VNET Group, Inc. (217A.F) Q4 2024 Earnings Call Transcript

Thank you for standing by for the Fourth Quarter and Full Year 2024 Earnings Conference Call for VNET Group Incorporated. After the management's prepared remarks, there will be a question-and-answer session. Please note the Chinese line is in listen-only mode. [Operator Instructions] Participants from our management include Mr. Ju Ma, Rotating President; Mr. Qiyu Wang, Chief Financial Officer; Mr. Qi Yang, Senior Vice President; and Ms. Xinyuan Liu, Head of Investor Relations of the company. Please note that today's conference call is being recorded. I will now turn the call over to the first speaker today, Ms. Xinyuan Liu. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to our fourth quarter and full year 2024 earnings conference call. Our earnings release was distributed earlier today, and you can find a copy on our IR website as well as our Newswire services. Please note that today's call will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligations to update any forward-looking statements, except as required under applicable laws. Please also note that VNET's earnings press release and this conference call include the disclosure of unaudited GAAP and non-GAAP financial measures. VNET's earnings press release contains a reconciliation of the audited non-GAAP measures to the unaudited GAAP measures. A summary presentation which we will refer to during this conference call, can be viewed and downloaded from our IR website at ir.vnet.com. Now let's get started with today's presentation. Mr. Ma, please go ahead.

Good morning and good evening everyone. Thank you for joining our call today. I'd like to begin with several key achievements from our fourth quarter and full year performance in 2024. Firstly, our wholesale business has delivered remarkable growth while our retail business has remained stable. Secondly, our net revenue and adjusted EBITDA have significantly surpassed our previous guidance. Thirdly, we have recently secured a total of 252.5 megawatts in orders from customers across the Internet, cloud computing and intelligent driving industries. Looking ahead to 2025, our delivery plan and orders from customers for the next 12 months have seen substantially increases. I will now provide a detailed overview of these achievements. Let's turn to Slide 5. We closed 2024 with a strong fourth quarter highlighted by our wholesale IDC business remarkable performance as we identified and capitalized on emerging market opportunities, especially advanced technology driven demand. As of December 31, 2024, our wholesale capacity in service increased significantly, rising by 127 megawatts quarter-over-quarter to 486 megawatts. Wholesale capacity utilized reached 353 megawatts increasing by 73 megawatts quarter-over-quarter, thanks to strong customer demand for our wholesale data centers. We have also observed a notable uptick in our wholesale customers moving pace recently, accelerating to 6 to 12 months from around 24 months in the past. Meanwhile, our retail IDC business continued to progress smoothly. As of December 31, 2024, our retail capacity in service was 52,107 cabinets with self-built cabinets increasing by 212 year-over-year and 189 quarter-over-quarter. We also delivered impressive financial results for the fourth quarter and full year. Let's move on to Slide 6. Our net revenue increased by 18.3% year-over-year to RMB2.25 billion for the fourth quarter. Notably, revenue from the wholesale business reached a record high at RMB665 million for the quarter, representing our fastest year-over-year growth rates at 125.4% for any quarter of 2024. Adjusted EBITDA for the fourth quarter also increased by 63.8% year-over-year to RMB721.3 million, mainly due to our wholesale IDC business rapid growth. Our adjusted EBITDA margin for the fourth quarter increased by nearly 10% point year-over-year to 32.1%. For the full year we delivered net revenue of RMB8.26 billion, up 11.4% year-over-year, and adjusted EBITDA of RMB$2.43 billion, up 19.1% year-over-year, both exceeding the high end of increased guidance we provided last quarter. Meanwhile, we achieved a full year net profit of RMB248 million, marking a turnaround from net loss in 2023 through continuous profitability improvements. Moving on to our new order wins On Slide 7. Our high performance data centers, outstanding delivery capabilities and premium services continued to attract quality orders. In the fourth quarter, we secured a 32 megawatts order from an existing Internet customer for our capacity in the Yangtze River Delta and one of our retail data centers located in the Greater Bay Area also win a 1.5 megawatts order from a new customer in intelligence driving industry during the quarter. Meanwhile in the Ulanqab, we signed a framework agreement with an Internet customer for 100 megawatts of capacity, including a 28 megawatts order to be delivered in the fourth quarter of 2025. Additionally, we also secured a 55 megawatts order from a leading cloud computing customer in this region, demonstrating our customers deep and enduring trust in our high quality services. Furthermore, we recently win a 64 megawatts wholesale order from an Internet customer for the project. We operate in Hebei Province with our joint venture partner Changzhou Gaoxin Group. This joint venture enables us to serve more customers while minimizing the impact on our balance sheet, providing an efficient means of growing our customer base and optimizing our business layout. Looking ahead, we will continue utilizing joint venture structures to further enhance our efficiency and facilitate high quality business development. Now moving to our full year guidance for 2025 on Slide 8. We expected total net revenues for 2025 to be between RMB9.1 billion to RMB9.3 billion representing year-over-year growth of 10% to 13%. Adjusted EBITDA is expected to be in the range of RMB2.7 billion to RMB2.76 billion, representing year-over-year growth of 15% to 18%. Based on our new orders and delivery plan, our capital expenditure for 2025 is expected to be in the range of RMB10 billion to RMB12 billion, representing year-over-year growth of 101% to 141%. Also, we expect to deliver 400 to 450 megawatts in the next 12 months, an increase of 161% to 194% from 2024’s total deliveries. Moving into 2025, we are seeing persistent high demand for high-performance data centers. With recent breakthroughs by DeepSeek propelling the domestic AI development and driving the IDC industry’s rapid growth. As such, we are confident that the immense growth potential in China’s IDC market is poised to be further elongated. Let’s take a closer look at our recent observations on Slide 9, starting with DeepSeek’s impact. DeepSeek’s innovative achievements have significantly bolstered confidence in domestic AI development, catalyzing a surge in inference demand and enterprises enthusiasm for investing in AI, including large CSP internet enterprises and small medium enterprises. DeepSeek’s innovative models and technologies are enhancing efficiency and reducing both costs and dependencies on high-performance chips for training and inference. It will become easier for companies to execute their AI strategies, triggering wider AI adoption industry-wide and a greater need to build our AI infrastructure. In turn, lower OEM barriers to entry for AI will unleash greater demand for our reliable wholesale IDC services. Furthermore, as more companies integrate AI into their operations, increasing demand is expected to surge. We have already observed significant growing demand from small- and medium-sized enterprises for private deployment of DeepSeek. We expect this positive market trend to persist for the foreseeable future, bringing exciting business opportunities for our retail IDC business. We will seize these opportunities to effectively enhance our retail data centers utilization rate and IRR, laying a solid formation for our long-term business development. Let’s turn to Slide 10. As we have shared previously, the Yangtze River Delta and the Great Beijing area are our core business regions. The layout of our wholesale capacity in service is dynamically balanced in two regions with the proportion of capacity under construction in the Great Beijing area increasing. On a related note, industry research suggests that overall utilization rates at China State Center are set to increase steadily. Tier 1 cities with wider digital economies are expected to begin experiencing supply shortages of the high-performance data centers needed to run AI applications as AI-related business expand. Most growth physically as a crucial area for the development of China’s AI, Internet and high-technology industry, the Greater Beijing region is experiencing steady growth in data centered adoption and utilization rates. With the deepening application of generative AI and enhancement of computing power and network infrastructure, the overall utilization rate of wholesale data center in Greater Beijing area is projected to reach 85% as earlier as 2025, marking the first potential supply shortage in the market. In the Yangtze River Delta region, a new wave of structural upgrades in AI technology will temporarily release pressure on the supply/demand imbalance in 2025, given the sustained growth in demand, the overall utilization rate of wholesale data center in Yangtze River Delta region is expected to reach 85% by 2026 at which point, this area will also face supply and shortages. As a leading player in the computing infrastructure industry, we have a clear growth path for our IDC business. Our strong delivery and service capabilities position us well to capture market opportunities stemming from these strategies driving our sustainable growth. Now let’s delve into our business updates. Starting with our wholesale business on Slide 11. As the company’s primary growth engine of wholesale business achieved outstanding fourth quarter results in terms of both revenue, which reached RMB665 million and growth rate, which accelerated to 125.4% year-over-year. This segment is driving as high-performance IDC services remain in high demand across the market, especially as leading Internet players continue to deepen their investment in AI for the driving demand growth. To meet this demand, we increased capacity in service during the quarter by 127 megawatts to 486 megawatts. Meanwhile capacity utilized rose by 73 megawatts to 353 megawatts, mainly driven by high utilization and faster-than-expected move-ins at our E-JS Campus 02. Our wholesale business utilization rate decreased slightly to 72.6% due to our delivery of 127 megawatts concentrated in the fourth quarter of 2024. We also delivered a mature capacity utilization rate of 95.6%, a relatively high level and a ramp up capacity utilization rate of 34%. We have a clear growth path for our wholesale datacenter capacity. Let’s move on to Slide 12. We maintained our growth trend in overall wholesale data center capacity with 486 megawatts in services and utilized capacity increasing to 353 megawatts by the end of the fourth quarter. Over capacity under construction was 406 megawatts in the fourth quarter with a precommitment rate for capacity under construction of 82.9% by the end of December. Additionally, capacity held for short-term future development increased sequentially by 75 megawatts to 267 megawatts primarily due to an abundance of demand with high certainty. With strong AI development, driving greater market demand for IDC services, we will continue to press forward with our robust expansion plan for wholesale data center capacity, laying a foundation for further business growth. Moving to our retail IDC business on Slide 13. Over retail business remained stable and continued to progress smoothly in the fourth quarter. Retail capacity in service was 52,107 cabinets with 33,068 utilized cabinets for a utilization rate of 63.5% as of the end of December. MRR per retail cabinet increased slightly to RMB8,794 this quarter. Turning to our delivery plan on Slide 14. In 2024, we successfully brought a total of 153 megawatts into services, showcasing our robust and efficiency delivery capabilities and the deep commitment to meeting customer demand. This include over 127 megawatts during the fourth quarter and 26 megawatts in the first nine months, far surpassing our guidance. For 2025, customer demand for high performance reliable IDC resources remain strong and we expect our deliveries will set a new annual record. We currently have eight data centers under construction and plan to deliver 406 megawatts of capacity over the next 12 months or around 140 megawatts during the first half of 2025 and around 266 megawatts in total. During the second half of 2025, reflecting strong customer demand and our outstanding delivery capabilities. Non-IDC business also remains a key component of our overall business growth. Notably, we continued to expand our Diyixian business customer base by acquiring new customers from the medical technology, professional services and consulting industries for Diyixian Premium Dedicated Internet Services, EVPL and SD-WAN services. In conclusion, our effective new growth strategy and strong execution drove excellent fourth quarter and full year 2024 results. Moving into 2025, we remain confident in China's growth potential led by surging demand in the IDC industry due to the AI boom. To capitalize on this opportunity, we will continue to innovate, strengthening our capability and expanding our high performance data center network to offer our customer solution designed to seamlessly address their demands in the AI era. As always, we are committed to delivering sustainable long-term value to all of our stakeholders. Now I will turn the call over to our CFO, Qiyu for further discussion of our operating and financial performance. Thank you, everyone.

Good morning and good evening, everyone. Before we start the detailed discussion of our fourth quarter performance, please note that unless otherwise stated, all the financials we present today are for the fourth quarter and the full year of 2024 and are renminbi terms. Furthermore, unless otherwise substitute old growth rates I’m reviewing on a year-over-year basis. Let's turn to Slide 16. We exceeded our expectations for the full year 2024, capped by a strong fourth quarter as we remain focused on high quality revenue business. In the fourth quarter, our total net revenue increased by 18.3% to RMB2.25 billion. Our adjusted cash gross profit increased by 24.6% to RMB923.9 million, while our adjusted EBITDA also grew year-over-year by 63.8% to RMB721.3 million. For the full year, our total net revenue were RMB8.3 billion, representing an increase of 11.4% compared to the same period last year, and adjusted EBITDA reached RMB2.4 billion reflecting an impressive 19.1% increase from the prior year, both exceeding our guidance. Furthermore, our bottom line turned profitable with net income reaching RMB248.4 million, achieving a significant improvement from net loss of RMB2.6 billion for the full year 2023. Let's look more closely at our top line. As we have mentioned previously, we have divided total net revenue from IDC business into wholesale and retail IDC business based on the nature and the scale of our data center projects with revenue from non-IDC business remained separate. As you can see on Slide 17, in the fourth quarter, our wholesale revenues remained our key revenue growth driver with strong momentum significantly increasing by 125.4% year-over-year, to RMB665.2 million mainly driven by the E-JS Campus 02. Our retail revenues continue to account for the largest part of our net revenue. Our retail revenues remained relatively stable at RMB964.8 million. Our non-IDC business continued to progress smoothly. During the fourth quarter, we maintained solid margins, thanks to our continuous effort to enhance overall efficiency. As we have shown on Slide 18, our adjusted cash gross margin remained quite stable. Our adjusted EBITDA margin rose significantly to 32.1% compared with 23.2% in the same period of 2023. Moving on liquidity on Slide 19. We maintained a strong cash flow during the quarter. Also, we recorded a net operating cash flow of RMB2.01 billion for the full year of 2024. Our cash position remained healthy with the company's total cash equivalent and restricted cash reaching RMB2.08 billion as of December 31, 2024, stable compared to the end of the third quarter. Next, let's take a look at the debt on Slide 20. We maintain our prudent approach to that management with our net debt to the trailing 12 months adjusted EBITDA ratio at 4.9 and total debt to trailing 12 months adjusted EBITDA ratio at 5.5 both remaining at healthy level and our trailing 12 months adjusted EBITDA to interest cover rate improved to 6.5 as of December 31, 2024. We prioritize long-term debt maturity planning in our debt and strategic management to ensure the security of debt repayments. Additionally, the company's short and medium term debt maturing in 2025 to 2027 comprised was 56.9% to our total debt. Turning now to CapEx spending. As you can see on Slide 21, for the full year 2024, our CapEx was RMB4.98 billion with the majority allocated to the expansion of our wholesale IDC business, mainly due to linear supply chain expenditure management, some CapEx was deferred to 2025. We expect our CapEx for full year 2025 to be in the range RMB10 billion and RMB12 billion exceeding the level of 2024. The increase is mainly to support our 400 to 450 megawatts delivery plan for 2025, which is expected to 3 times greater than level of 2024, surpassing the total delivery capacity of the past three-year combined. Before I conclude, let me share a few of our achievements in ESG review our commitments and responsibilities to our industry, environment and society as cornerstones of our ongoing success, and I’m proud of reports that our ESG efforts continue to win recognition from global renewed ESG-rating institution this year. Recently, we secured a spot in the S&P Global Sustainability Yearbook 2025 with our record score of 70 in S&P’s 2024 Corporate Sustainability Assessment. This is VNET’s first inclusion in global edition following two consecutive years in the China edition. Normally, VNET is one of just 21 China mainland enterprise recognized in the 2025 yearbook and so on really [ph] from Chinese IT service industry, our score also land us in the top 7% of IT services industry globally. In additional to this recognition by S&P Global, we received an A rating from MSCI for the third consecutive year, reaffirming our leadership of China’s Internet service and infrastructure industry. We attend a B-grade in CDP’s climate change questionnaire in 2024 with 8 out of 16 categories achieving A-grade recognition. This accomplishments not only highlight our effective ESG strategy but also reflect our long-term investment value and development prospects. In summary, we are delighted to the end of 2024 with stronger-than-anticipated results driven by impressive growth in our wholesale IDC business. Looking ahead, we will continue to execute our high-quality development strategy and invest in future growth, particularly AI-related opportunities to propose our long-term sustainable development. This concludes our prepared remarks for today. We are now ready for take questions.

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] Your first question comes from Shuyun Che with CICC. Please go ahead.

Thank you for taking my questions and congratulations on the strong results and orders. My first question is the wholesale business order in last quarter and recently held in really strong. To deliver these orders, the CapEx outlook for 2025 have increased, so could management provide details on the arrangement of CapEx over 2025 and how much of this spending will be covered through the funds from our risk projects. Also, according to the announcement, the retail data center run a new order from customers in intelligent driving industry. So my second question is given the strong demand from the AI computing could management provide insight into the potential impact of AI-related orders on the retail segment. Could you share with us the utilization rate trends and the pricing trends in the retail business? Thank you. [Foreign Language]

[Foreign Language] Thank you for the question. I want to take the first question to begin the answer. In 2025, we are setting a high threshold high standards for the CapEx compared to that of 2024, we gave it a 100% increase and over 90% of the 2025 CapEx will go directly into the wholesale IDC business. In 2025, over 400 megawatts will be delivered in our wholesale IDC business. [Foreign Language] Among them, 83% have been on the determined orders as well as the capacity to deliver. And for the remnant [ph] capacities, we are about to sum them up recently. And the remnant CapEx will be go directly into the retail IDC for the purpose of the high-power density happen retrofit as well as the value-added business. [Foreign Language] And I also wanted to add a few more comments about the questions on the risk. I have to say that 2025 marks the starting point for China to spirit to secure the asset utilization of the data industry, as well as it is also recognized as a starting year for different types of risk being implemented. In last Q3 of 2024, we experienced the first prelease. And last week, I’m so happy to see two of my partners have launched ABA, the asset-backed securities in the name of the – also known as [indiscernible] risk have also been affected by the exchange. [Foreign Language] And please be noted, overpriced risk projects are also being accepted by the Shanghai Stock Exchange. Our public REITs are in the key stage of being examed and proved. It is estimated that in 2025, Q3 of our REITs of a different nature and background will be implemented. As a result, we're able to recover up to RMB2 billion. [Foreign Language] And now let me check with you about the second question about development of the large language model and AI application. We are very happy to see that in the beginning of 2025, the operation of DeepSeek has driven up the demand on the AI applications and the application of DeepSeek has played down the threshold of adopting the large language models giving us a strong push in the model referencing. And we are also seeing that the threshold of deploying DeepSeek in the private sector has been played down. As a result, the development and adoption of the smart applications has been expanded. [Foreign Language] You just mentioned the autonomous driving. This is one of the key vertical scenarios I have explained to you. We have to say that autonomous driving extremely and dramatically important. In the Q4 of 2025, our company has already made very good breakthroughs in this regard. And in 2025, we will continue the autonomous driving as a key sector for us to expand our customers as well as to offer premium services. [Foreign Language] To be more specific, I want to share with you my understanding on the utilization. We have already experienced the boost from their demand from this market and we are staying very positive about that. In terms of the – in terms of the price mechanism and the pricing trend of the single cabinet, those AI server deployment friendly or specific single cabinet, their price will be higher than that of a traditional one.

Next question please.

Thank you. Your next question comes from Sara Wang with UBS. Please go ahead.

Thank you for the opportunity to ask questions. And congratulations on the solid set of results. I have two questions. First one is that I noticed that among our new order wins, there are 64 megawatts JV project with Changzhou Gaoxin Group. With management please look us through the framework partnership with the Changzhou partner and how that reflected in our revenue or CapEx guidance. And then my second question is regarding the supply-demand dynamics. I think from the management comments that since management is really confident in the supply-demand dynamics over the next one or two years. and even mentioned supply shortage, how should we think about this because the supply chain in China is still quite efficient. And then are there any new entrants into the market or are competitors delivering new projects into the market? How shall we think about the supply given the demand is already quite strong? Thank you. [Foreign Language]

[Foreign Language] Thank you for the question. I want to share with you a little bit of a background of this question. And first of all, I have to say that the demand is really going high for us in this year. And two years ago, our company created a JV together with Changzhou SOE. And from that JV, we are holding 13% of the equity which is equivalent to the 64-megawatt order you are mentioning. [Foreign Language] And please be noted the order on the 64 megawatts together with the JV, we have never been incorporated into the CapEx I just introduced, and it's no longer, and it will not in over balance sheet as well. [Foreign Language] And we have to say we are going to win profit from this project of 64 megawatts in the name of the management fee or in the format of the capital operation fee. This is a great milestone for us to run and operate a project to serve our customers, but we are not going to have that to put that in our balance sheet. In other words, we are going to drive up our grid capacity to use the light assets, while satisfying the strong demand from the core customers. [Foreign Language] Your next question is about the trained as well as the market competition. And let me check with you about several observations. According to the latest survey from industry third-party according to the supply and demand situation of the domestic market, it is estimated that in 2025, the Greater Beijing area, the wholesale IDC business will experience the supply shortage. Well, in 2026, this will also happen in the Yangtze River Delta. [Foreign Language] This conclusion from the third-party data industry association is in line with my gut feeling about this market. And your next part of this question is about the general competition of this market. To be honest, most of my peers – our peers have prioritized the overseas market instead, which means for the bidding process, we are engaging for the recent times, we’re experiencing different peers at different sessions without consolidated or major peers or competitors.

Next question please.

Your next question comes from Yang Liu with Morgan Stanley. Please go ahead.

Thanks for the opportunity. Congratulations on the strong bookings first. I have two questions. The first one is regarding the future trend of the industry rental. As you mentioned that it is likely to see supply shortage and also the hyperscaler demand is quite strong. What’s your expectation of the per kilowatt rental in the next one or two years? Is it likely to see some price hike? And my second question is regarding the unit cost or unit CapEx because of the data center upstream, like the diesel generator or other UPS, et cetera, those equipments are the key components and whether there will be enough supply from upstream and whether there will be any pricing hike to give pressure on the unit CapEx. [Foreign Language]

[Foreign Language] Thank you for the excellent questions. And I will share with you some of my understanding about this market. We are seeing that ever since launch of the large language models into this market, we are seeing the wholesale IDC centers, but demand has been gradually released into this market. From the end of last year in 2024, all the way down to the first quarter of 2025. We’re also seeing that the supply is a little bit of – in the shortage side. When we are talking and discussing with the leading online and internet companies in China, we have to say that the resources they are going to choose and the companies they are going to work with are a little bit of limited. [Foreign Language] As my colleague has already briefed on you the general market situation in China, I want to add a few more comments. In China, the leading online and internet companies are choosing and working with different wholesale IDC suppliers in different cities and regions. We are servicing competition as well, even though the peers are different in different regions. In terms of the price trend as well as a pricing mechanism, we are offering the IDC business to meet a proper market demand, which means that our price mechanism is driven by the market and our pricing is quite stable.

[Foreign Language] And I want to add a bit more comments about this. On the cost front, when we are discussing about the diesel generator unit and equipment, we are seeing that as the construction and installments are picking up, the traditional brands, especially those imported ones and JV brands are not adequate. [Foreign Language] And we have to check the other side of the coin. The good news is, the most majority and the most part of the clients are increasingly comfortable in using the Made in China equipment instead and we're also seeing that through different optimization, the price is even slightly lower. [Foreign Language] Since we are having very large IDC scare on the market. The single cabinet will cover 15 [ph] megawatts to 16 megawatts per building, opening us huge roles to even refine the design. So generally speaking, the unit CapEx is a little bit of a slightly lower. [Foreign Language] Where we are seeing the general picture of the supply and demand relationship on this market. The cost is slightly lower, the revenue will pick up. As a result, the return will become as well.

Thank you.

Your next question comes from Edison Lee with Jefferies. Please go ahead.

Hi thank you for taking my questions. Congratulations again, great results and very good order wins. I have two questions. I think the number one question is still more related to supply and demand, but more on the retail side. So I believe that – I totally agree with your assessment that I think SMEs can actually benefit from DeepSeek by deploying their deploying the model in private cloud or even on-premise. So based on what you saw in the first quarter of this year, do you think that your retail revenue this year can actually get back to, let's say, mid-single-digit growth? Is that possible? And then 2026, do you think you will further accelerate. So that's question number one. Question number two is about financing. Can you help us understand how you actually fund the RMB10 billion CapEx in 2025? Because your operating cash flow is somewhere around RBM2 billion and you can raise RMB2 billion from REIT and you still have RMB6 billion to finance. Okay. [Foreign Language]

[Foreign Language] Thank you for the question. I'm very much willing to share with you my personal views on the entry of DeepSeek and what is impact on the retail sector. First of all, through the extreme innovation of the DeepSeek and large-language model, we have seen the threshold for the medium and small enterprises as well as individuals has been cut dramatically. [Foreign Language] I want to share with you my personal observation and will validate my personal judgment according to the practices we have already experienced. For the recent days, we are seeing a large number of small and medium-sized enterprises as well as the individual developers showed strong demand in adopting and using the retail IDC. [Foreign Language] And I want to share with you a couple of business models these small and medium-sized enterprises as well as of individual developers are using. First of all, they will deploy their servers in the range of two servers all the way down – all the way up to 16 and they were entrusted their servers into the retail IDC we're running coupled with the DeepSeek, whether it is V3 or RE [ph]. [Foreign Language] And let me check with you and share with you the business model too. Some of the clients will come to us requiring the IDC, the retail IDC rental services, together with the procurement of extra GPU. With that being done, we are creating the new business model for HIT, the hybrid IT services. [Foreign Language] And we are experiencing a new launch of demand from our clients. They are using our IDC as well as HIT, as I explained to you. We are also requiring to for us to deploy or to dispatch software engineers to work with them in developing value-added applications for them. [Foreign Language] I know that you must be expert in reading my company VNET, and we know that VNET is running and implementing the corporate structure of the new engine operation with retail and wholesale IDCs. When we are running the retail IDC business, we are reaching out to thousands of clients. And when in this range of a large language model application, we'll reach the client this time to offer them either the retail services or the referencing models. Thank you for staying with me.

[Foreign Language] You mentioned that we are having a very large CapEx in 2025, agreed. It is due to the strong demand from the wholesale IDC new wins, the new orders. And we are having two channels as well with very much well running cash flow as well as the risk project I have just briefed.

[Foreign Language] And due to the corporate structure of the Board, we are very much – we are in advantageous stage in having the low financing. For instance, if we are going to carry out releasing a project back to loan financing, we're going to have 80% of the LOB [ph] with the interest rate of no more than 3.5% with the total maturity duration of 15 years. [Foreign Language] And I also want to share with you the results of our corporate estimations based on other loan ratio as of now, and we have already paid back the majority of the transferable loans by the end of the last year. And according to the current CapEx, we are releasing the EBITDA per the capital will be 6.5 folds [ph] as we are estimating and tabulating.

Next question, please.

Your next question comes from Timothy Zhao with Goldman Sachs. Please go ahead.

Great. Thank you Ju Ma [ph] for taking my question and congrats on the very solid results. I have two questions here. One is, I think about your downstream customers, I think given the rising data center demand from AI, just wondering if Ju Ma can share your observations on the customers in terms of their, I think, preferences between the in-house data centers and third-party data center operators? And how is that different now versus a couple of years ago? And secondly is on the wholesale data centers as we are seeing faster inferences demand growth. Could you please comment on how your wholesale campuses cater the inferences versus training demand? And what is the customer requirement in terms of the power cost in terms of latency, et cetera? [Foreign Language] Thank you for this question. It is very important, but also a very sensitive question. I have to say that. You're rating up the questions on orders as well as which pathways they are selecting be it from the pathway of the rental or they are going to have their in-house choices. And in the deck, we have already delivered and share with the analysts, you could check on more the details as well. And in this year we are seeing the boost demand from the online and Internet industry. When they are deploying the large language models, we are also collecting a lot of feedback. [Foreign Language] As of now, the online and Internet business is still one of the most important industry we are working with. And we are also offering the most important force way obtaining customers. And as AI demand is driving up in the beginning of this year, we are seeing that the company is in the cloud computing, intelligent driving as well as financing also very much important and please be noted, those companies in the large language models is also metric. [Foreign Language] And you're also trying to find out whether those clients will go directly with the in-house choices or they will collaborate and rental from the third-party according to the feedback I collected from this market as well as my observations, both scenarios are co-existing. [Foreign Language] Generally speaking, a few number of clients will go with self-built choices. And the majority of our clients will go with a rental selection, which means that the largest proportion of the clients will go with a rental choice with the complementary part of these clients will go and build themselves. [Foreign Language] And I want to share with a little bit of the rationale behind since the market and the client has booming demand on this regard. I don't think it is a rationale for the client to build their own equipment by themselves. We're not going to use up that much resources. So the general pathway is rental plus self-fit [ph] and this orders should never be reversed. That is what we have observed from this market. [Foreign Language] And I also want to share with the second part of the question. So I want to start with you by analyzing a little bit of the wholesale IDC services we are offering. We are seeing the need is booming. And in the beginning of 2025, the determined on contracted orders are underway and the deliveries are also on the way. But as now, we are collecting two pieces for new ideas from the customers. The first piece of idea is they are requiring expanded the capacity from us. And with that being said, they want us to have even better efficiency or high efficiency. [Foreign Language] And I also want to add a few more comments on the referencing part. The referencing models will happen within the retail IDC for most of the scenarios because the clients will consider convenience more than the price of the tariff. In terms of the referencing. In terms of the rep [ph] model, it is whether as a private deployment or it is for the purpose of the intelligent applications of the – the development of the intelligent applications, which means that latency is not going to be troublesome. [Foreign Language] To wrap it up for our clients, they will deploy their influence models in the retail IDC instead of the wholesale IDC. Thank you for the questions.

Next question please?

Your next question comes from Daley Li with Bank of America Securities. Please go ahead.

Thanks, management for taking my questions. Congrats on the solid results and the strong new orders. Here, I have one question regarding the wholesale business. As the company has achieved a strong new orders in the past two quarters. And then we also have a quite solid delivery plan for this year. And by the end of this year, our capacity in service probably will almost double compared to like the number in 2024. So how should we think about the growth outlook maybe in 2026 and – or even 2027 regarding the revenue or new orders pipeline. Thank you.

[Foreign Language]

[Foreign Language] Thank you for this question. And I want to share with you my view on this question. The company has established a five-year plan ahead of the time because we are estimating that the AI deployment is going to be really strong in this Chinese market, driving up the demand for the domestic IDCs extensively. [Foreign Language] In 2025, the total number of CapEx is in the range of the totality as the last three years and in the year of 2026 to 2027, the company will continue to boost our big CapEx to meet up the requirements of our clients and customers in the market. [Foreign Language] Our CapEx is strongly determined by the contract signed up with the clients which means that our CapEx is offering a new round of uncertainty to the growth of the future business. [Foreign Language] And I also want to release a little bit of the business models of the IDC sectors. Normally, we will go and construct to start off, it will take a nine to, it will take us six to nine months as a different project and place goes. After that, we will take around six to 12 months, additional six to 12 months to stack up all the requirements of the customers. It will be meeting 90% of the customer demand. At the end of the day, you are going to find that the growth of the EBITDA will be a little bit slower than that of the CapEx.

Ladies and gentlemen, that concludes our conference for today. Thank you for participating. You may now disconnect your lines.