Nov. 14
21Vianet Group
VNET : NASDAQ : US$10.05
BUY Target: US$16.00
COMPANY DESCRIPTION:
The largest carrier-neutral Internet data center service provider in China, 21Vianet hosts customers’ servers and networking equipment and provide interconnectivity services. The company also provides managed network services through its data transmission network.
Investment recommendation
We reiterate our BUY rating on 21Vianet ahead of its Q3/12 earnings release and believe that the company remains best positioned to benefit from the secular tailwinds in the rapidly growing Chinese data center market. Following the successful expansion of significant data center capacity in Q2/12, we believe the company is on path for accelerating revenue growth for the balance of 2012 and into 2013.
Further, we believe that the partnership with Microsoft to tap the Chinese cloud computing market has likely been underappreciated by investors.
Investment highlights
Expect solid Q3/12 – Following close to 2,300 cabinets added at the end of Q2, our recent checks indicate that pre-sales trend remained solid in Q3/12, positioning the company well for accelerating revenue growth in Q4/12 and into 2013. Although we do not expect material margin expansion in the near term, we expect the company’s investments will improve its growth and margin profile over time.
Cloud effort likely underappreciated – Despite the company’s longawaited announcement to partner with Microsoft in targeting the Chinese cloud computing market, its shares has witnessed some downdraft in recent weeks. However, we believe the agreement would enable 21Vianet to leverage an exceptionally strong brand in China (Microsoft) and add an attractive growth engine to its business model in a capital efficient way, a potential likely underappreciated so far by investors.
Multiple sources of growth, on tap – With the Microsoft partnership (Cloud) and Fastweb acquisition (CDN) this year and the Gehua Network acquisition (Bandwidth) in 2011, we believe 21 Vianet has established a unique platform to not only sustain strong growth from various sources in the Chinese market, but also improve its profitability over time with the common infrastructure.
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