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Insights HK Data Centre
Insights HK Data Centre
In hot demand
HSI: 28,633
• Expect data centre demand in Hong Kong to
grow at 15% p.a. in 2018-2021, driven by cloud
ANALYST
and internet sectors
Tsz-Wang TAM, CFA +852 36684195 tszwangtam@dbs.com
Chris KO CFA, +852 36684172 chriskof@dbs.com
• Increasing internet connections with mainland
and the globe to enhance the value and demand
for data centres in Hong Kong
Recommendation & valuation
• Supply to be in shortage with growth to lag T arget Mkt PE
behind at 7%CAGR in 2018-2021, due to limited Company Price Price Rec Cap 19F
land supply and industrial building conversions Name Currency Local$ Local$ US$m x
Sunevision Holdings*
• SUNeVision (1686 HK, BUY) is the biggest HKD 5.65 10.40 BUY 1,674 29.7
(1686 HK)
beneficiary of supply shortage with c.90%
# FY18: FY19; FY19: FY20
capacity expansion pipeline
Source: Thomson Reuters, *DBS Bank (Hong Kong) Limited (“DBS HK”)
Surging demand at 15% p.a. in 2018-2021. We expect
the data centre demand in Hong Kong to grow at 15%
p.a. driven by cloud and internet industry in the next few Supply-demand of data centres in Hong Kong
years. Tencent (700 HK) and Alibaba (BABA US) are
expanding overseas via Hong Kong while Google Cloud k sq. ft. Limited supply
Platform and Amazon Web Services are establishing 11,000 from 2018-2021
ed-TH / sa-CS / AH
Industry Focus
Table of Contents
Data centre market in Hong Kong 3
Demand for Hong Kong data centres 3
Page 2
Industry Focus
Data centre market in Hong Kong Hong Kong in the same year for its cloud platform. Apart
from this, we also see rising demand from large business
Hong Kong, as the connection between mainland China and enterprises which utilise large data centre spaces to adopt
overseas, continues to attract data centre demand from both cloud technology and digitalisation development.
markets. However, the supply of data centres in Hong Kong is
very limited for both greenfield projects and industrial Continuous digitalisation to drive data storage demand. IDC
building conversion. Based on our estimation, the surging estimates that the global data creation will grow from c.33
demand at 15% p.a. and limited supply at 7% CAGR will Zettabyte (ZB) in 2017 to around 175ZB in 2025, representing
result in a supply shortage by 2021. an annual growth rate of 27%. The growth will be mainly
driven by higher data storage and processing requirement
Demand for Hong Kong data centres from the booming entertainment industry and embedded
devices like smart appliances. We believe this global trend will
Hong Kong has continuously led the data centre sector as the also benefit Hong Kong as a regional data centre hub.
Tier 1 market in Asia Pacific, benefitting from demand arising
from connections to both mainland China and overseas. We Data created by digitalisation in the world (2018-2025)
estimate that the demand will grow at a CAGR of 15% from
2018-2021, mainly supported by telecommunications, cloud ZB
services and media content industries. 200
180
Projected data centre demand in HK (2016-2021)
160
140
k sq.ft.
120
12,000
100
10,000 80
60
8,000 40
20
6,000 0
2022
2018
2019
2020
2021
2023
2024
2025
4,000
0
2016 2017 2018 2019 2020 2021 Increasing internet connections to enhance the value of data
centres in Hong Kong
Source: Companies, DBS HK
Internet connections (or connectivity) is crucial to store and
retrieve content in and out from data centres. We expect the
Growing demand from Chinese internet companies. Chinese
value and demand for data centres in Hong Kong to increase
internet companies like Tencent and Alibaba are expanding
due to stronger connectivity with mainland China as well as
their footprint globally via data centres in Hong Kong. For
the globe.
example, the popular game Playerunknown’s Battlegrounds
(PUG, 絕地求生), which is run by Tencent, moved its servers
Increasing cross-border connectivity with mainland China.
to Hong Kong in 2018, utilising the data centre services.
Since the opening of Hong Kong-Zhuhai-Macau Bridge
Tencent Cloud established its second data centre in Hong
(HZMB) in 4Q18, the cross-border connectivity between Hong
Kong in the same year as well.
Kong and China has increased. Leveraging on the abundant
international internet bandwidth of Hong Kong, stronger
Global cloud players establishing foothold in Hong Kong.
cross-border connectivity will encourage more data exchange
Global cloud services providers like Amazon Web Services
between China and the rest of the world via Hong Kong,
(AWS) and Google Cloud Platform (GCP) have also
which in turn drives higher value and demand for data centres
announced plans to establish their cloud region in Hong
in Hong Kong.
Kong. AWS had been planning to provide data processing
and storage for customers in Hong Kong since 2018.
Meanwhile, GCP had also started to set up data centres in
Page 3
Industry Focus
More submarine optical cables connecting to Hong Kong. In Data centre market share by capacity in terms of GFA in
2019, the Pacific Light Cable Network (PLCN), which is the HK (2018)
first submarine cable system with direct connection between
Hong Kong and the US (Los Angeles), will be ready for Towngas
services. Investors of PLCN include Google and Facebook (FB telecom
3% Others
US). In addition, a consortium named Hong Kong-Americas SUNeV ision
Equinix 24% 20%
(HKA), comprising Facebook, China Telecom (728 HK), China
4%
Unicom (762 HK) and Telstra (TLS AU) etc., is building a
submarine cable network directly connecting Hong Kong and Grand PCCW
Ming
California. This is expected to be completed in 2020 and will 13%
4%
reinforce Hong Kong as a key communications hub in the
Asia-Pacific region and attract more global internet and cloud HKEX
4%
giants such as Google and AWS to expand into Hong Kong. NTT
Global communications
Switch Telehouse 13%
Data centre supply in Hong Kong 5% HK CCC China
(HKCOLO)* Unicom
We estimated that the total data centre capacity in terms of 5% 5%
GFA had reached 7.6m sqft by the end of 2018, representing Source: Companies, DBS HK
an increase of 41% (or 12% p.a.) from 5.4m sqft at end-
2015, in line with our previous forecast. We estimate the
current utilisation rate to be around 80%. The remaining Major data centre clusters in HK (2018)
capacity is expected to be fully utilised in the next 2-3 years.
Page 4
Industry Focus
How’s supply in the next three years? Meanwhile, major international operator Global Switch also
has three out of five buildings in TKOIE under construction
There are three sources of data centre supply in Hong Kong:
with a foreseeable capacity of c.390,000 sqft. We believe the
(i) conversions from existing industrial buildings; (ii) greenfield
blocks will supply to the market through three phases with
sites available for sale, and (iii) purchasing or renting
c.130,000 sqft p.a. over 2019-2021.
sites/building spaces in the open market.
Major new data centre supply in HK (2018-2022)
Total data centre capacity in Hong Kong was around 7.6m
sqft in terms of GFA as at the end of 2018. We estimate that Dat a cent re operat or
Dat a cent re
Locat ion Y ear complet e
the capacity supply in terms of GFA will increase by c.27% in area (sq.f t .)
SUNeV ision 201,737 Tsuen Wan 2021
2018-2021 to c.9.3m sqft, implying a 3-year CAGR of 7%. Global Switch 390,000 Tseung Kwan O 2019-2021
The new supply will mainly come from: GDS 195,000 Kwai Chung 2021
SUNeV ision 1,212,000 Tseung Kwan O 2022
(1) SUNeVision’s greenfield data centre project in Tsuen
Source: Companies, DBS HK
Wan,
(2) Continuous expansion of Global Switch’s data centre in
TKOIE, Till today, there have been no additional land sites released by
(3) GDS’s (GDS US) industrial building redevelopment the government dedicated for data centre development. The
project in Kwai Chung, and Hong Kong government is actively looking for new sites for
(4) Others, from the conversion of industrial buildings into data centre development. However, it will take time to make
data centres the land available to be supplied to the market. We estimate
the supply CAGR to be 7% in 2018-2021, which is lower
Projected data centre supply in HK (2016-2021)
than the demand CAGR. Hence, we forecast the market to
face supply shortage in by 2021.
k sq. ft.
10,000
Conversion of industrial buildings is limited in near term. In
9,000
2017 and 2018, there were only about two applications of
8,000 industrial buildings conversions into data centres each year.
7,000 As the process of conversion often takes around one year to
6,000 complete, we expect the additional supply from industrial
5,000 buildings to be limited in 2018-2019. More conversion
projects might come to the pipeline in 2020-2021, driven by
4,000
data centre service price increase due to the supply shortage.
3,000
2,000 Supply-demand of data centres in Hong Kong
1,000
k sq. ft. Limited supply
0
11,000 from 2018-2021
2016 2017 2018 2019 2020 2021
10,000 Supply
2015-2017 shortage
Source: Companies, DBS HK 9,000 supply CAGR at
12%
8,000
On 2 January 2018, SUNeVision successfully gained a 50-year
7,000
lease term for the Tsuen Wan Town Lot No.428 at Ma Kok
6,000
Street with a GFA of c.202,000 sqft. The total consideration
5,000
was HK$726m, implying a unit price of HK$3,600 per sqft.
We expect it to supply to market in 2021. 4,000
3,000
In August 2018, mainland data centre operator GDS 2,000
purchased the site located in Kwai Chung with GFA of 2015 2016 2017 2018 2019 2020 2021
195,000 sqft capacity to escalate its presence in the Hong
80% of supply Total supply Demand
Kong market. The total consideration was c.HK$770m,
implying c.HK$3,950 per sqft. We expect the capacity to be
Source: Companies, Office of the Government Chief Information
available to the market in 2021. Officer of HK Government, DBS HK
Page 5
Industry Focus
Bidding of the last greenfield data centre site Judicial review against TKOIE
The major greenfield for data centres provided by the SUNeVision has filed a judicial review against the Hong Kong
government were the three sites located in Wan Po Road of Science and Technology Parks Corporation (HKSTPC) for not
Tseung Kwan O. Site 1, which were subsequently developed taking immediate steps to enforce restrictions in leases against
into MEGA Plus data centre, was acquired by SUNeVision in subletting data centres in the TKOIE. According to the judicial
2013. Sites 2 and 3 together accounted for c.1,212,000 sqft. review notice, some data centre operators in TKOIE are
GFA were bid by the SUNeVision as well in Dec 2018. The suspected to sublet part of their leased premises to various
total consideration was HK$5,456m, implying a unit price of institutions including cloud computing companies, financial
HK$4,500 per sqft., with completion expected in 2022. institutions and data centre operators, etc. SUNeVision believes
that subletting in TKOIE had led to substantial unfairness to the
Major land supply allocated by HK government
company and severely distorted competition in the industry.
Land parcel Sit e 1 Sit e 2 & 3 The company had acquired two parcels of land right next to
Site area (sq.ft.) 110,869 295,405 TKOIE at HK$428m in 2013 and HK$5.4bn in 2018
GF A (sq.ft.) 473,616 1,212,447 respectively.
Total consideration HK$428m HK$5,456m
Unit price (per sq.ft.) HK$900 HK$4,500 If SUNeVision wins in the judicial review, we believe some
Status Bid by SUNeV ision Bid by SUNeV ision tenants of the data centres in TKOIE may have to gradually
Year 2013 2018 move part of their data centre facilities out of TKOIE, creating
Expected completion 2017 2022 extra demand in the industry outside TKOIE. SUNeVision will be
the largest beneficiary as it has two data centres right next to
Source: Companies, DBS HK TKOIE.
Recommendations and valuations
Locations of land supply allocated for data centre
We reiterate our BUY recommendation on SUNeVision as it
will be the biggest beneficiary of data centre supply shortage
in Hong Kong. It has robust capacity expansion pipeline of
c.1.4m sqft (or 90% of its existing capacity) after acquiring
the only remaining site in TKO at the end of 2018.
Page 6
Industry Focus
Peers Table
HK t elecom operat or
Citic Telecom Int L Holdings* 1883 HK HKD 2.92 1,335 Dec 10.9 10.0 6.2 6.7 1.2 1.1 7.4 6.9
Pccw 8 HK HKD 4.72 4,642 Dec 16.2 29.1 6.3 6.6 1.8 2.2 5.6 6.1
Hkt Trust & Hkt* 6823 HK HKD 12.26 11,826 Dec 19.2 17.9 5.6 5.9 2.5 2.5 10.4 10.1
Hch.Telecom.Hk.Holdings* 215 HK HKD 3.1 1,903 Dec 37.0 41.8 27.8 1.8 0.9 1.2 5.1 8.5
Hkbn* 1310 HK HKD 12.22 1,566 Aug 31.0 25.3 4.6 5.6 11.9 2.4 13.0 12.5
Smartone Telecom.Hdg.* 315 HK HKD 8.93 1,276 J un 16.1 15.2 4.6 4.9 2.1 2.0 5.0 4.5
A v erage 21.7 23.2 9.2 5.3 3.4 1.9 7.8 8.1
# FY18: FY19; FY19: FY20
Source: Thomson Reuters, *DBS HK
Page 7
China / Hong Kong Company Guide
SUNeVision
Version 4 | Bloomberg: 1686 HK Equity | Reuters: 1686.HK
Refer to important disclosures at the end of this report
220
6.9
5.9
200
180
subletting data centres in the Tseung Kwan O Industrial Estate
(TKOIE). A favourable outcome will create extra demand outside
4.9 160
140
3.9
120
2.9
1.9
100
80
TKOIE as some data centre customers may have to move out of
TKOIE, and this would benefit SUNeVision.
Feb-15 Feb-16 Feb-17 Feb-18 Feb-19
SUNeVision
We expect c.80%+ utilisation for the industry in the next two 36.7
years.
18.4
and that for the newly launched facility in Tseung Kwan O will 882
be at a discount at the initial stage.
588
294
0
2017A 2018A 2019F 2020F 2021F
50
40
30
20
10
0
2017A 2018A 2019F 2020F 2021F
Page 9
Company Guide
SUNeVision
Appendix 1: A look at Company's listed history – what drives its share price?
(k sq. ft.)
14 1,600
12 1,400
10 1,200
8 1,000
6 800
4 600
2 400
0 200
Dec-10
Dec-15
Mar-17
Mar-12
Jun-08
Sep-09
Jun-13
Sep-14
Jun-18
Apr-09
Apr-14
May-11
May-16
Jul-10
Jul-15
Nov-08
Nov-13
Nov-18
Jan-08
Jan-18
Jan-13
Feb-10
Feb-15
Oct-16
Oct-11
Aug-12
Aug-17
Data centre capacity (RHS) Relative performance for stocks that were already listed on (LHS)
Page 10
Company Guide
SUNeVision
Balance Sheet:
Leverage on the strong support from parent company. The Leverage & Asset Turnover (x)
company’s net gearing increased from c.40% at at June 2018 2.50
0.3
1.00
Share Price Drivers:
0.2
Data centre utilisation. SUNeVision already has capacity 0.50
expansion in the pipeline for the next few years. The increase in 0.00 0.1
data centre utilisation will contribute to revenue and earnings 2017A 2018A 2019F 2020F 2021F
growth. The data centre market is expected to grow at 15% Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
p.a. in the next 3-5 years. Faster-than-industry growth from HK$ m
market share gain or winning key contracts will be positive for 8,000.0
TKOIE may shift part of their data centre facilities outside 1,000.0
0.0
TKOIE. SUNeVision will be the largest beneficiary as it has two 2017A 2018A 2019F 2020F 2021F
ROE
20.0%
Key Risks:
Excessive data centre supply in Hong Kong. Excessive 15.0%
market share. It has five data centres with a total gross floor 26.9 +1sd: 27.4x
-2sd: 13.2x
11.9
Mar-15 Mar-16 Mar-17 Mar-18
PB Band
(x)
7.6
4.6
Avg: 4.3x
3.6
-1sd: 3.09x
2.6
-2sd: 1.88x
1.6
Mar-15 Mar-16 Mar-17 Mar-18
Page 11
Company Guide
SUNeVision
Key Assumptions
FY Jun 2017A 2018A 2019F 2020F 2021F
Data centre capacity (k sq.ft.) 1,010.0 1,480.0 1,480.0 1,480.0 1,480.0
Data centre utilisation (k sq.ft.) 792.0 945.0 1,097.0 1,226.0 1,332.0
Utilisation rate (%) 78.0 64.0 74.0 83.0 90.0
Average annual rent (HK$/sq.
1,190.0 1,205.0 1,280.0 1,365.0 1,456.0
ft.)
Gross profit margin (%) 61.7 58.5 57.2 56.2 57.6
Source: Company, DBS HK
Page 12
Company Guide
SUNeVision
Growth
Revenue Gth (%) 15.4 13.3 15.1 23.8 18.5
Opg Profit Gth (%) 8.4 8.4 11.3 14.5 12.0
Net Profit Gth (%) 9.4 19.0 45.4 6.7 4.9
Margins
Gross Margins (%) 60.8 62.5 59.3 57.8 57.2
Opg Profit Margins (%) 55.7 56.1 53.9 51.9 51.0
Net Profit Margins (%) 48.4 61.6 61.1 53.1 54.1
Source: Company, DBS HK
Page 13
Company Guide
SUNeVision
ST Debt 0 0 0 0 0
Creditors 617 835 851 868 886
Other Current Liab 121 112 144 146 173
LT Debt 996 1,983 8,700 10,000 11,000
Other LT Liabilities 200 237 237 237 237
Shareholder’s Equity 3,684 3,913 4,073 4,172 4,308
Minority Interests 15 15 15 15 15
Total Cap. & Liab. 5,634 7,094 14,020 15,438 16,618
Page 14
Company Guide
SUNeVision
HK$
S.No. Dat e Closing 12- mt h Rat ing
7.0 Price T arget
Price
6.5 1: 6-Sep-18 HK$5.97 HK$7.50 Buy
2: 14-Sep-18 HK$5.08 HK$7.50 Buy
6.0 3: 13-Dec-18 HK$4.40 HK$7.50 Buy
4: 25-Feb-19 HK$5.68 HK$7.50 Buy
5.5 2
1 3
4
5.0
4.5
4.0
Dec-18
Dec-18
Mar-18
May-18
Jun-18
Apr-18
Sep-18
Jul-18
Nov-18
Jan-19
Feb-18
Feb-19
Oct-18
Aug-18
Source: DBS HK
Analyst: Tsz-Wang TAM, CFA
Chris KO CFA,
Page 15
Industry Focus
DBS HK recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
* Share price appreciation + dividends
Sources for all charts and tables are DBS HK unless otherwise specified.
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Page 16
Industry Focus
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Page 17
Industry Focus
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have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and
other services from the subject companies.
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Industry Focus
United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined
Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes
only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell
any financial product. It does not constitute a personal recommendation or take into account the particular investment
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report or any portion thereof may not be reprinted, sold or redistributed without our written consent.
United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this
report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research
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contact DBSVUSA directly and not its affiliate.
Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,
jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Bank (Hong Kong) Limited
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Tel: (852) 3668-4181, Fax: (852) 2521-1812
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Industry Focus
INDONESIA THAILAND
PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd
Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul
DBS Bank Tower 989 Siam Piwat Tower Building,
Ciputra World 1, 32/F 9th, 14th-15th Floor
Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan,
Jakarta 12940, Indonesia Bangkok Thailand 10330
Tel: 62 21 3003 4900 Tel. 66 2 857 7831
Fax: 6221 3003 4943 Fax: 66 2 658 1269
e-mail: research@id.dbsvickers.com e-mail: research@th.dbs.com
Company Regn. No 0105539127012
Securities and Exchange Commission, Thailand
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