GDS Holdings: From AI Darling To Cash-Burning Nomad

seekingalpha11-21

GDS Holdings Limited's Q3 2024 revenue and EPS met expectations, but margin pressures, AI impact skepticism, and high international capex are key concerns.Despite strong YTD performance, international...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nGDS Holdings: From AI Darling To Cash-Burning Nomad\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-21 07:03 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4739143-gds-holdings-from-ai-darling-to-cash-burning-nomad><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>GDS Holdings Limited's Q3 2024 revenue and EPS met expectations, but margin pressures, AI impact skepticism, and high international capex are key concerns.Despite strong YTD performance, international...</p>\n\n<a href=\"https://seekingalpha.com/article/4739143-gds-holdings-from-ai-darling-to-cash-burning-nomad\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4563","symbol_name":"昨日强势股","start_time":0,"source_url":"https://seekingalpha.com/article/4739143-gds-holdings-from-ai-darling-to-cash-burning-nomad","article_id":"2485217052","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1347880321/image_1347880321.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485217052","pubTimestamp":1732143833,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"GDS Holdings Limited's Q3 2024 revenue and EPS met expectations, but margin pressures, AI impact skepticism, and high international capex are key concerns.Despite strong YTD performance, international","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4563":"昨日强势股","GDS":"万国数据","BK4531":"中概回港概念","BK4529":"IDC概念","BK4585":"ETF&股票定投概念","BK4505":"高瓴资本持仓","BK4116":"互联网服务与基础架构","BK4526":"热门中概股","BK4588":"碎股"},"translate_title":"万国数据控股：从AI宠儿到烧钱游民","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"GDS":0.9},"content_text":"GDS Holdings Limited's Q3 2024 revenue and EPS met expectations, but margin pressures, AI impact skepticism, and high international capex are key concerns.Despite strong YTD performance, international growth faces headwinds from elevated capex, competition, and regulatory risks, impacting execution.China's growth is stagnant due to soft demand, delayed AI impact, and customer churn, with increased power costs reducing EBITDA margins.Valuing GDS at $12.69/share implies a 31% downside; we remain cautious due to growth stagnation, delayed AI impact, and high capex.   Charday Penn  GDS Holdings Limited (NASDAQ:GDS) reported Q3 2024 revenue and EPS which were largely in line with consensus. However, the concerns about the growing margin pressure, skepticism around the timing of AI impact, and elevated capex on international growth will likely be key overhangs for the stock in the foreseeable future. The stock more than doubled YTD given its unique position as an AI play in China plus the optionality of international growth. Despite the stagnating growth in China, both the sell-side analysts and the buy-side investors have been largely supportive of the management’s execution overseas, as overseas revenue has been growing at an exponential rate. However, the narrative is beginning to shift. International growth is starting to see signs of headwinds, most notably elevated capex and spending in the overseas market amid an increasingly competitive environment, coupled with growing regulatory risks in Southeast Asia and Japan adding to execution uncertainties. With China's growth remaining stagnant and the international growth trajectory starting to face uncertainties, we expect the stock to de-rate following the disappointing Q3. The stock is a consensus buy, per Bloomberg, with 16 buys, 2 holds, and 0 sells. The current valuation of 13x 2025E EV/EBITDA is a slight premium compared with its China-focus peers, and we expect the shares to trade more in line with the peer range in light of the challenges that we have pointed out above.   Capital IQ, Astrada Advisors We value GDS on a SoTP basis by separating China and Overseas businesses. Our 8x target EV/EBITDA multiple for the China business (in line with peer VNET) derives an implied value of $6.57/share, while our 20x target EV/EBITDA multiple for the overseas business derives an implied value of $6.12/share. Combining the two parts translates to $12.69/share, implying a 31% downside from the current level. (See valuation below.) GDS' China business faces a prolonged stagnation GDS’s China business has been facing a prolonged period of stagnating growth due to soft domestic demand, delayed AI impact, and customer churn that has negatively impacted the topline. Over the past quarters, management has cited the soft China demand as major customers took longer to absorb the existing inventory. As such, GDS has been relying largely on backlog delivery to sustain its revenue growth. The narrative has not shifted materially in the most recent quarter, given that GDS continues to see churn challenges and delayed AI demand from customers. Management cited ongoing movement between customers among data centers, which has limited GDS’s ability to fully utilize its assets. In addition, the much-anticipated AI impact has yet to materialize, with management citing a combination of regulatory challenges and chip supply shortage. To make matters worse, the recent increase in power costs has significantly reduced GDS’s EBITDA margin this quarter. We note that China EBITDA margin saw 120bps Q/Q decline to 46%, compared with 47.1% last year.   Company Report, Astrada Advisors Elevated cost and uncertain execution weigh on overseas business In the international segment, rising execution risk is becoming a real concern given the growing scale and complexity of expanding in Southeast Asia, including Johor and Batam. Management increased the capex guidance to RMB8bn for the full year, vs. RMB 4bn originally. International has been one of the bright sports for GDS, given its growth outlook and potential in offsetting China's weakness. However, competition has been emerging in Batam, Johor, Singapore, and Hong Kong, as management has pointed out, with more established players such as Microsoft and Amazon expanding their presence in the region.   Company Report, Astrada Advisors The increase in capex for the overseas market will further weigh on GDS’s ability to generate FCF in the foreseeable future. We are modeling RMB 11bn in capex for 2024E, in line with management guidance. For 2025E and 2026E, we are modeling RMB3bn in capex for China, similar to management's prior guidance of RMB 2.5bn but with a slight adjustment given management’s growing poor track record in changing capex guidance with limited prior indication. Our RMB 3bn capex assumes 35k square meters of service area addition with an average service area cost of RMB 80k/sqm. For internationals, we are assuming 250 MW in service addition with $7mn/MW capex.   Company Report, Astrada Advisors Valuing GDS using SoTP We separate GDS China and GDS overseas using sum of the parts (“SoTP”) analysis. For China, we applied a 8x multiple similar to that of peer VNET (see comp table above) given that the China stagnation has been ongoing for two years and that AI impact is unlikely to play out in the near term. This is due to a combination of challenges such as macro, domestic competition and customer churn. For the international segment, we applied a generous 20x multiple, similar to that of its North American peers. After applying a 30% HoldCo discount, we derive an implied value of $6.12/share for the international business.   Company Report, Astrada Advisors  In conclusion, we are staying on the sidelines for GDS Holdings Limited stock. This is due to stagnating growth in China, delayed AI impact on revenue growth, growing competition in key international markets and, more importantly, elevated capex that is likely to weigh on FCF in the foreseeable future.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485217052"}