Morgan Stanley raises VNET Group, Inc. Sponsored ADR (VNET.US) target price by 58% to $11.7.

Morgan Stanley released a research report stating that they continue to be optimistic about Chinese IDC enterprises, raising the target price of VNET Group, Inc. Sponsored ADR (VNET.US) by 58% to $11.7. VNET Group, Inc. Sponsored ADR is expected to have an EV/EBTIDA multiple of 11.6x by 2025, which is significantly lower than the valuation levels of 24x for peers in the Asia-Pacific region and 26x for global peers. The report points out that in the past three months, the progress of data center REITs funds has been rapidly developing. REITs funds not only provide sustainable domestic financing channels for data centers, helping to leverage existing assets and provide financial support for capital expenditures in the AI era. In addition, REITs funds also provide new valuation benchmarks for data center assets. Currently, the mature period EV/EBITDA multiple for private REITs funds is 11-13x, while for public REITs funds it is 13-15x. Therefore, assets with high quality and growth potential should receive higher valuations. Looking ahead, Morgan Stanley predicts that with the continued advancement of leading IDC enterprises, policy support, and the low interest rate environment in China, the issuance of public REITs is expected to gradually pick up in the second half of 2025. With the revaluation of industrial parks and warehouses in the C-REITs market, public REITs funds for data centers are expected to receive a valuation multiple of 15x EV/EBITDA. At the same time, the bank stated that capital expenditures for Chinese mega-scale enterprises grew strongly in 2024, and are expected to remain high in 2025. Among them, the capital expenditure for BAT in 2025 is expected to increase by 10% year-on-year; and including ByteDance, overall capital expenditure is expected to grow by 30%-40% year-on-year, consistent with the trend in the United States. Under an optimistic scenario, assuming that the capital expenditure intensity of other mega-scale enterprises is similar to that of ByteDance, this will reverse the supply-demand relationship for data centers and drive up data center rents in the coming quarters.