On Friday, BofA Securities reiterated its Buy rating on VNET Group Inc (NASDAQ: VNET), maintaining a price target of $2.80. The firm's stance comes after investor meetings with VNET management in Hong Kong on Thursday.
Management expressed optimism, noting an uptick in downstream demand and high order visibility. This positive outlook is attributed to increased capital expenditures from leading internet companies, robust demand from short-video platforms, and growing data center needs driven by artificial intelligence (AI) and large language models (LLM) development.
VNET's wholesale data centers are experiencing quick occupancy, typically achieving over 90% utilization within six months. BofA Securities believes that the recent investment from SDHS, which has resulted in lower financing costs of 3-4%, will further strengthen VNET's competitive position in the market.
The investment firm's confidence in VNET is also based on the potential synergies with its shareholder, SDHG. These synergies are expected to enhance VNET's wholesale operations and AI-related business segments. According to BofA Securities, these factors collectively justify the maintained Buy rating for VNET Group Inc.
In other recent news, VNET Group has reported a promising Q1 2024 performance, largely driven by the AI industry boom. The company's financial results showcased a 5.1% increase in net revenue, with wholesale revenue jumping by an impressive 59.1%.
However, a 7.1% decline was observed in retail revenue. VNET's full-year guidance projects net revenue to be between CNY 7.8 billion and CNY 8 billion, and adjusted EBITDA to range from CNY 2.22 billion to CNY 2.28 billion. Despite reporting a net loss of CNY 187 million for the quarter, the company managed to close with CNY 2.1 billion in cash and generated CNY 267.6 million from operating activities.
In terms of future developments, VNET aims to leverage the expanding AI industry for high-quality growth and is committed to its CapEx goals for 2024. These recent developments indicate a strategic shift in VNET's focus towards the wholesale IDC sector, while still navigating the challenges in the retail space.
InvestingPro Insights
In light of BofA Securities' optimistic view on VNET Group Inc, InvestingPro data provides additional context for investors considering the company's financial health and market performance. With a market capitalization of $623.81 million, VNET is trading at a low Price / Book multiple of 0.76 as of the last twelve months up to Q1 2024. This figure suggests that the stock may be undervalued relative to its assets, aligning with BofA's positive rating.
Despite not having turned a profit over the past twelve months, analysts predict the company will be profitable this year. This forward-looking perspective may offer some reassurance to investors. Moreover, recent price movements have shown strong short-term returns, with a 21.54% increase over the last month and a 22.8% increase over the last three months. These metrics highlight a potential turnaround in investor sentiment.
For those interested in a deeper analysis, InvestingPro offers additional tips on VNET. For instance, the company operates with a significant debt burden and has been quickly burning through cash. These factors, among others, are crucial when evaluating the potential risks associated with an investment in VNET. For a full suite of insights, including 14 additional InvestingPro Tips, investors can visit InvestingPro's dedicated page for VNET at https://www.investing.com/pro/VNET. Don't forget to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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