GDS - Regulatory Fear Is The Exact Positive Catalyst For GDS Holdings
- GDS’s share price fell 26.4% since Jun 1, 2021, in sympathy with the broader China Internet industry as increasingly tight policies are introduced targeting internet companies.
- Regulation is likely tailwind to GDS rather than headwind. The NDRC and MIIT both recently published supportive policy direction towards the China data center industry, benefitting industry leaders.
- The depressed valuation of the sector as well as regulation fear are the exact positive catalysts for market leader GDS, as uncommitted players will be driven out by market consolidation.
- Recent 2Q21 result affirms no change in GDS outlook. FY21 EBITDA guidance maintained at 48.9% YoY. Backlog grew by 41.4% YoY in 2Q21. Pipeline is almost 2x current total capacity.
- Estimates unchanged. Yet, higher country policy risk lowered my TP to US$100 (from US$120), representing 88% upside. GDS is trading at 3-year low at 16.2x FY22 EV/EBITDA.
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Regulatory Fear Is The Exact Positive Catalyst For GDS Holdings