VNET Group Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 12, 2025

There are 10 speakers on the call.

Operator

Thank you for standing by for the Fourth Quarter and Full Year twenty twenty four Earnings Conference Call for VNET Group Incorporated. After the management's prepared remarks, there will be a question and answer session. Please note the Chinese line is in listen only mode. If you wish to ask questions, please dial in through the English line. Participants from our management include Mr.

Operator

Zhu Ma, Rotating President Mr. Qiu Wang, Chief Financial Officer Mr. Ke Yang, Senior Vice President and Ms. Xinyon Liu, Head of Investor Relations of the company. Please note that today's conference call is being recorded.

Operator

I will now turn the call over to the first speaker today, Ms. Xinyon Liu. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to our fourth quarter and full year twenty twenty four earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our website as well as on newswire services. Please note that today's call will contain forward looking statements made under the safe harbor provisions of The U. S.

Speaker 1

Private Securities Litigation Reform Act of 1995. Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligations to update any forward looking statements, except as required, under applicable laws. Please also note that VNS earnings press release and this conference call include the disclosure of unaudited GAAP and non GAAP financial measures.

Speaker 1

VNS earnings press release contains a reconciliation of the unaudited non GAAP measures to the unaudited GAAP measures. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at ir.vnet.com. Now let's get started with today's presentation. Mr. Ma, please go ahead.

Speaker 2

Good morning and good evening, everyone. Thank you for joining our call today. I'd like to begin with several key achievements from our fourth quarter and the full year performance in 2024. Firstly, our wholesale business has delivered remarkable growth, while our retail business has remained stable. Secondly, our net revenue and adjusted EBITDA have significantly surpassed our previous guidance.

Speaker 2

Thirdly, we have recently secured a total of 252.5 megawatts in motors from customers across the Internet, cloud computing and intelligence driving industries. Looking ahead to 2025, our delivery plan and orders from customers for the next twelve months have seen substantially increases. I will now provide a detailed overview of these achievements. Let's turn to Slide five. We closed 2024 with a strong fourth quarter, highlighted by our wholesale ITC business' remarkable performance as we identified and capitalized emerging market opportunities, especially advanced technology driven demand.

Speaker 2

As of 12/31/2024, our wholesale capacity in service increased significantly rising by 127 megawatts quarter over quarter to four eighty six megawatts. Wholesale capacity utilized reached three fifty three megawatts, increasing by 73 megawatts quarter over quarter, thanks to strong customer demand for our wholesale datacenters. We have also observed a notable uptick in our wholesale customers moving pace recently accelerating to six to twelve months from around 24 in the past. Meanwhile, our retail IDC business continued to progress smoothly. As of 12/31/2024, our retail capacity in service was 52,107 cabinets with self built cabinets increasing by two twelve year over year and 189 quarter over quarter.

Speaker 2

We also delivered impressive financial results for the fourth quarter and the full year. Let's move on to Slide six. Our net revenue increased by 18.3% year over year to RMB2.25 billion for the fourth quarter. Notably, revenue from the wholesale business reached a record high at RMB $665,000,000 for the quarter, representing our farthest year over year growth rate at 125.4% for any quarter of 2024. Adjusted EBITDA for the fourth quarter also increased by 63.8 year over year to RMB 721,300,000.0, mainly due to our wholesale IDC business rapid growth.

Speaker 2

Our adjusted EBITDA margin for the fourth quarter increased by nearly 10% points year over year to 32.1%. For the full year, we delivered net revenues of RMB8.26 billion, up 11.4% year over year and adjusted EBITDA of RMB2.43 billion, up 19.1% year over year, both exceeding the high end of increased guidance we provided last quarter. Meanwhile, we achieved a full year net profit of RMB248 million, marking a turnaround from net loss in 2023 through continuous profitability improvements. Moving on to our new order wins on Slide seven, our high performance data centers, outstanding delivery capabilities and premium services continued to attract quality orders. In the fourth quarter, we secured a 32 megawatts order from an existing Internet customer for our capacity in the Yangtze River Delta and one of our retail base centers located in the Great Bay Area also win a 1.5 megawatts order from a new customer in intelligence driving industry during the quarter.

Speaker 2

Meanwhile, in Aurora and Shabu, we signed a framework agreement with an Internet customer for 100 megawatts of capacity, including a 28 megawatts order to be delivered in the fourth quarter of twenty twenty five. Additionally, we also secured a 55 megawatts order from a leading cloud computing customer in this region, demonstrating our customers' deep and enduring trust in our high quality services. Furthermore, we recently win a 64 megawatts wholesale order from an Internet customer for the project we operate in Hebei province with our joint venture partner Changzhou Gaoxin Group. This joint venture enable us to serve more customers while minimizing the impact on our balance sheet, providing an efficient means of growing our customer base and optimizing our business layout. Looking ahead, we will continue utilizing joint venture structures to further enhance our efficiency and facilitate high quality business development.

Speaker 2

Now moving to our full year guidance for 2025 on Slide eight, we expect total net revenues for 2025 to be between RMB 9,100,000,000.0 to RMB 9,300,000,000.0, representing year over year growth of 10% to 13%. Adjusted EBITDA is expected to be in the range of RMB2.7 billion to RMB2.76 billion, representing year over year growth of 15% to 18%. Based on our new orders and delivery plan, our capital expenditure for 2025 is expected to be in the range of RMB10 billion to RMB12 billion, representing year over year growth of 101% to 141%. Also, we expect to deliver 400 megawatts to four fifty megawatts in the next twelve months, an increase of 161% to 194% from twenty twenty four's total deliveries. Moving into 2025, we are seeing persistent high demand for high performance data centers with recent breakthroughs by DeepSeq propelling the dramatic AI development and driving the IDC industry's rapid growth.

Speaker 2

As such, we are confident that the immense growth potential in China's IDC market is poised to be further elongated. Let's take a closer look at our recent observations on Slide nine, starting with Deep Six impact. Deep Six innovative achievements have significantly bolstered confidence in domestic AI development, catalyzing a surge in inference demand and enterprises is enthusiasm for investing in AI, including large CSP, Internet enterprises and the small medium enterprises. Deepsafe's innovative models and technologies are enhancing efficiency and reducing both costs and dependencies on high performance chips for training and inference, it will become easier for companies to execute their AI strategies, triggering wider AI adoption industry wide and the greater need to build out AI infrastructure. In turn, lower barriers to entry for AI will unleash greater demand for our reliable wholesale IDC services.

Speaker 2

Furthermore, as more companies integrate AI into their operations, inference demand is expected to surge. We have already observed significant growing demand from small and medium sized enterprises for private deployment of DeepSake. We expect this positive market trend to persist for the foreseeable future, bringing exciting business opportunities for our retail IDC business. We will see these opportunities to effectively enhance our retail datacenters' utilization rate and IRR, laying a solid foundation for our long term business development. Let's turn to Slide 10.

Speaker 2

As we have shared previously, the Yangtze River Delta and the Great Beijing area are our core business regions. The layout of our wholesale capacity in service is dynamically balanced in two regions with the proportion of capacity under construction in the Great Beijing area increasing. On a related note, industry research suggests that overall utilization rates at China state center are set to increase steadily. Tier one cities with vibrant digital economies are expected to begin experiencing supply shortages of the high performance data centers needed to run AI applications as AI related business expand. Most both physically as a crucial area for the development of China's AI, Internet and high technology industry, the Greater Beijing region is experiencing steady growth in data center adoption and utilization rates With the deepening application of generated AI and enhancement of computing power and network infrastructure, the overall utilization rate of wholesale data center in Great Beijing area is projected to reach 85% as earlier as 2025, marking the first potential supply shortage in the market.

Speaker 2

In the Yangtze River Delta region, a new wave of structural upgrades in AI technology will temporarily relieve pressure on the supplydemand imbalance in 2025. Given the sustained growth in demand, the overall utilization rate of wholesale data center in Yangon River Delta region is expected to reach 85% by 2026, at which point this area will also face supply shortages. As a leading player in the computing infrastructure industry, we have a clear growth path for our IDC business. Our strong delivery and service capabilities position us well to capture market opportunities stemming from these strategies driving our sustainable growth. Now let's delve into our business updates, starting with our wholesale business on Slide 11.

Speaker 2

As the company's primary growth engine, our wholesale business achieved outstanding fourth quarter results in terms of both revenue, which reached RMB655 million and the growth rates which accelerated to 125.4% year over year. This segment is thriving as high performance IDC services remain in high demand across the market, especially as leading Internet players continue to deepen their investment in AI further driving demand growth. To meet this demand, we increased capacity in service during the quarter by 127 megawatts to four eighty six megawatts. Meanwhile, capacity utilized rose by 73 megawatts to three fifty three megawatts, mainly driven by high utilization and the faster than expected move ins at our GIS Campus 2. Our wholesale business utilization rate decreased slightly to 72.6 due to our delivery of 127 megawatts concentrated in the fourth quarter of twenty twenty four.

Speaker 2

We also delivered a mature capacity utilization rate of 95.6%, a relatively high level and a ramp up capacity utilization rate of 34. We have a clear growth path for our wholesale data center capacity. Let's move on to Slide 12. We maintained our growth trend in overall wholesale data center capacity with four eighty six megawatts in services and utilized the capacity increasing to three fifty three megawatts by the end of the fourth quarter. Our capacity under construction was four zero six megawatts in the fourth quarter with a pre commitment rate for capacity under construction of 82.9% by the December.

Speaker 2

Additionally, capacity held for short term future development increased sequentially by 75 megawatts to two sixty seven megawatts, primarily due to an abundance of demand with high certainty. With strong AI development driving greater market demand for IDC services, we will continue to press forward with our robust expansion plan for wholesale data center capacity, laying a foundation for further business growth. Moving to our retail IPC business on Slide 13. Our retail business remains stable and continued to progress smoothly in the fourth quarter. Retail capacity in service was 52,107 cabinets with 33,068 utilized cabinets for utilization rate of 63.5 as of the December.

Speaker 2

MRR per retail cabinet increased slightly to

Speaker 3

RMB

Speaker 2

8,794 this quarter. Turning to our delivery pair on Slide 14, in 2024, we successfully brought a total of 153 megawatts into services, showcasing our robust and efficiency delivery capabilities and the deep commitment to meeting customer demand. This include over 127 megawatts during the fourth quarter and 26 megawatts in the first nine months, thus surpassing our guidance. For 2025, customer demand for high performance, reliable IDC resources remain strong and we expect our deliveries will set a new annual record. We currently have eight datacenters under construction and plan to deliver four zero six megawatts of capacity over the next twelve months or around 114 megawatts during the first half of twenty twenty five and around two sixty six megawatts in total during the second half of twenty twenty five, reflecting strong customer demand and our outstanding delivery capabilities.

Speaker 2

Non ITC business also remains a key component of our overall business growth. Notably, we continued to expand our DEXian business customer space by acquiring new customers from the medical technology, professional services and consulting industries for DEXN premium dedicated Internet services, eVPL and SD WAN services. In conclusion, our effective new growth strategy and the strong execution drove excellent fourth quarter and the full year 2024 results. Moving into 2025, we remain confident in China's growth potential led by surging demand in the IBC industry due to the AI boom. To capitalize on this opportunity, we will continue to innovate strengthening our capability and expanding our high performance data center network to offer our customer solution designed to seamlessly address their demands in the AI era.

Speaker 2

As always, we are committed to delivering sustainable long term value to all of our stakeholders. Now, I will turn the call over to our CFO, Ji Yu, for further discussion of our operating and financial performance. Thank you, everyone.

Speaker 4

Good morning and good evening, everyone. Before we start the detailed discussion of our fourth quarter performance, please note that unless otherwise stated, all the financials we present today are for the fourth quarter and the full year of 2024 and are renminbi terms. Furthermore, unless otherwise, successful, old growth rates I'm reviewing are on a year over year basis. Let's turn to Slide 16. We exceeded our expectations for the full year 2024, capped by a strong fourth quarter as we remain focused on high quality revenue business.

Speaker 4

In the fourth quarter, our total net revenue increased by 18.3% to RMB2.25 billion. Our adjusted cash gross profit increased by 24.6% to RMB923.9 million, while our adjusted EBITDA also grew year over year by 63.8% to RMB121.3 million. For the full year, our total net revenue were RMB8.3 billion, representing an increase of 11.4% compared to the same period last year and adjusted EBITDA reached RMB2.4 billion reflecting an impressive 19.1% increase from the prior year, both exceeding our guidance. Furthermore, our bottom line turned profitable with net income reaching $238,400,000 achieving a significant improvement from net loss of $2,600,000,000 for the full year 2023. Let's look more closely at our top line.

Speaker 4

As we have mentioned previously, we have divided total net revenue from IDC business into wholesale and retail IDC business based on the nature and the scale of our data center projects, this revenue from non IDC business remains separate. As you can see on Slide 17, in the fourth quarter, our wholesale revenues remained our key revenue growth driver with strong momentum significantly increasing by 125.4% year over year to $665,200,000 mainly driven by the EJS Contest two. Our retail revenues continue to account for the largest part of our net revenue. Our retail revenues remain relatively stable at $964,800,000 Our non IDC business continued to progress smoothly. During the fourth quarter, we maintained solid margins thanks to our continuous efforts to enhance overall efficiency.

Speaker 4

As we have shown on slide 18, our adjusted cash gross margin remained quite stable. Our adjusted EBITDA margin rose significantly to 32.1% compared with 23.2% in the same period of 2023. Moving on to liquidity on Slide 19, we maintained a strong cash flow during the quarter. Also, we recorded a net operating cash flow of RMB2.01 billion for the full year of 2024. Our cash position remained healthy with the company's total cash equivalents and restricted cash reaching RMB 2,080,000,000.00 as of 12/31/2024, stable compared to the end of the third quarter.

Speaker 4

Next, let's take a look at the debt on Slide 20. We maintain our prudent approach to debt management with our net debt to the trailing twelve months adjusted EBITDA ratio at 4.9 and total debt to trailing twelve months adjusted EBITDA ratio at 5.5, both remaining at the health level and our trailing twelve months adjusted EBITDA to interest cover rates improved to 6.5 as of 12/31/2024. We prioritized long term debt maturity planning in our debt and strategic management to ensure the security of debt repayments. Additionally, the company's short and medium term debt maturing in 2025 to 2027 comprise was 56.9% to our total debt. Turning now to CapEx spending, as you can see on Slide 21, for the full year 2024, our CapEx was RMB 4,980,000,000.00 with a majority allocated to the expansion of our wholesale additive business, mainly due to linear supply chain expenditure management, some CapEx was deferred to 2025.

Speaker 4

We expect our CapEx for full year 2025 to be in the range between 10,000,000,000 and 12,000,000,000, exceeding the level of 2024. The increase is mainly to support our 400 to four fifty megawatts delivery plan for 2025, which is expected to be three times greater than that of 2024, surpassing the total delivery capacity of the past three year combined. Before I conclude, let me share a few of our achievements in ESG. We view our commitments and responsibilities to our industry, environment and the society as cornerstones of our ongoing success and I'm proud of reports that our ESG efforts continue to win recognition from global renewed ESG rating institution this year. Recently, we secured a spot in the SMP Global Sustainability Yearbook 2025 with our record score of 70 in SMP's twenty twenty four Corporate Sustainability Assessment.

Speaker 4

This is VNET's fourth inclusion in the Global Edition following two consecutive years in the China Edition. Notably, VNET is one of just 21 China mainland enterprises recognized in the 2025 yearbook and so honoree from Chinese IT Service Industry. Our score also landed us in the top 7% of IT services industry globally. In addition to this recognition by S and P Global, we received an A rating from MSCI for the third consecutive year reaffirming our leadership of China's Internet Service and Infrastructure Industry. We attend a B grade in CDP's Climate Change Questionnaire in 2024 with eight out of 16 categories achieving A Agreed recognition.

Speaker 4

These accomplishments not only highlight our effective ESD strategy, but also reflect our long term investments, value and development prospects. In summary, we are delighted to be end twenty twenty four with stronger than anticipated results, driven by impressive growth in our wholesale ADC business. Looking ahead, we will continue to execute our high quality development strategy and invest in future growth, particularly AI related opportunities to propel our long term September development. This concludes our prepared remarks for today. We are now ready for take questions.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from Shuyen Chi with CICC. Please go ahead.

Speaker 5

Thank you for taking my question and congratulations on the strong results and orders. My first question is the wholesale business order in last quarter and recently have been really strong. To deliver these orders, the CapEx outlook for 2025 have been increased. So could management provide details on the arrangement of CapEx for 2025? And how much of this spending will be covered through the funds from our RACE projects?

Speaker 5

Also according to the announcement, the retail data center will win a new order from customers in intelligence driving industry. So my second question is given the strong demand from the AI computing, could management provide insights into the potential impact of AI related orders on the retail segment? Could you share with us the utilization rate trends and the pricing trends in the retail business? Thank you.

Speaker 3

Thank you for the question. I want to take up the first question to begin the answer. In 2025, we are setting a high threshold, a high standard for the CapEx. Compared to that of 2024, we gave it 100% increase. And over 90% of the 2025 CapEx will go directly into the wholesale IDC business.

Speaker 3

In 2025, over 400 megawatts will be delivered in our wholesale IDC business. Among them, 83% have been on the determined orders as well as the capacities to deliver. And for the remanent capacities, we are about to sum them up recently and the remanent CapEx will go directly into the retail IDCs for the purpose of the high power density capital retrofit as well as the value added business. And I also want to add a few more comments about the questions on the rates. I have to say that 2025 marks the starting point for China to service the security asset utilization of the data industry, as well as it is also recognized as a starting year for different types of risks being implemented.

Speaker 3

In last Q3, the Q3 of twenty twenty four, we experienced the first pre rate. And last week, I'm so happy to see two of my partners have launched their EBA, the asset backed securities, in the name of the also known as the private rates. And their top rates have also been affected by the exchange. And please be noted, our price risk projects have also been accepted by the Shanghai Stock Exchange, our corporate risks are in the key stage of being examined and proved. It is estimated that in twenty twenty five, two to three of our risks of a different nature and background will be implemented.

Speaker 3

As a result, we are able to recover up to RMB2 billion. And now, let me check with you about the second question about development of the large launch model and AI application. We are very happy to see that in the beginning of 2025, the operation of DeepSeq has driven up the demand on the AI application. And the application of DeepSeq has played down the adopting the large language models, giving us a strong push in the model referencing. And we are also seeing that the threshold of deploying DeepSeq in the private sector has been played down.

Speaker 3

As a result, the development and adoption of the smart applications has been expanded. You just mentioned autonomous driving. This is one of the key vertical scenarios I have explained to you. We have to say that autonomous driving is extremely and dramatically important. In the Q4 of twenty twenty five, our company had already made very good breakthroughs in this regard.

Speaker 3

And in 2025, we will continue the autonomous driving as a key sector for us to expand our customers as well as to offer premium services. To be more specific, I want to share with you my understanding on the utilization. We have already experienced the boost from their demand from this market, and we are seeing very positive about that. In terms of the pricing mechanism and pricing trend of the single cabinet, those AI server deployment are friendly or specific to single cabinet, their price will be higher than that of the traditional one. Next question please.

Operator

Thank you. Your next question comes from Sarah Wang with UBS. Please go ahead. Thank you for

Speaker 6

the opportunity to ask questions and congratulations on the solid set of results. I have two questions. First one is that I noticed that among our new auto wins there are 64 megawatts JV project with Changzhou Gaoxin Group. Would management please walk us through the framework, partnership with the Changzhou partner and then how that reflected in our revenue or CapEx guidance? And then my second question is regarding the supply demand dynamics.

Speaker 6

I think from the management's comments that since management is really confident in the supply demand dynamics over the next one or two years and even mentioned supply shortage, how should we think about this because the supply chain in China is still quite efficient? And then are there any new entrants into the market or are competitors delivering new projects into the market? How shall we think about the supply given the demand is already quite strong? Thank you.

Speaker 3

Thank you for the question. I want to share with you a little bit of a background of this question. And first of all, I have to say that the demand is really going high in this year. And two years ago, our company created a JV together with Changzhou SOE. And from that JV, we are holding 13% of the equity, which is equivalent to the 64 megawatt order you

Speaker 4

are mentioning.

Speaker 3

And please be noted, the order on the 64 megawatts together with the JV were never being incorporated into the CapEx I just introduced and it's no longer and it was not in upper balance sheet as well. And we have to say, we are going to win profit from this project of 64 megawatts in the name of the management fee or in the format of the capital operation fee. This is a great milestone for us to run and operate a project to serve our customers, but we are not going to have that to put that in our balance sheet. In other words, we are going to drive up our capacity to use up the light assets while satisfying the strong demand from the core customers. Your next question is about the trained as well as the market competition.

Speaker 3

Competition. And let me check with you about several observations. According to the latest surveys from the industrial third party, according to the supply and demand situations of domestic market, it is estimated that in 2025, the Great Beijing area, the wholesale IDC business will experience the supply shortage, while in 2026, this will also happen in the Yangtze River Delta. Delta. This conclusion from the third party data industry association is in line with my gut feeling about this market.

Speaker 3

And your next part of this question is about the general competition of this market. To be honest, most of my peers of our peers have prioritized the overseas market instead, which means for the bidding process, we are engaging for the recent times with different peers at different sessions without the consolidated or major peers or competitors.

Operator

Your next question comes from Yang Liu with Morgan Stanley. Please go ahead.

Speaker 7

Thanks for the opportunity. Congratulations on the strong booking first. I have two questions. The first one is regarding the future trend of the industry rental. As you mentioned that it is likely to see supply shortage and also the hyperscalers demand is quite strong.

Speaker 7

What's your expectation of the per kilowatt rental in the next one or two years? Is it likely to see some price hike? And my second question is regarding the unit cost or unit CapEx because of the data center upstream like the dedo generator or other UPS etcetera, those equipment are the key component and whether there will be enough supply from upstream and whether there will be any pricing hike to give pressure on the unit CapEx.

Speaker 3

Thank you for the excellent questions. And I will share with you some of my understanding about this market. We are seeing that ever since launch of of the large language model into this market, we are seeing the wholesale IDC centers' demands have been gradually released into this market. From the end of last year in 2024 all the way down to the first quarter of twenty twenty five, we are also seeing that the supply is a little bit of in the shortage side. When we are talking and discussing with the leading online and Internet companies in China, we have to say that the resources they are going to choose and the companies they are going to work with are a little bit of limited.

Speaker 3

As my colleague has already briefed on you the general market situations in China, I want to add a few more comments. In China, the leading online and Internet companies are choosing and working with different wholesale IDC suppliers. In different cities and regions, we are experiencing competition as well, even though the peers are different in different regions. In terms of the price trend as well as the pricing mechanism, we are offering the IDC business to meet a proper market demand, which means that our price mechanism is driven by the market and our pricing is quite stable. And I want to add a few more comments about this.

Speaker 3

On the cost front, when we are discussing about the diesel generator units and equipment, we are seeing that as the construction and installment are picking up, the traditional brands, especially those imported ones and JV brands are not adequate. And we have to check the other side of the coin. The good news is the majority and the most part of the client are increasingly comfortable in optimization, the price is even slightly lower. Since we are having very large IDC gear on the market, the single cabinet will cover 15 to 16 megawatts for building, offering us huge rooms to even refine the design. So, generally speaking, the unit CapEx is a little bit of slightly

Speaker 4

lower.

Speaker 3

While we are seeing the general picture of the supply and demand relationship on this market, the cost is slightly lower. The revenue will pick up. As a result, the return will pick up as well. Next question please.

Speaker 7

Thank you.

Operator

Your next question comes from Edison Lee with Jefferies. Please go ahead.

Speaker 8

Hi. Thank you for taking my questions and congratulations again on great results and very good order wins. I have two questions. I think the number one question is still more related to supply and demand, but more on the retail side. So I believe that I totally agree with your assessment that I think SMEs can actually benefit from DeepSeq by deploying their deploying the model in private cloud or even on premise.

Speaker 8

So based on what you saw in the first quarter of this year, do you think that your retail revenue this year can actually get back to, let's say, mid single digit growth? Is that possible? And then 2026, do you think it will further accelerate? So that's question number one. Question number two is about financing.

Speaker 8

Can you help us understand how you would actually fund the RMB10 billion CapEx in 2025? Because your operating cash flow is somewhere around RMB2 billion and you can raise RMB2 billion from REIT and you still have RMB6 billion to finance.

Speaker 3

Thank you for the question. I'm very much willing to share with you my personal views on the entry of the deep sea and what is impact on the retail sector. First of all, through the extreme innovation of the DeepSeq large language model, we have seen the threshold for the medium and small enterprises as well as individuals has been cut I want to share with you my personal observation and will validate my personal judgment according to the practices we have already experienced. For the recent days, we are seeing a large number of small and medium sized enterprises as well as the individual developers show the strong demand in adopting and using the retail IDCs. And I want to share with you a couple of business models these small and medium sized enterprises as well as those individual developers are retail IDC we are running coupled with the retail IDC we are running coupled with the deep seek, whether it is V3 or RE.

Speaker 3

And let me check with you and share with you the business model too. Some of the clients will come to us requiring the IDC, the retail IDC rental services, together with the procurement IDC rental services together with the procurement of extra GPU. With that being done, we are creating the new business model for HIT, the hybrid IT services. And we are experiencing a new launch of demand from our clients. They are using our IDC as well as HIT as I explained to you.

Speaker 3

We are also requiring for us to deploy or to dispatch software engineers to work with them in developing value added applications for them. I know that you must be expert in reading my VNET. And we know that VNET is running and implementing the corporate structure of the dual engine operation with retail and wholesale IDCs. And when we are running the retail IDC business, we are reaching out to thousands of clients. And when in this range of large language model applications, we'll reach the clients first time to offer them either the retail services or the referencing models.

Speaker 3

Thank you for staying with me. You mentioned that we are having a very large CapEx in 2025 agreed. It is due to the strong demand from the wholesale IBC new wins, the new orders. And we are having two channels as well, the very much well running cash flow as well as the REIT project I have adjusted

Speaker 9

for you.

Speaker 3

And due to the corporate structure of the Board, we are very much have we are in the advantageous stage in having the loan financing. For instance, if we are going to carry out and releasing a project backed loan financing, We are going to have 80% of the LOB with the interest rate of no more than 3.5% with the total maturity duration of fifteen years. And I also want to share with you the results of our corporate estimation. Based on our loan ratio as of now. And we have already paid back the majority of the transferable loans by the end of last year.

Speaker 3

And according to the current CapEx we are releasing, the EBITDA per the capital will be 6.54 as we are estimating and tabulating. Next question please.

Operator

Your next question comes from Timothy Zhao with Goldman Sachs. Please go ahead.

Speaker 9

Great. Thank you, Benjamin, for taking my question and congrats on the very solid results. I have two questions here. One is, I think, about your downstream customers. I think given the rising data center demand from AI, just wondering if Magdalene can share your observations on the customers in terms of their, I think, preferences between the in house data centers and third party data center operators?

Speaker 9

And how is that different now versus a couple of years ago? And secondly is on the wholesale data centers, as we are seeing faster inferences demand growth. Could you please comment on how your wholesale campuses cater to the inferences versus training demand? And what is the customer requirement in terms of the power cord, in terms of latency, etcetera?

Speaker 3

Thank you for this question. It is very important, but also very sensitive question. I have to say that you are raising up the questions on the orders as well as which pathway they are selecting, be it from pathway of the rental or they are going to have their in house choices. And in the deck, we have already delivered and shared with all the analysts. You could check some more of the details as well.

Speaker 3

And in this year, we are seeing the boost demand from the online and internet industries. When we are deploying the large language models, we are also collecting a lot of feedback. As of now, the online and Internet business is still one of the most important industries we are working with and they are also offering the most important source we are obtaining customers. And as AI demand is driving up in the beginning of this year, we are seeing that the companies in the cloud computing, intelligent driving as well as financing are also very much important. And pleased to be and pleased to note that those companies in the large lending models is also naturally.

Speaker 3

And you're also trying to find out whether those clients will go directly with the in house choices or they will collaborate and rental from the third party. According to the feedback I collected from this market as well as my previous observations. Both scenarios are coexisting. Generally speaking, a few number of times we'll go with the self build choices, and the majority of the clients will go with the rental selection, which means that the largest proportion of the clients will go with the rental choice with the complementary part us. All these clients will go and build by themselves.

Speaker 3

And I want to share with you a little bit of the rationale behind. Since the market and the client has the booming demand on this regard, I don't think it is rational for the client to build their own equipment by themselves. They are not going to use up that much resources. So, the general pathway is rental plus self build. And this order should never be reversed.

Speaker 3

That is what we have observed from this market. And I also want to share with you the second part of the questions. I want to start with you by analyzing a little bit of the wholesale IDC services we are offering. We are seeing the need is booming. And in the beginning of twenty twenty five, the determined on contracted orders are underway and the deliveries are also underway.

Speaker 3

But as of now, we are collecting two pieces for new ideas from the customers. The first piece of idea is they are requiring the expanded capacity from us. And with that being said, they want us to have even better efficiency or higher efficiency. And I also want to add a few more comments on the referencing part. The referencing models will happen within the retail IDC for most of the scenarios because the client will consider convenience more than the price of the tariffs.

Speaker 3

In terms of the reference in terms of the revenue model, it is whether as a private deployment or it is for the purpose of the applications of the development of intelligent applications, which means that latency is not going to be troublesome. To wrap it up, for our clients, they will deploy their influence models in the retail IDC instead of the wholesale IDC. Thank you for the question. Next question please.

Operator

Your next question comes from Daley Li with Bank of America Securities. Please go ahead.

Speaker 5

Sales management for taking my questions. Congrats on the solid results and the strong new orders. Here I have one question regarding the wholesale business. As company have achieved a strong new order since past two quarters and we also have quite solid delivery plan for this year and by the end of this year, our capacity in service probably will almost double compared to like the number in 2024. So how should we think about the growth outlook maybe in 2026 and or even 2027 regarding the revenue or new orders pipeline?

Speaker 2

Thank you.

Speaker 3

Thank you for this question. And I want to share with you my view on these questions. The company has established a five year plan ahead of the time because we are estimating that the AI deployment is going to be really strong in this Chinese market, driving up the demand for the domestic IDCs extensively. In 2025, the total number of CapEx is in the range of the totality at the last three years. And in the year of 2026 to 2027, the company will continue to boost up the CapEx to meet up the requirements of our clients and customers in the market.

Speaker 3

Our CapEx is strongly determined by the contract signed up with the clients, which means that our CapEx is offering a new I also want to release a little bit of a business model for the IDC sectors. Normally, we will go and construct to start off. It will take nine to it will take six to nine months as the different project and place goes. After that, we will take around six to twelve months additional six to twelve months to stack up all the requirements of the customers. It will be meeting 90% of the customer demand.

Speaker 3

At the end of the day, you are going to find that the growth of the EBITDA will be little bit of slower than that of the CapEx.

Operator

Ladies and gentlemen, that conference for today. Thank you for participating. You may now disconnect your lines.

Remove Ads
Powered by Quartr
Earnings Conference Call
VNET Group Q4 2024
00:00 / 00:00
Remove Ads