GDS Holdings Ltd

HKEX:9698

Earnings Call Analysis

GDS Excels in Data Center Growth and Financing

GDS Holdings Limited has rapidly grown its international business, now representing 20% of its Chinese capacity, with over 330 megawatts in service and under construction. The company achieved a 9% year-on-year EBITDA growth for 2023 entirely from China. Aiming for a below 5x leverage ratio in three years, GDS leverages distinct strategies for its China and International businesses. With over 200 megawatts of secure commitments and a strong Southeast Asia sales pipeline, the international segment shows promise. Recently, GDSI raised $587 million in Series A convertible preferred shares, positioning GDS International with a forecasted 24x adjusted EBITDA valuation for 2025.

Strategic Moves and Performance Highlights

GDS management has laid out a clear vision to enhance shareholder value and support share price recovery. They announced a significant $587 million equity raise that underscores the success of their international expansion, particularly as this part of the business has become a secondary growth engine with over 330 megawatts in service and under construction. GDS is a market leader in China with considerable development and competitive standing, boasting over 1.5 gigawatts of capacity and anticipation for growth in AI demand.

Financial Objectives and Capital Strategy

The company has dual financial objectives for its Chinese operations: steady EBITDA growth and balance sheet de-leveraging, with a target of below 5x leverage within 3 years. Strategic maneuvers include targeting new business, improving asset utilization, cautious capital expenditures, and readiness for asset monetization. For its international business, GDS aims to recreate its Chinese success by leveraging its capabilities and strategic relationships, as evidenced by its firmly established market presence in Hong Kong and Southeast Asia. In 2023, they achieved 9% EBITDA growth year-over-year from the China market alone, pointing to disciplined growth and financial management.

Funding and Ownership Structure

The newly established international subsidiary, GDS International (GDSI), has successfully secured external capital without additional funding needs from GDS Holdings. This Series A capital raise not only reflects a pre-money valuation of $750 million but also underscores the market's confidence in GDSI's portfolio value. The transaction results in a more robustly capitalized GDSI, with over $1 billion in total equity, ready to complete its current 330-megawatt portfolio development. Post-closing ownership will see GDS Holdings retaining approximately 56.1% of GDSI with institutional investors holding Series A shares representing the remaining 43.9%.

Revenues and Expansion Forecasts

In the face of competitive challenges, GDS has recorded a revenue increase of 6.8% and an adjusted EBITDA increase of 8.8% year-on-year. These positive statistics are set against guidance for the full year 2024 projecting total revenues to reach between RMB11.34 billion to RMB11.76 billion. This forecast represents an optimistic expectation of a 13.9% to 18.1% year-on-year revenue increase. The guide reflects strong bookings and the ramp-up of international data centers, suggesting robust growth potential and a solid expansion trajectory, particularly in Southeast Asian markets and other regions under evaluation, such as Japan and Korea.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I'll now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the Company.

[Laura Chen, executive]

Ladies and gentlemen, thanks for standing by for GDS Holdings Limited Fourth Quarter and the Full Year 2023 Earnings Conference Call. Welcome to the Fourth Quarter and Full Year 2023 Earnings Conference Call of GDS Holdings Limited. The Company's results were issued via newswire services earlier today and are posted online. A summary presentation, which we'll refer to during this conference call, can be viewed and downloaded from our IR website at investors.gds-services.com. Leading today's call is Mr. William Huang, GDS Founder, Chairman, and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS CFO, will then review the financial and operating results. Ms. Jamie Khoo, our COO, is also available to answer questions. Before we continue, please note that today's forward-looking statements are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve interior risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the Company's prospectus as filed with the U.S. SEC. The Company does not assume any obligation to update any forward-looking statements as required under applicable law. Please also note that GDS' earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. GDS' press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Now I turn the call over to GDS' Founder, Chairman and CEO, William Huang.

[William Huang, executive]

Thank you. Hello, everyone. This is William. Thank you for joining today's call. The #1 priority of GDS management is to create value for our shareholders and drive share price recovery. Today, we are delighted to announce the landmark USD587 million equity raise for our international business. This is a big step forward in our strategy to develop and finance GDS International on a stand-alone basis. The equity raise also highlights how much value we have already created for our shareholders through international expansion. We have been developing our business in China for many years. We are a market leader with over 1.5 gigawatts of capacity in service and under construction. We are confident that we will maintain our competitive position and enjoy further growth, particularly when AI demand takes off. We initiated our international business in the past couple of years. Within a short period of time, it has become a second growth engine with over 330 megawatts in service and under construction, equivalent to 20% of what we have in China. GDS China and GDS International are obviously at a very different stage of development. We are, therefore, pursuing distinct strategies for each part of our business. For China, we have 2 major financial objectives. Objective #1 is to grow EBITDA at a steady rate. In 2023, our adjusted EBITDA grew by 9% year-on-year, all of which was from China. Objective #2 is to de-leverage our balance sheet. Our target is to get to below 5x within 3 years. In order to achieve these objectives for China, we are targeting new business, which fits our capacity. We are increasing asset utilization by delivering the backlog. We are spending CapEx only where it is needed for customer moving, and we are preparing for asset monetization when the market allows. For International, our ambition is to create an exceptional data center platform, which emulates our success in China by leveraging our industry-leader capability, strategic business relationships and the scale economics. In 2022, we set up a new international holding company headquartered in Singapore. It acts as the vehicle for all our assets and operations outside of Mainland China. We have assembled a standalone management team, and today, we announced that Jamie Khoo, our very capable COO, will transfer to become the CEO of GDS International. As we started to expand overseas, we focused initially on 2 regional hub market, Hong Kong and Singapore-Johor-Batam, which is the hub for Southeast Asia. These 2 markets rank in the Top 10 data center market globally. We collectively anticipated where demand will flow. We secured the right resource and executed it well. As a result, we quickly established a market-leading presence in both places. We have secured over 200 megawatts of commitments and reservations from global as well as China as well as China customers. And as of today, we already have over 70 megawatts in service and revenue-generating. We see tremendous opportunities for growth in these markets. We are very well placed with our proven track record, development pipeline, and the time to market. To build on this success, we are actively evaluating several new markets and expect to make further commitments in the near future. Now let's review our performance in more detail. In 2023, we won 68,000 square meters of new customer commitments. 50,000 square meters came from, which was similar to the prior year, and a nearly 20,000 square meters or 30% of total bookings came from International. During 4Q23, we won 2 large orders in China and 1 for International. Both of the China orders fit our strategy of matching commitments, which -- with capacity and have move-in period of less than 2 years.The International order was from a global cloud service provider for the whole of our Hong Kong 2 project. As a result, our first 2 projects in Hong Kong are effectively sold out with the long-term binding commitments. Looking forward, the demand outlook in China has not yet picked up noticeably. AI demand is coming, but it will take more time. Meanwhile, our sales pipeline in Southeast Asia is very strong. We expect a significant new bookings for both of our campuses in Johor in the near future. AI is undoubtedly a big factor driving demand in this market. In 2023, the growth move-in was around 69,000 square meters, 20% higher than in 2022. China move-in was around 56,000 square meters, which, once again, was similar to the prior year. On top of this, there was the first-time contribution from International of 12,000 square meters as one data center in Hong Kong and the 3 data centers in Johor came into service and started ramping up. In 2023, we brought around 57,000 square meters of new capacity into service across 7 data centers, 4 in China, and 3 International. By the end of the year, these 3 data sets had an overall utilization rate of 77%, which is consistent with our target for faster move-in and higher utilization. During 2024, we expect to bring about 81,000 square meters into service driven by delivery commitments to customers. The overall commitment rate for this capacity is 92%, and the move-in schedule is confirmed. I will now pass it on to Dan for the financial and operating review.

[Daniel Newman, executive]

Thank you, William. Turning to Slide 17. We just announced today that our wholly owned subsidiary, Digital Land Holdings, which we refer to for now as GDS International, or GDSI has entered into definitive agreements with certain institutional private equity investors for the new issue of $587 million of Series A convertible preferred shares. This first external equity capital raise for GDS International demonstrates our ability to access dedicated financing for our international business without further funding from GDS Holdings. The Series A subscription price implies a pre-money equity valuation for GDS International of $750 million. In terms of our share price, this is equivalent to approximately $3.92 per GDS Holdings ADS. The implied post-money enterprise valuation of GDSI including forecast net debt of around $935 million as at the end of 2024 is around USD2.3 billion. This is equivalent to around 24x GDSI's forecast adjusted EBITDA for the full year 2025. As mentioned by William, GDS International currently has over 330 megawatts of data center capacity in service or under construction across strategic locations in Hong Kong, Singapore, Johor, Malaysia, and Batam, Indonesia.The total development cost for this portfolio is around $2.5 billion, out of which approximately 40% has been incurred up to the end of 2023. As of the end of last year, GDSH had provided a total of around $595 million of intercompany funding to GDSI comprising $411 million of paid-up share capital and $184 million of shareholder loans and other payables, which will be repaid immediately out of the proceeds of the Series A new issue. This will benefit GDS in terms of higher liquidity. On a pro forma basis, including $411 million of permanent equity from GDSH and $587 million from the Series A, GDFI will have total paid-up share capital of approximately USD1 billion. As a result, GDSI will be sufficiently well capitalized with equity to complete the development of its current 330-megawatt portfolio. Post-closing, GDSH will own approximately 56.1% of GDSI in the form of ordinary shares and the remaining 43.9% equity will be held in the form of Series A shares by investors, including Hillhouse, Rava Partners, Boyu, Princeville Capital, and Tekne Capital. GDSH and certain investors will have the right to appoint directors to the Board of GDSI proportionate with their ownership. William will continue in his role as Chairman of the Board of GDSI as well as Chairman and CEO of GDSH. Other key deal terms, including lockup, QIPO, and liquidation preference amongst others, can be found in the transaction documents, which we will file with the SEC. With this capital raising, it starts to make sense for us to look at GDS business in 2 parts. As we go through the financials, I will highlight selected numbers for International on a stand-alone basis and for GDS Holdings, excluding International. Turning to Slide 18. For 2023, revenue increased by 6.8% and adjusted EBITDA increased by 8.8% year-on-year. In 4Q23, revenue increased by 6.3% and adjusted EBITDA increased by 5.7% year-on-year. For the full year 2023, International had negative adjusted EBITDA of around RMB100 million. The year-on-year growth rate for GDS Holdings, excluding International, would have been 2-percentage points higher than the consolidated number. International recorded positive adjusted EBITDA for the first time in 4Q23. Turning to Slide 19. I will discuss the 2 main drivers of revenue growth, namely area utilized and MSR. For 2023, net additional area utilized was 48,000 square meters. The annual net add was slightly less than 2022 as a result of higher churn. Nonetheless, total area utilized at year-end was 13% higher than at the end of the prior year. During 4Q23, we achieved net additional area utilized of 20,000 square meters, which is the highest level for many quarters. This was mainly due to ramp-up of our first 2 data centers in Johor and a minimal level of churn. For 2024, we expect net additional area utilized to be higher than last year's 48,000, with steady growth in China and increased contribution from International. Turning to the MSR metric. Over the course of 2023 comparing 4Q to 4Q, MSR decreased by 5%. For 2024, we expect MSR in China to decrease by around 3%, which shows it is bottoming out. The MSR for international is currently higher than for China. Hence, on a consolidated basis, we expect MSR to remain at around current levels. Turning to Slides 22 and 23. For 2023, our consolidated adjusted EBITDA margin was 46.4%, which was slightly higher than for 2022, despite the fact that power tariffs in China increased again during last year. For 2024, the midpoint of our guidance range implies a consolidated adjusted EBITDA margin of 43.7%, which is a more than 2-percentage point drop compared with 2023. The margin for GDS Holdings, excluding International should be similar to 2023. The expected drop in the coming year is, therefore, mainly due to International growth track. Turning to Slide 24. In 2023, our China CapEx totaled RMB3.5 billion. We have brought China CapEx down significantly from historic levels, and we are only spending where it is necessary to generate growth. In 2024, as William mentioned, we plan to bring a further 58,000 square meters of new capacity into service in China, most of which is committed to customers with firm move-in schedules. Meanwhile, our CapEx guidance for China in 2024 is only RMB2.5 billion. The very low implied CapEx per square meter is because we have already incurred a substantial part of the development cost. What is left is cost to complete. This pattern will continue over the next few years, giving us the ability to grow in China with relatively low incremental CapEx. In 2023, our International CapEx was around RMB2.8 billion. Our current backlog for International stands at over 130 megawatts of committed and reserved capacity, a large part of which is yet to be built. Our CapEx guidance for international in 2024 is RMB4 billion, which is largely driven by fixed delivery commitments to customers. On Slide 25. In 2023, GDS Holdings, excluding International, had negative cash flow before financing of just over RMB1 billion. Our objective is to maintain positive cash flow before financing on an organic basis. We have already been positive in some quarters. And for 2024, as a whole, we expect to be close to breakeven. In 2023, International, on a stand-alone basis, had negative cash flow before financing of over RMB3 billion. In 2024, we forecast negative RMB4 billion, which can be fully financed by the equity raise and project debt. Looking at our leverage on Slides 26 and 27. At the end of 2023, our consolidated net debt to last quarter annualized adjusted EBITDA multiple was 8.5x. Excluding International and pro forma for the repayment of shareholder loans, the multiple was 7.5x. Turning to Slide 28. During 2024, we have RMB2.3 billion of project loan amortization for China. We expect to generate an equivalent amount of new financing cash flow as a result of the repayment of shareholder loans from GDSI to GDSH and drawdown under existing facilities to finance around 50% of China incremental CapEx. Turning to Slide 29. Before I talk about guidance, I would like to flag the impairment loss of long-lived assets of around RMB3 billion, which we recorded during 4Q23. We are required to test for impairment whenever events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable. The impairment loss was mainly associated with data centers located in properties, which we lease for a fixed term and a few data centers, which we plan to consolidate. Turning now to guidance. For the full year 2024, we expect total revenues to be between RMB11.34 billion to RMB11.76 billion, implying a year-on-year increase of between approximately 13.9% to 18.1%. We expect adjusted EBITDA to be between RMB4.95 billion to RMB5.15 billion, implying a year-on-year increase of between approximately 7% to 11.4%. On a stand-alone basis, we expect International to contribute around RMB100 million to RMB150 million of adjusted EBITDA in 2024. As I mentioned earlier, we expect total CapEx of around RMB6.5 billion for the full year, comprising RMB2.5 billion for China and RMB 4 billion for International. We'd now like to open the call to questions. Operator, please?

[Operator]

[Operator Instructions] Our first question comes from the line of Frank Louthan from Raymond James.

[Frank Louthan, analyst]

Just really quickly, when can we expect to see some more full breakouts of the International business? That would be the first thing. And then secondly, if you can characterize the move-in schedule of the International customers relative to what you've seen historically in China and how quickly we could expect to see those customers billing inside this new development.

[Daniel Newman, executive]

This is -- it's Dan. Today, we've started to provide a breakout of the CapEx and of the leverage where there's clearly a significant difference looking at GDS Holdings consolidated or GDS Holdings in 2 parts. I did verbally give the numbers for EBITDA. I said that last year, International had negative EBITDA of RMB100 million for the full year. And this year, we expect positive EBITDA of RMB100 million to RMB150 million. It's not yet material, that material in the context of GDS Holdings numbers. So we don't propose to report segment financials. But as we move through this year and the materiality increases, we will certainly consider that.

[Frank Louthan, analyst]

You want to comment about move-in?

[Daniel Newman, executive]

Move-in compared with China, right?

[Frank Louthan, analyst]

Yes.

[Daniel Newman, executive]

I think when we see is International move-in is better than what we have in China. In general, I think the people all want time to market more faster than other regions. So it's a very good and general revenue more faster than China.

[Operator]

Our next question comes from Joni Lu from Goldman Sachs.

[Eunice Atkins, analyst]

This is Eunice asking question on behalf of Timothy Zhao. My question is has Company seen a fast ramp-up of the AI-related demand, especially for GDS International? And also another question is what takes to take to achieve the high end of your guidance in terms of revenue guidance for next year?

[William Huang, executive]

Yes, I think in the international business, of course, I think actually, we don't know what are our customers moving because they're all very confidential. So based on our current -- the product profile, I think we do have to see some high-density rep requirement plus. But I think the International requirement demand is very various because including a lot of the Internet company, OTT and also traditional GPU cloud as well. So it's mixed. I think that we do see maybe AI-type demand is already there, yes.

[Daniel Newman, executive]

To the question about how do we achieve the high end of our guidance. So if we split the guidance into 2 parts for finer, we're expecting a stand-alone adjusted EBITDA growth rate of around mid-single digits. This is consistent with the run rate that we've seen over the past couple of years in terms of quarterly move-in and the trend in MSRs and EBITDA margins. So we forecast assuming that current market conditions continue through this year, maybe next year, I think the outlook could be more positive in 2025. For the International part of business, clearly, the turnaround from negative RMB100 million to RMB100 million to RMB150 million positive is quite significant, and that elevates the growth rates. For international, we're forecasting bottom-up based on the time schedule for individual data centers to enter service and the customer contracts associated with those data centers, which have a fixed move-in schedule. So we based the forecast largely on what are the terms of those contracts. The International business is very dynamic. It's at early stage, albeit that's already achieved significant scale. But typically, for business at this stage of development, there could be a wider range of outcomes just because things are moving so fast. So I think there is potential upside in the international business as it as more data centers come into service.

[Operator]

Our next question will come from the line of Yang Liu from Morgan Stanley.

[Yang Liu, analyst]

I have 3 questions. The first, in terms of the overall international revenue contribution, could the management elaborate or breakdown in the current guidance for 2024 international revenue contribution? The second question is that I made some comparison versus our disclosure at the end of third quarter last year. You had 372 megawatts pipeline, megawatt data center pipeline in overseas market, and now it increased dramatically just in 1 quarter. Could management update us in terms of the pipeline development? Where is the new pipeline? And what will be the potential timeline to deliver that? Or what would be the type of business, a hyperscaler or retail business, et cetera. That is for the incremental overseas pipeline.And the third question is regarding the additional sales for 2024. Do you think that the total sales or area booked in 2024, if there's any chance to see a turnaround? Or from the megawatt perspective, there could be a turnaround?

[Daniel Newman, executive]

Yes. I'll take the first question. Hi, Yang, it's Dan here. I think we provided revenue guidance for the full year of RMB11.34 billion to RMB11.76 billion. We expect the revenue of International stand-alone to be about RMB1.1 billion, plus or minus, as I explained in answering the previous question. The growth in pipeline here.

[William Huang, executive]

Yes. I think the pipeline is very strong in general. I see the orders from the out of the world, global, and also we see a lot of pipelines from China as well. So I think the -- this shows the International business has a huge momentum, very big momentum. So I think the -- in fact, the current -- a lot of customers ask for deliver as much fast as possible. So I think the -- this is the overall demand profile. On the other hand, I think the customer type actually, as I just mentioned, very various -- there's a local -- a lot of local tax company. A lot of the global tanker company and also a lot of the e-commerce company as well. So this is not only from China, it's what we have been seeing is from the globally. So I think the -- this is very -- let us feel very, very excited. So I think the International business will grow very, very fast than what we expect.

[Daniel Newman, executive]

I think Yang was also asking about your bookings? Expectation bookings?

[William Huang, executive]

Yes, we don't want to set up -- because every quarter is changed, frankly speaking. So I think to maintain the last 2 years average level, which means 50 megawatts per year is our base. But based on our current pipeline, we can maybe go very, very high number, maybe double, something like that, but we don't want to set up too much high expectation on the -- so the 50% -- 50 megawatts is our base in the International market.Yes. But of course, as I just mentioned, this is just a Southeast Asian market. We're also very -- look very closely with the -- for other new markets like North Asia and also European market as well.

[Daniel Newman, executive]

I think, Yang, I don't -- just want to check, your question about increasing pipeline, if you were referring to the secured development pipeline. The reason why that's gone up very significantly is because at our established campus that we referred to as NTP, we acquired additional land and secured additional power. And at the same time, we have established a second campus in so called KTP where we are -- have started construction around 20 megawatts that we plan in a single phase to go to around 100 megawatts, and we also look forward to obtaining some commitments to that site in the next few quarters.

[Operator]

Our next question comes from Daley Li from Bank of America Securities.

[Huiqun Li, analyst]

I have 2 questions. The first one about the China data center business. Could the management share some of the demand trend for our clients, maybe for public cloud providers and the Internet companies and the some financial companies, how the demand trend? And given right now, the government is publishing more policy to support the AID center, et cetera. And how do we see the competition? And my second question about the overseas business. Congrats on this recent found raising. How do we see future like financial channel in overseas market and as we try to develop more business after like 2 to 3 years in terms of financing channel?

[William Huang, executive]

Okay. I'll take your first question. I think in China, I think we do see some signals that AI demand is increasing, but based on the current chip supply issue, I think the -- the demand is not -- demand actually is already there, but not fulfilled by the old chips. So what we can tell is the chips supply in terms of like a new version of the NVIDIA like H20 and also some China chips supply profile. What we can see is maybe the end of this year or early of next year, China data center demand will recover in a significant way. So what I think that this year, still, you can see a lot of the demand is flying right now. But actually, every people is waiting for the chips. So impact to our data center real demand, I would say it will start from next year.

[Daniel Newman, executive]

Your question about the financing requirements and options for International. So the rationale behind the capital raising, which we announced today is to ensure that we have adequate equity capital for the existing portfolio, which is in service and under construction. But we are moving forward rapidly, and the requirement for additional capital will depend on how the business plan evolves. We will take a view as new opportunities come up and new commitments are made. I think the -- we've spoken before about a strategy of limiting the amount of capital, which GDS Holdings allocates to International. We've allocated USD411 million. Now we're starting to leverage our equity investment with external equity at a premium valuation. I think this first Series A capital raising has required us to establish GDS International on a stand-alone basis and put in place the governance and all the aspects of intercompany relationships and so on, which is quite a challenge. I think it's -- after having done this deal and with the investor group who are now partnering with us, I think GDS International is very well placed to do further capital raisings and that could either be at a country level, as we've done already in Indonesia with our joint venture with INA or it could be at the international holdco level.

[Operator]

Our next question comes from Robert Chu from JP Morgan.

[Robert Chu, analyst]

So I'm asking on behalf of Gokul. So I have 2 parts of my questions. First one is on the competitive landscape in the IRR. So can you help us understand for what the IRR looks like for the international business, given we have seen many regional players or local players or Chinese players competing in this market. Secondly, I think you kind of guided the international business revenue contribution for this year will be probably 9%, 10%. So you mentioned that they are continuing to expand beyond these Southeast Asian markets, probably Europe or North Asia. So how should we think about the revenue contribution from international business in probably 3, 5 years of time?

[Daniel Newman, executive]

Thank you, Robert. First of all for the IRRs, we have undertaken projects in Hong Kong and in Johor, in Batam, each market has a different cost of capital. But if we look at it in a very general way, the IRRs have been within the range that we target -- have targeted historically, unlevered post-tax IRRs of not less than 10% up to IRRs in the low teens. This currently compares really quite favorably with what is achievable in China at the current stage in the cycle. For the contribution of international, without giving out forecast, I think we talked before about hitting 15% of consolidated revenue or adjusted EBITDA within 3 years. I think that is definitely achievable there may be higher than that.

[Operator]

The next question comes from the line of Bora Lee from RBC Capital Markets.

[Bora Lee, analyst]

This is Bora on for Jon Atkin. I think William had mentioned GBS expects to enter additional markets. Can you elaborate on how you're thinking about the markets or regions and what you'd like to expand and the time frame you had in mind? And secondarily, any update on the Singapore development?

[William Huang, executive]

I think our strategy is, first of all, I think we see the tremendous growth in the Southeast Asia and whole Asia-Pacific, which the market we are very familiar with. I think the first step, we will still focus on the Southeast Asia to get -- maintain the market-leading position, right? So I think this is our first priority. In the meanwhile, we already start to develop the Japan market for a while. And I think we are maybe in a near future, maybe we can announce some progress. So I think the Japan market -- the Korea market, is also very attractive. It's the top market data center market in the world, and we see the demand, so in general, we follow up the big market, we will also follow up the high growth market in the future. But as I've just mentioned, we do see some opportunity in Europe as well. But this is another future target market, but of course, including Middle East. Singapore, yes, we target to deliver the launch the data center by the end of 2026, so that's our time frame, and we made some progress. We have -- there's a couple of short-listed. We already tried to do the final decision to choose in the site. So I think we will tell the investor once we make the final decision.

[Operator]

Our next question is we have Sara Wang from UBS.

[Xinyi Wang, analyst]

I have 2 questions. First one is on China business. So what's the trend of MSR or churn rate when you renew contracts with existing customers, say, over the past 2 quarters? And then how shall we think about the trend going forward? Second question is still on AI. So maybe for both China and International project because AI requires a higher-density rack or even more advanced cooling methodology. So is there any difference between maybe high-density power rack in terms of revenue or margin profile compared to maybe cloud demand we have seen previously?

[Daniel Newman, executive]

Yes, I'll answer the first question and maybe.

[William Huang, executive]

I think in general, I think the current AI -- of course, the AI will definitely in the future, will the main driver to drive the data center demand is what's happening in U.S., what is happening in Europe and also the Southeast Asia and the Japan market already, but it's just a start. In terms of the difference, I think the AI guys need more big capacity. We, historically, when we talk to a cloud guys demand, if we use a single deal size, let's say Internet always ask for 10-megawatt, 20-megawatt, is that the maximum? And the cloud guys normally ask for, let's say, 30-megawatt, 40-megawatt. But now what we can see that the deal profile is totally different. A lot of the -- our customers, they ask for 100-megawatt or 200-megawatt per campus. So that means they need more power capacity in one site. So this is one difference. The second of all, of course, I think in general, average power density is going very high. So we are well-prepared for that. In terms of cooling, I think everybody knows once you get [indiscernible] if you want to get it let your product like per rack above 20 kW per rack. It's better to start to use -- try to start to use the liquid cooling, right? So in terms of technology, we are very familiar of the liquid cooling because 5 years ago, we started to use the liquid cooling solution for -- in China. So I think we are well-prepared for catch up the AI demand in the future, whatever in terms of size, capacity of the size or power density or cooling technology. We're all good at that.

[Daniel Newman, executive]

So your question about MSR. I always answer this in the same way. MSR can be affected by a number of different factors. It's not just a reflection of change in market pricing that's also dependent on location and type of data center. Rather than talk about pricing on renewals. We always give some guidance or direction on the trend in MSR, as I mentioned during the prepared remarks, over the past 4 quarters, that's 4Q22 to 4Q 23, the MSR decreased by 5%. Over the next 4 quarters, that's 4Q23 to 4Q24, we expect the MSR to decrease by 3%. Most of that decrease is due to delivery of the backlog, a smaller part is due to lower pricing on renewals. But if we were to look further forward beyond 2024 to 2025, MSR is bottoming out, which means that as you project further into the future, our revenue growth will be mainly driven by the increase in net additional area utilized with MSR decrease becoming less and then becoming flat.

[Operator]

We have come to the end of the Q&A session. I would like to now turn the call back over to the company for closing remarks.

[Laura Chen, executive]

Thank you once again for joining us today. If you have further questions, please feel free to contact GDS Investor Relations through the contact information on our website and the Piacente Financial Communications. Bye. See you next time.

[Operator]

This concludes the conference call. You may now disconnect your lines. Thank you.