China Internet Trip Notes: GDS Demand Outlook Strong; Western AI Cluster Expansion; Buy
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Goldman Sachs hosted a China internet field trip featuring GDS Holdings (GDS/9698.HK), maintaining a Buy rating with 12-month target prices of $55 for US shares and HK$54 for Hong Kong shares, implying 26.5% and 29.2% upside, respectively. Year-to-date, GDS has secured 200MW in orders and 500MW in memorandums of understanding from top-tier hyperscale clients.
Management indicated that incremental demand will predominantly flow to Western China, where clients require scalable campuses up to 1GW. GDS holds a 3.7GW capacity reserve, including over 3GW in the west designated for AI clusters, with delivery expected to commence in 2027. This positions GDS as the largest data center platform by developable capacity in China. The company plans to deliver approximately 200MW of capacity in 2026.
Regarding pricing, market rates remain stable on a like-for-like basis. However, the blended monthly recurring revenue (MSR) may experience moderate declines starting in 2027 due to an increasing proportion of western projects and contract renewals. Current project portfolio yields stand at 11%, with new projects yielding 10-11%.
The company is advancing its C-REITs asset injection application, targeting completion by year-end. Management estimates a project IRR of approximately 15% and an equity IRR of 20%, assuming a six to seven-year hold and a 15x EV/EBITDA exit multiple.