China / Hong Kong Industry Focus

Hong Kong Data Centre Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity 1 Mar 2019

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

footholds for their cloud services in Hong Kong. 10,000

2015-2017
Supply
shortage
Increasing internet connections of Hong Kong with 9,000 supply CAGR at
12%
mainland and overseas will enhance the value and 8,000
demand for data centres. 7,000
6,000
Supply climbing at 7% CAGR in 2018-2021 but still 5,000
trailing demand. There are no new sizeable land sites
4,000
available for data centre development in Hong Kong
3,000
after the recent land sale in Tseung Kwan O (TKO),
2,000
which was secured by SUNeVision. Suitable industrial
2015 2016 2017 2018 2019 2020 2021
buildings for conversion into data centres are also
limited. We estimate the supply CAGR to be 7% in 80% of supply Total supply Demand
2018-2021, resulting in supply shortage by 2021.
Source: Companies, Office of the Government Chief Information
We like SUNeVision. We reiterate our BUY Officer of HK Government, DBS HK
recommendation on SUNeVision as it will be the largest
beneficiary with 90% capacity expansion pipeline to
meet expanding demand amid supply shortage. We
forecast the earnings CAGR to be 13% for FY6/19-
FY6/22. We have incorporated the new TKO project into
our forecast and raised our TP from HK$7.5 to HK$10.4.

ed-TH / sa-CS / AH
Industry Focus

Hong Kong Data Centre

Table of Contents
Data centre market in Hong Kong 3
Demand for Hong Kong data centres 3

Data centre supply in Hong Kong 4

Major data centre operators in Hong Kong 4

How’s supply in the next three years? 5

Bidding of the last greenfield data centre site 6

Judicial review against TKOIE 6

Recommendations and valuations 6
Profile
Sunevision 8

Page 2
Industry Focus

Hong Kong Data Centre

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

2,000 Source: IDC

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

Hong Kong Data Centre

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.

Major data centre operators in Hong Kong

The top 3 players are SUNeVision, PCCW (8 HK) and NTT

communications in terms of GFA. SUNeVision became the
largest player with the completion of its MEGA Plus data
centre in Tseung Kwan O and the expansion of Shatin MEGA
TWO. After setting up data centres in Tseung Kwan O
Industrial Estate (TKOIE), China Unicom (762 HK) and Global
Switch also entered the Hong Kong market in 2017.

Major data centre operators in HK (2018)

M ajor dat a c ent re Capac it y

operat or (sq.f t .) M ark et share
SUNeV ision 1,480,000 19.5%
PCCW 1,014,376 13.3%
NTT communications 968,751 12.7%
China Unicom 398,264 5.2%
Telehouse HK CCC (HKCOLO)* 396,000 5.2%
Global Switch 375,000 4.9% Source: Office of the Government Chief Information Officer of HK
HKEX 337,987 4.4% Government
Grand Ming 298,000 3.9%
Equinix 288,000 3.8%
Towngas telecom 262,639 3.5%
Others 1,784,641 23.5%
T ot al 7,603,658 100.0%

* Telehouse HK CCC: a JV formed by HKCOLO and KDDI

Source: Companies, DBS HK

Page 4
Industry Focus

Hong Kong Data Centre

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

Hong Kong Data Centre

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.

Data centre project pipeline of SUNeVision

Site 2 & 3
K w ai T seung
Locat ion Chai Wan - M EGA - i
Chung K w an O
GF A (k sq.ft.) Expanding power 202 1,212
TKOTL 122 MEGA Plus capacity by 40%
Date of project 2017 J an 2018 Dec 2018
start
Expected Year FY6/19 FY6/22 FY6/23
of completion

Source: Company, DBS HK

We have incorporated the TKO project into our forecast and

Source: Office of the Government Chief Information Officer of HK
Government
raised our TP from HK$7.5 to HK$10.4. We expect the TKO
project to start contributing to revenue from FY6/23. We have
assumed that the total construction capex, including the
building, equipment and machineries, to be HK$7.3bn based
on a rate of HK$6,000 per sqft. We have assumed the ASP in
terms of GFA of the TKO project to start at HK$1,000 per
sq.ft. per year or 20% discount to existing ASP and gradually
increase over time. We expect the new TKO project to take
four years to be ramped up to 90% utilisation. We have also
assumed data centre project-related interest expenses to be
capitalised.

Page 6
Industry Focus

Hong Kong Data Centre

Our TP of HK$10.4 is based on discounted cash flow model

with a WACC of 6.6% (vs 7.2% previously) and a terminal
growth rate of 3%. We lowered the WACC as the company
had geared up to finance the new TKO project.

Data centre portfolio of SUNeVision

Dat a cent re name One J UM BO M EGA - i M EGA T w o M EGA Plus

Location Kwun Tong Tseung Wan Chai Wan Shatin Tseung Kwan O
GFA (k sq.ft.) 20 120 350 520 470
Number of racks 200 1,000 4,000 6,000 5,000
Power provision 1.5kV A per rack for 1.5kV A per rack for 1.5kV A per rack for Average 3kV A per rack for Average 3kV A per rack for
standard power zone; 3kV A standard power zone; 3kV A standard power zone; 3kV A standard power zone; up to standard power zone; up to
per rack for high power zone per rack for high power per rack for high power 9kV A per rack for high 9kV A per rack for high
zone zone power zone power zone
Year of operation 1999 2000 2001 2010 End of 2017
commencement
Building

Source: Company, DBS HK

Peers Table

Mkt PE PE Y ield Y ield P/Bk P/Bk EV /EBIT DA

Price Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F
Company Name Code Currency Local$ US$m Yr x x % % x x x x
Sunevision Holdings* 1686 HK HKD 5.65 1,674 J un 29.4 29.7 2.7 3.0 5.8 5.6 27.7 29.3

Dat e cent er operat or

Grand Ming Group Hdg.# 1271 HK HKD 4.9 443 Mar n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
GDS Holdings GDS US USD 33.27 3,907 Dec n.a. n.a. 0.0 0.0 5.3 5.4 27.5 17.5
Keppel Dc Reit Unt KDCREIT SP SGD 1.47 1,470 Dec 25.5 17.5 4.3 5.4 1.5 1.4 n.a. 16.7
21V ianet Group Adr 1:6 V NET US USD 9.44 866 Dec 214.2 47.2 0.0 0.0 1.4 1.4 8.0 6.9
Equinix Reit EQIX US USD 423.5 34,246 Dec 94.6 66.9 2.2 2.3 4.7 4.7 18.8 15.6
Digital Realty Tst. DLR US USD 113.12 23,509 Dec 93.6 94.3 3.6 3.8 2.7 2.6 18.3 17.3
Cyrusone CONE US USD 49.84 5,396 Dec n.a. n.a. 3.7 3.8 2.4 2.3 20.8 17.1
Dupont Fabros Technology Dead - Delist.14/09/17
DFT US USD 66.31 5,166 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
A v erage 107.0 56.5 2.3 2.6 3.0 3.0 18.7 15.2

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

DBS Group Research . Equity 1 Mar 2019

BUY Rare Goods to hoard

Last Traded Price ( 28 Feb 2019):HK$5.65(HSI : 28,633)
Price Target 12-mth:HK$10.40 (84.1% upside) (Prev HK$7.50)
Analyst
Tsz-Wang TAM, CFA+852 36684195, tszwangtam@dbs.com
Chris KO CFA,+852 36684172, chriskof@dbs.com
What’s New
• Expect data centre demand in Hong Kong to grow
at 15% p.a. in 2018-2021, driven by cloud and
internet sectors
• Supply to be in shortage with growth to lag
behind at 7% CAGR in 2018-2021, due to limited
land supply and industrial building conversions
• Incorporated into our valuation the new data
centre project in Tseung Kwan O, which
represents 80% of its current capacity
• Reiterate BUY, with a higher TP of HK$10.4, as it is
a key beneficiary of rising data centre demand in
Hong Kong
Price Relative
HK$
A leading data-centre operator in Hong Kong. We have a BUY rating
on SUNeVision as it will be the biggest beneficiary with 90% capacity
expansion pipeline to meet the increasing data centre demand amid
supply shortage in Hong Kong. SUNeVision, owned by Sun Hung Kai
Properties (SHKP), is one of the leading carrier-neutral data centre
operators in Hong Kong with a c.20% market share. The stock now
offers a c.3% dividend yield for FY6/19, with the dividend expected
to grow at a CAGR of 10%+ in the next few years.
Where we differ. Expect supply shortage in 2021. There are no new
sizeable land sites available for data centre development in Hong
Kong after the recent land sale in Tseung Kwan O, which was
secured by SUNeVision. Suitable industrial buildings for conversion
into data centres are also limited. We estimate the supply CAGR to be
7% in 2018-2021, resulting in supply shortage by 2021.
Potential catalyst: Favourable outcome from the judicial review
against TKOIE. SUNeVision has filed a judicial review against the Hong
Kong Science and Technology Parks Corporation (HKSTPC) for not
taking immediate steps to enforce restrictions on leases against
Relative Index

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 (LHS) Relative HSI (RHS)

Forecasts and Valuation

FY Jun (HK$m) 2018A 2019F 2020F 2021F Valuation:
Turnover 1,365 1,639 1,917 2,193 We derive our TP of HK$10.4 using a discounted cash flow model,
EBITDA 881 1,062 1,242 1,443
Pre-tax Profit 896 924 935 1,098 assuming 6.6% WACC and 3% terminal growth rate.
Net Profit 776 772 781 917
Net Pft (Pre Ex) (core profit) 612 682 781 917 Key Risks to Our View:
Net Profit Gth (Pre-ex) (%) 10.3 11.5 14.5 17.4
EPS (HK$) 0.19 0.19 0.19 0.23 Excessive data centre supply in Hong Kong. Excessive construction of
Core EPS (HK$) 0.15 0.17 0.19 0.23 data centres in the market could lead to pricing pressure.
EPS Gth (%) 23.2 (0.8) 1.2 17.4
Core EPS Gth (%) 10.3 11.5 14.5 17.4
Diluted EPS (HK$) 0.19 0.19 0.19 0.23 Slower-than-expected demand. Sluggish demand could be due to
DPS (HK$) 0.15 0.17 0.19 0.23 changes in the operating environment or market share loss from
BV Per Share (HK$) 0.97 1.01 1.03 1.06
PE (X) 29.4 29.7 29.3 25.0 Hong Kong to other data centre locations. Sub-optimal utilisation will
CorePE (X) 37.7 33.2 29.3 25.0 adversely impact profitability.
P/Cash Flow (X) 30.9 24.3 21.1 17.8
P/Free CF (X) nm nm nm nm
EV/EBITDA (X) 27.7 29.3 26.1 23.2 At A Glance
Net Div Yield (%) 2.7 3.0 3.4 4.0 Issued Capital (m shrs) 2,325
P/Book Value (X) 5.8 5.6 5.5 5.3 Mkt Cap (HK$m/US$m) 13,139 / 1,674
Net Debt/Equity (X) 0.4 2.0 2.3 2.4 Major Shareholders (%)
ROAE(%) 20.4 19.3 18.9 21.6 Sun Hung Kai Properties Ltd 73.9
Earnings Rev (%): 0 0 0 Free Float (%) 26.1
Consensus EPS (HK$) 0.18 0.18 0.21 3m Avg. Daily Val. (US$m) 0.7
Other Broker Recs: B:2 S:0 H:0 ICB Industry: Technology / Software & Computer Services
Source of all data on this page: Company, DBS Bank (Hong Kong) Limited
(“DBS HK”), Thomson Reuters

ed-JS/ sa- CS /AH

 Company Guide

SUNeVision

CRITICAL FACTORS TO WATCH Data centre capacity (k sq.ft.)

1480 1480 1480 1480
1,495
Critical Factors 1,281
Data-centre capacity. New data-centre supply in Hong Kong is 1,068 1010
scarce in the long term due to limited supply of land. We 854
believe that leading data-centre operators with land sites or
641
property premises for capacity expansion will benefit from the
427
healthy industry growth in the next few years. SUNeVision has
214
increased its capacity in terms of GFA by 50% after the
0
completion of its greenfield facility in Tseung Kwan O. This will 2017A 2018A 2019F 2020F 2021F
support the company to have a dividend CAGR of 10%+ in the Data centre utilisation (k sq.ft.)
next few years. It has also won a new project with a total 1,332.0
1,359
capacity of 1.2m sq.ft. in Tseung Kwan O, which represents 1,226.0
1,097.0
80% of its current capacity. We expect the new project to 1,087
945.0
contribute to growth from FY6/23. 792.0
815

Data-centre utilisation. The data-centre market is expected to 543

grow at 15% p.a. in the next 3-5 years, supported by content

272
hosting by multi-media content providers and Internet players
as well as rising adoption of cloud technology by business 0
2017A 2018A 2019F 2020F 2021F
enterprises. SUNeVision already has capacity expansion in the
Utilisation rate (%)
pipeline. The increase in data-centre utilisation will contribute
to revenue growth. We estimate that it would take 4 years for 91.8
83.0
90.0

its data centres to ramp up to an optimum utilisation of 90%. 78.0

74.0
73.4
Operating at an optimal utilisation rate will also be positive for 64.0

overall profitability, particularly for newly launched capacity. 55.1

We expect c.80%+ utilisation for the industry in the next two 36.7
years.
18.4

Data-centre pricing. Data-centre pricing is determined by 0.0

various factors, including the market’s supply and demand 2017A 2018A 2019F 2020F 2021F
conditions, tenant mix, value-added services provided, and Average annual rent (HK$/sq. ft.)
electricity costs, etc. The ability to raise average rental rate per 1,471
1,456
1,365
GFA hinges on overall management’s quality. We believe that 1,190 1,205
1,280

the pricing for existing data-centre facilities should be stable 1,176

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

Gross profit margin (%)

70
61.7
60 58.5 57.2 57.6
56.2

50

40

30

20

10

0
2017A 2018A 2019F 2020F 2021F

Source: Company, DBS HK

Page 9
 Company Guide

SUNeVision

Appendix 1: A look at Company's listed history – what drives its share price?

Relative performance of SUNeVision vs HSI and data centre capacity of SUNeVision

(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)

Source: Company, DBS HK, Bloomberg Finance L.P.

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

to 60% as at Dec 2018 to support capacity growth. Going

2.00 0.3
forward the company will obtain unsecured debt from its
parent company, SHKP, for the capacity expansion. 1.50
0.2

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

the stock. 7,000.0

6,000.0
5,000.0
Favourable outcome from the judicial review against HKSTPC. 4,000.0
A favorable outcome from the judicial review against HKSTPC 3,000.0

will be positive to the share price as data centre customers in 2,000.0

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

data centres right next to TKOIE. Capital Expenditure (-)

ROE
20.0%
Key Risks:
Excessive data centre supply in Hong Kong. Excessive 15.0%

construction of data centres in the market could lead to

pricing pressure. 10.0%

Slower-than-expected demand. Sluggish demand could be 5.0%

due to changes in the operating environment or market share

loss from Hong Kong to other data centre locations. Sub- 0.0%
2017A 2018A 2019F 2020F 2021F
optimal utilisation will adversely impact profitability. Forward PE Band
(x)
Company Background 36.9
SUNeVision, owned by Sun Hung Kai Properties, is one of the
+2sd: 32.1x
leading carrier-neutral data centres in Hong Kong with c.20% 31.9

market share. It has five data centres with a total gross floor 26.9 +1sd: 27.4x

area (GFA) of 1.5m sqft supported by c.260 full-time Avg: 22.7x

21.9
employees. Its data centre business is operated under the
-1sd: 18x
brand iAdvantage. 16.9

-2sd: 13.2x
11.9
Mar-15 Mar-16 Mar-17 Mar-18

PB Band
(x)
7.6

6.6 +2sd: 6.72x

5.6 +1sd: 5.51x

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

Source: Company, DBS HK

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

Income Statement (HK$ m)

FY Jun 2017A 2018A 2019F 2020F 2021F
Revenue 1,142 1,365 1,639 1,917 2,193
Cost of Goods Sold (438) (566) (701) (839) (930)
Gross Profit 704 799 938 1,078 1,263
Other Opng (Exp)/Inc (66) (78) (102) (119) (136)
Operating Profit 638 721 836 959 1,127
Other Non Opg (Exp)/Inc 75 165 90 0 0
Associates & JV Inc 0 0 0 0 0
Net Interest (Exp)/Inc 25 10 (2) (24) (29)
Dividend Income 0 0 0 0 0
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 738 896 924 935 1,098
Tax (107) (120) (153) (154) (181)
Minority Interest (2) 0 0 0 0
Preference Dividend 0 0 0 0 0
Net Profit 630 776 772 781 917
Net Profit before Except. 630 776 772 781 917
EBITDA 739 881 1,062 1,242 1,443
Growth
Revenue Gth (%) 14.3 19.5 20.1 17.0 14.4
EBITDA Gth (%) 7.4 19.2 20.5 17.0 16.1
Opg Profit Gth (%) 8.4 13.0 16.0 14.7 17.5
Net Profit Gth (%) 14.7 23.3 (0.6) 1.2 17.4
Margins & Ratio
Gross Margins (%) 61.7 58.5 57.2 56.2 57.6
Opg Profit Margin (%) 55.9 52.8 51.0 50.0 51.4
Net Profit Margin (%) 55.2 56.9 47.1 40.7 41.8
ROAE (%) 17.4 20.4 19.3 18.9 21.6
ROA (%) 12.3 12.2 7.3 5.3 5.7
ROCE (%) 12.3 11.3 7.3 5.8 6.3
Div Payout Ratio (%) 88.0 78.8 88.3 100.0 100.0
Net Interest Cover (x) NM NM 408.8 40.3 39.2
Source: Company, DBS HK

Page 12
Company Guide

SUNeVision

Interim Income Statement (HK$ m)

FY Jun 1H2017 2H2017 1H2018 2H2018 1H2019

Revenue 557 584 641 723 760

Cost of Goods Sold (219) (219) (261) (305) (325)
Gross Profit 339 365 381 418 435
Other Oper. (Exp)/Inc (28) (38) (35) (43) (48)
Operating Profit 311 328 346 375 387
Other Non Opg (Exp)/Inc 0 75 93 72 90
Associates & JV Inc 0 0 0 0 0
Net Interest (Exp)/Inc 13 12 11 (1) 0
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 323 415 450 446 477
Tax (52) (55) (58) (62) (66)
Minority Interest (2) 0 0 0 0
Net Profit 270 360 392 384 411
Net profit bef Except. 270 360 392 384 411

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

Balance Sheet (HK$ m)

FY Jun 2017A 2018A 2019F 2020F 2021F

Net Fixed Assets 3,072 4,567 11,397 12,807 13,975

Invts in Associates & JVs 0 0 0 0 0
Other LT Assets 1,672 1,742 1,832 1,832 1,832
Cash & ST Invts 604 466 453 441 432
Inventory 9 10 11 11 12
Debtors 126 258 276 295 316
Other Current Assets 151 52 52 52 52
Total Assets 5,634 7,094 14,020 15,438 16,618

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

Non-Cash Wkg. Capital (452) (627) (657) (656) (679)

Net Cash/(Debt) (392) (1,517) (8,247) (9,559) (10,568)
Debtors Turn (avg days) 40.0 51.3 59.4 54.4 50.9
Creditors Turn (avg days) 597.1 653.2 647.1 564.4 521.4
Inventory Turn (avg days) 9.3 8.8 7.9 7.2 7.0
Asset Turnover (x) 0.2 0.2 0.2 0.1 0.1
Current Ratio (x) 1.2 0.8 0.8 0.8 0.8
Quick Ratio (x) 1.0 0.8 0.7 0.7 0.7
Net Debt/Equity (X) 0.1 0.4 2.0 2.3 2.4
Net Debt/Equity ex MI (X) 0.1 0.4 2.0 2.3 2.5
Capex to Debt (%) 107.3 73.3 81.1 16.9 13.5
Z-Score (X) NA NA NA NA NA
Source: Company, DBS HK

Cash Flow Statement (HK$ m)

FY Jun 2017A 2018A 2019F 2020F 2021F

Pre-Tax Profit 738 896 924 935 1,098

Dep. & Amort. 101 160 226 283 316
Tax Paid (120) (66) (120) (153) (154)
Assoc. & JV Inc/(loss) 0 0 0 0 0
(Pft)/ Loss on disposal of FAs 0 0 0 0 0
Chg in Wkg.Cap. (121) (77) (2) (3) (4)
Other Operating CF (102) (174) (88) 24 29
Net Operating CF 496 740 940 1,087 1,284
Capital Exp.(net) (1,069) (1,455) (7,056) (1,693) (1,484)
Other Invts.(net) 205 142 0 0 0
Invts in Assoc. & JV 0 0 0 0 0
Div from Assoc & JV 0 0 0 0 0
Other Investing CF 38 22 14 14 13
Net Investing CF (826) (1,291) (7,043) (1,679) (1,471)
Div Paid (509) (554) (612) (682) (781)
Chg in Gross Debt 800 1,000 6,717 1,300 1,000
Capital Issues 0 0 0 0 0
Other Financing CF (9) (33) (16) (37) (42)
Net Financing CF 281 413 6,089 581 177
Currency Adjustments 0 0 0 0 0
Chg in Cash (48) (138) (13) (12) (10)
Opg CFPS (HK$) 0.15 0.20 0.23 0.27 0.32
Free CFPS (HK$) (0.14) (0.18) (1.51) (0.15) (0.05)
Source: Company, DBS HK

Page 14
 Company Guide

SUNeVision

Target Price & Ratings History

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

Hong Kong Data Centre

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

Completed Date: 1 Mar 2019 10:30:48 (HKT)

Dissemination Date: 1 Mar 2019 14:54:19 (HKT)

Sources for all charts and tables are DBS HK unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS
Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS HK.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers,
employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or
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expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document
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Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
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The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
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This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
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The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
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which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
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UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
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DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department,
has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past
twelve months and does not engage in market-making.

Page 16
Industry Focus

Hong Kong Data Centre

ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of
the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
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research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
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DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in , HKT Trust & HKT Ltd (6823
HK), Hutchison Telecommunications Hong Kong Holdings Ltd (215 HK), HKBN Ltd (1310 HK) and SmarTone Telecommunications
Holdings Ltd (315 HK) recommended in this report as of 26 Feb 2019.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.

3. Compensation for investment banking services:

DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12
months for investment banking services from Keppel DC Reit (KDCREIT SP) as of 31 Jan 2019.

4. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering
of securities for Keppel DC Reit (KDCREIT SP) in the past 12 months, as of 31 Jan 2019.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities
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5. Disclosure of previous investment recommendation produced:

DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment
recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations
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1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 17
Industry Focus

Hong Kong Data Centre

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Page 18
Industry Focus

Hong Kong Data Centre

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Tel: (852) 3668-4181, Fax: (852) 2521-1812

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Industry Focus
Hong Kong Data Centre
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Company Regn. No 0105539127012
Securities and Exchange Commission, Thailand
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