Analyst Note
| Dan Baker |While no-moat VNET Group’s first-quarter results were slightly better than expected, management explained that there were several seasonal and one-off factors in the first quarter and it retained its full-year guidance implying midpoint revenue growth of 9.6% and adjusted EBITDA growth of 11%. First-quarter revenue for VNET of CNY 1.8 billion was up 9.7% with adjusted EBITDA up 9.9%, which was an improvement on fourth-quarter 2022, growing 7.7% year on year with adjusted fourth-quarter 2022 EBITDA declining by 8.3%. The wholesale order with a new wholesale customer outlined at the full-year result was confirmed at 115 megawatts to be delivered over the next three years with capacity to be first delivered in late 2023. We reduce our fair value estimate to USD 8.50 from USD 8.60 per share previously due to currency movements. Given the share price fall since early February, we have a 5-star recommendation for VNET with the stock now trading on a price/book ratio of less than 0.5 times. We believe a price/book of over 1 times is justified given the company does not revalue its portfolio and many of its data centres have likely increased in value since they were built, particularly those in downtown areas of major cities. VNET shares traded at over 7 times price/book at the peak and traded at over 1 times from mid-2018 until early February 2022.