BofA Securities updated its stance on GDS Holdings (NASDAQ: NASDAQ:GDS), a leading data center provider. The firm increased the price target to $22.40, up from the previous $12.40, while reiterating a Buy rating on the stock. This adjustment comes in the wake of GDS's reported acceleration in top-line growth, which has been attributed to a rapid increase in overseas capacity and a potentially quicker recovery in demand from China.
GDS Holdings recently disclosed its financial results for the second quarter of 2024, which demonstrated a 14% year-over-year revenue increase to Rmb2.83 billion. This figure slightly exceeded the consensus and BofA Securities' own estimates.
The company's adjusted EBITDA also saw growth, rising by 6% year-over-year to Rmb1.31 billion, surpassing expectations from both the consensus and BofA Securities.
In response to these results, BofA Securities has revised its revenue and adjusted EBITDA forecasts for fiscal years 2025 and 2026 upwards by 4-6% and 5%, respectively.
The new price objective of $22.40, which also applies to the Hong Kong market with a target of HK$22, reflects a valuation based on 14 times the 12-month forward enterprise value to EBITDA. This is an increase from the previously used multiple of 13 times. The adjustment in valuation is a direct result of the improved growth prospects for GDS's operations in China and the strong order flow from its international segment.
In other recent news, GDS Holdings has reported a promising second quarter for 2024, with a narrower loss and a revenue beat. The company posted a net loss of RMB231.8 million or RMB1.30 per share, less than the projected RMB1.82 per share loss. Revenue saw an increase of 14.3% YoY to RMB2.83 billion, surpassing the consensus forecast of RMB2.83 billion.
TD Cowen, a financial services firm, reiterated its Buy rating for GDS Holdings and maintained a steady price target of $27.00. The firm's positive stance is bolstered by the company's commitment to its 2024 guidance and the strategic plans for its subsidiaries.
Major new customer orders were secured in Johor, Malaysia, reflecting strong regional demand. For the full year 2024, GDS reaffirmed its guidance for total revenues of RMB11,340-11,760 million and adjusted EBITDA of RMB4,950-5,150 million.
InvestingPro Insights
In light of BofA Securities' recent upgrade of GDS Holdings, real-time data from InvestingPro provides further context to the company's financial landscape. GDS's market capitalization stands at $3.31 billion, reflecting its significant presence in the IT services industry. Despite a challenging environment, GDS has managed to grow its revenue by 9.08% over the last twelve months as of Q2 2024, demonstrating its ability to expand amidst adversity. The company's revenue growth outpaces its gross profit margin, which sits at 19.86%, indicating that while GDS is increasing its top-line, cost control remains an area for potential improvement.
InvestingPro Tips highlight some challenges and opportunities for GDS. The company operates with a significant debt burden and is quickly burning through cash, which could be a concern for investors. However, it is also a prominent player in the IT Services industry with strong returns over the last week, month, and three months, suggesting a positive short-term investor sentiment. Analysts do not anticipate the company will be profitable this year, and with a P/E ratio of -14.84, the market may be pricing in future growth expectations. For investors seeking more in-depth analysis, there are 13 additional InvestingPro Tips available on InvestingPro.
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