Investment Summary
GDS (“the Company”) is a third-party data center operator and service provider, mainly providing customers with data center, hosting and management services. Data centers are distributed in the core economic regions of China, with large scale, abundant power supply, high density and high efficiency. The Company is currently one of the leading high-performance data centers and IT infrastructure service providers in China.
Abundant land reserves and enjoy asset-based economic moat
The IDC industry is a heavy asset industry. The larger the scale, the lower financing costs and economies of scale. As of June 30, 2020, about 98% of the Company’s self-developed data centers are located in first-tier markets, such as Shanghai, Beijing, Shenzhen, Guangzhou, Hong Kong, etc. Because these areas have the highest density of Internet users, a high proportion of data and applications are mission-critical and latency-sensitive. In order to meet the needs of clients from financial, industrial, commercial, and communications industries, the Company locates data centers close to major customers area. This makes the Company to be more competitive in serving customers in Tier 1 markets with our existing facilities. The abundant land reserves have laid a solid foundation for the Company’s sustainable development, and gradually formed a strategic asset-based economic moat.
The core business benefit from cloud computing development
China is one of the largest and fastest growing digital economy globally. China’s rapid adoption of new technologies such as cloud computing, 5G, artificial intelligence, big data, machine learning, blockchain, IoT, augmented and virtual reality, e-payment and digital currency is expected to increase exponentially the volume of data created, transmitted, processed and stored, much of which will take place within and between data centers. Customers from cloud services accounted for the Company’s total contract area (71.8% as of June 30, 2020). According to data from iResearch, the size of China’s cloud market is RMB 149 billion in 2019, and is expected to increase at a 34.1% CAGR to reach RMB 645.2 billion in 2024. Cloud computing is the Company’s main source of income. Cloud vendors have extremely high data security requirements, so the partnership is stable. The contract period is generally 6-10 years. We expect the Company will directly benefit from the rapid development of cloud computing.
IDC with leading domestic technology
Data center hosting business requires operators to have sufficient power density, while GDS data center are largescale, highly reliable and efficient facilities that provides a flexible, modular and secure operating environment in which their customers can house, power and cool the computer systems and networking equipment that support their mission-critical IT systems. The Company installed high power density and optimize PUE, enabling the Company’s customers to deploy their IT systems more efficiently and reduce their operating and capital costs. In addition, the management team of GDS has deep knowledge and professional skills in the IT service industry. Its technical level has been affirmed by the industry and has won awards from major institutions for many years.