: Given the solid new orders signed this year, how shall we think about the new orders into next year, for example, in terms of volume? It's glad to see that we're entering into new markets, but given we are working in multiple overseas markets, which one is our top priority? Thank you.

Speaker Change: Given the solid new other sign this year.

Speaker Change: How shall we think about the new <unk> into next year, but I'm going to turn it off volume and then glad to see that we're entering into a new market, but we are working in multiple oversea market, which one is our top priority. Thank you.

Dan Newman: Let me start with the cost to complete. As at the end of Q3 2024, we had 120,000 square meters under construction. And the cost to complete for that capacity is 6 billion RMB. Some small part of it actually relates to some data centers which are already in service, because sometimes there is some cost to complete, meaning fitting out some space which is not yet utilized, where we're able to phase the timing of the, you know, installation of M&E and so on. But across the in-service and under-construction portfolio, the cost to complete in aggregate is 6 billion RMB.

Speaker Change: Yes.

Speaker Change: Let me start with the.

Speaker Change: Cost to complete.

Speaker Change: As at the end of the third quarter of 24, we had.

Speaker Change: 120000 square meters under construction.

Speaker Change: And the cost to compete for that capacity.

Speaker Change: 6 billion RMB.

Speaker Change: Some small part of it actually relates to some data centers, which are already in service because sometimes there is some cost to complete meaning picking out some some space, which is not yet.

Speaker Change: You slides, where we were able to say.

Speaker Change: The timing of the installation of M&A.

Speaker Change: But across the in service and under construction portfolio the cost to complete and accurate is 6 billion RMB.

Dan Newman: If we were to, you know, undertake a completely new project, we would be utilizing demand and energy quota, which we already have. That's why, you know, we put into our earnings presentation, again, a disclosure about how much capacity we have held for future development, because this is becoming relevant again. This is scarce resource. There are not that many options for customers as they're looking for somewhere to be able to deploy 50 megawatts or more in the edge of town around Beijing, Shanghai, Shenzhen, Guangzhou, and we have a number of solutions for that. You know, our unit development cost in China, 50 megawatts, we're probably talking about, you know, incremental, you know, RMB 1 to 1.5 billion.

Speaker Change: If we were to undertake a completely new projects.

Speaker Change: We would be.

Speaker Change: Utilizing energy quota, which we already have that's why.

Speaker Change: We put in to our earnings presentation again.

Speaker Change: Disclosure about how much capacity, we have held held for future development because this is becoming relevant again.

Speaker Change: And this is scarce resource that many options for customers as they are looking.

Speaker Change: Somewhere to be able to deploy 50 megawatts or more.

Speaker Change: And the edge of town around patient Shanghai Shenzhen.

Joe and we have a number of solutions.

Speaker Change: With us.

Speaker Change: You Couldnt.

Speaker Change: Well unit development cost in China.

Speaker Change: 50 megawatts.

Speaker Change: Are we talking about incremental.

Speaker Change: One to one 5 billion RMB.

Dan Newman: You know, one project like that could add 4 or 5 percentage points to our growth rate. That's how we think about it, but we're just talking about it now because it's a possibility for us next year, but it's our choice whether we go ahead with that. It really depends a lot on how attractive the commercial terms are.

Speaker Change: One project like that could add four or five percentage points to our growth rate.

Speaker Change: That's how we think about it.

Speaker Change: Just.

Speaker Change: Talking about it now because it is a possibility for us next year, but it's our choice whether we whether we.

Speaker Change: With that it really depends on the on the on.

Speaker Change: How attractive the commercial terms are.

[Company Representative] (GDS Holdings): You said you are international.

Sara Wang: You said you are international.

Speaker Change: Yes.

William Huang: Okay.

Speaker Change: Yes.

[Company Representative] (GDS Holdings): Top, top priority on the market, like where you want to be?

Sara Wang: Top, top priority on the market, like where you want to be?

Speaker Change: Yes.

Speaker Change: Okay.

William Huang: In terms of the international market, I think we definitely Johor is still our main focus, Johor area. We're well-positioned on that, and we have very good location and a customer base already. We see that a lot of demand is in our pipeline. I think to monetize our position of secured power in the land definitely is our first priority. In terms of the new market, in terms of new sales, yeah, I think the next year we aim to, let's say, 200MW. As I said last quarter, in three years, we will double our...

Speaker Change: That's great.

Speaker Change: Yes, I think here, we're still in Tulsa.

Speaker Change: Okay.

International market I think we definitely see jewelry is still our main focus so jewelry area and we are well positioned on that and we have very very good.

Location and our customer base already.

Speaker Change: <unk>.

Speaker Change: We see that a lot of demand.

Speaker Change: In our pipeline.

Speaker Change: And.

I think the year to monetize.

Speaker Change: Our position.

Speaker Change: Sure.

Speaker Change: Secure the power in the land as our definitely is our first priority.

Speaker Change: But in terms of.

Speaker Change: Yes.

Speaker Change: The new.

Speaker Change: Market News I think in terms of new sales, yes, I think the next year, we aim to let's say 200 megawatt and here as I lost the last quarter I said industry, Yes, we will double our K two reached two one gigawatt cells in next three years, So I think that this.

William Huang: We try to reach to the 1 gigawatt sales in next 3 years. I think this is our target. We are very confident on this targets which set up already. In terms of new market, I think there's definitely a new market. Another strategy, because this demand wave is global demand. It's if you look at it, the AI-driven, the demand is not only in Southeast Asia, even Japan and Middle East, Europe and the US as well. We try to maintain our, let's say, long-term growth, so we should look at the new market opportunity very closely. Thailand market is one of our new market, but I think that is still in the Southeast Asia.

Speaker Change: As our target and.

Speaker Change: I think we are very confident on this topic, which set the setup set up already.

Speaker Change: And in terms of new market I think there is definitely a new markets out.

Speaker Change: Another strategy.

Speaker Change: This demand wave is global demand.

Speaker Change: If you look at it the AI driven the demand is not only in such as Asia, even Japan in that.

Speaker Change: Middle East Europe, and the U S as well.

So we try to.

Speaker Change: We try to maintain our let's say long term growth.

Speaker Change: So we should look at it.

Speaker Change: A new market opportunity.

Speaker Change: Very closely so panel market. So one of our new market, but I think that is still in our southeast Asia, but I think.

William Huang: I think we also target some of the new market, like in Japan, like, we already started a new project already. It's a test of water project. We have our team very closely to follow up the market trend in Japan. Even we have some very deep study in the European market. We try to set up another couple of the growth engine in the next few years.

Speaker Change: We also have Pakistan, new market like Japan.

Speaker Change: Well really start a new project already.

Speaker Change: Yes.

Speaker Change: The test of what's the project yes.

Speaker Change: We have our team.

Speaker Change: Very closely to falloff tier marquee market.

Speaker Change: Churn in Japan, and even we have some that start a very deep study in European market. So.

Speaker Change: We try to.

Speaker Change: Set up another couple of the <unk> next few years.

[Company Representative] (GDS Holdings): Got it. Very clear. Thank you.

Sara Wang: Got it. Very clear. Thank you.

Speaker Change: Got it very clear thank you.

Operator: Thank you. As there are no further questions, I'd like to now turn the call back over to the company for closing remarks.

Speaker Change: Okay.

Speaker Change: Thank you Sir.

Speaker Change: No further questions I'd like to now turn the call back over to the company for closing remarks.

[Company Representative] (GDS Holdings): Thank you all for attending today, and we'll see you next time. Bye.

Laura Chen: Thank you all for attending today, and we'll see you next time. Bye.

Speaker Change: Thank you all for attending today and we'll see you next time.

William Huang: Thank you.

Operator: This concludes the conference call. You may now disconnect your line. Thank you.

Speaker Change: Thank you.

Speaker Change: This concludes.

Speaker Change: You may now disconnect. Your line. Thank you.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Sure.

[music].

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: [music].

Q3 2024 GDS Holdings Ltd Earnings Call

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