VNET Group Continues to Gain Market Share in the Chinese Wholesale Market

No-moat VNET’s VNET 2023 guidance was slightly below our expectations with implied midpoint revenue growth of 9.6% and adjusted EBITDA growth of 11%. Despite this, VNET’s guidance is slightly better than competitor, GDS with midpoint 2023 revenue growth of 8.7% and adjusted EBITDA growth of 6.2%. 2022 revenue for VNET of CNY 7.07 billion was up 14.1%, with adjusted EBITDA up 6.8%. Fourth-quarter revenue was up 7.7% year on year with adjusted EBITDA declining by 8.3%. Note, the company did announce some large customer order wins with a 33 megawatt, or MW, wholesale contract with an existing customer signed in the fourth quarter bringing total wholesale capacity in service and under memorandum of understanding, or MOU, to 316 MW by the end of 2022. More impressively, a further wholesale MOU order of over 100 MW with a new wholesale customer was signed in first quarter 2023, to be delivered over the next three years. This contract is expected to begin contributing to revenue in late 2023 or early 2024. We keep our fair value estimate at USD 8.60 with a slight downgrade in 2023 forecasts offset by the new contract’s positive impact on financials from 2024 onward.

Correction (March 22, 2023): This note has been updated to correct the fair value estimate to USD 8.60 instead of USD 8.50.