Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net revenues increased by 9.4% year over year to RMB1.99 billion.
- Adjusted EBITDA grew by 7.3% year over year to RMB574 million.
- Wholesale business revenue increased by 81% year over year to RMB402 million.
- Secured significant new orders totaling 235 megawatts, primarily for AI deployment.
- Strong liquidity position with total cash equivalents, restricted cash, and short-term investments reaching RMB2.22 billion.
Negative Points
- Retail IDC business showed only stable development with a utilization rate of 63.7%.
- Operating expenses decreased by 7.7% year over year but still represent a significant cost.
- CapEx guidance for the full year increased to RMB5 billion to RMB5.5 billion, indicating higher future expenditures.
- Debt levels remain a concern with a net debt to trailing 12 months adjusted EBITDA ratio of 4.6x.
- The company faces competitive pressures in the IDC market, particularly in the Yangtze River Delta and Greater Beijing Area.
Q & A Highlights
Q: Could you please update us on the underlying demand in China, especially given the high double-digit growth in your wholesale business?
A: (Gavin Chenggang Shen, Rotating President) The demand for wholesale services is robust, with significant order wins totaling 235 megawatts. We expect this strong customer demand to continue, benefiting our wholesale business. Our retail business is also growing steadily.
Q: What preparations has VNET made for potential AI demand, and what is the expected ROI for AI-related data centers compared to non-AI ones?
A: (Gavin Chenggang Shen, Rotating President) We are fully embracing AI, with the majority of new orders being AI-related. The cost of constructing AI-oriented data centers is not significantly different from traditional ones, and we expect consistent ROI. We are leveraging innovative technologies to keep construction costs low.
Q: Can you provide details on the CapEx cost per megawatt for the Ulanqab project and the expected EBITDA margin? Also, what is the timeline for ramping up to 1.2 gigawatts of IT capacity?
A: (Gavin Chenggang Shen, Rotating President) The average construction cost per megawatt is lower due to innovative technologies. We plan to deliver the 1.2 gigawatts of capacity over five years, averaging 200 megawatts per year.
Q: What is your CapEx plan for retail, given the RMB1.8 billion spent in the first half of the year?
A: (Qiyu Wang, CFO) We allocated RMB550 million for retail capacity, including maintenance and upgrading to high-power density cabinets. We do not plan significant CapEx for retail this year, but a small portion of wholesale capacity is reserved for retail services.
Q: Could you update us on your future financing plans, especially given the increased CapEx guidance?
A: (Qiyu Wang, CFO) We have strong support from shareholders and favorable financing conditions. We are exploring C rates, private placements, and pre-rates, and we aim to keep the total debt to EBITDA ratio below 6.5x even if fully financed through debt.
Q: What is the latest pricing trend for the wholesale business, and can we expect retail business revenue to grow year-on-year in the second half?
A: (Gavin Chenggang Shen, Rotating President) The pricing for IDC capacity is stabilizing and starting to pick up. Our retail business is stable, and we are repurposing cabinets for high-power density and computing business, which should stabilize revenue growth.
Q: How do you expect the utilization rate for the wholesale business to trend in the second half and next year?
A: (Qiyu Wang, CFO) We expect the utilization rate to reach around 90% within 6 to 12 months of delivery. There may be slight fluctuations due to consolidated deliveries, but we will provide more details as we have more visibility.
Q: What is the CapEx outlook for the next few years, especially with the 1.2 gigawatts planned for Ulanqab?
A: (Qiyu Wang, CFO) We prioritize ROI for projects, especially in Ulanqab. We are exploring asset disposal and partnership models to increase CapEx capabilities without using on-balance sheet cash reserves or credit lines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
