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spk01: Good morning and good evening, ladies and gentlemen. Thank you and welcome to Chen Data Group's Holding Limited First Quarter 2022 Earnings Conference Call. We will be hosting our question and answer session after management's prepared remark. Please note today's event is being recorded. I would now turn the call over to the first speaker today, Mr. Don Zhou from Investor Relations of Chen Data Group. Please go ahead, Don.
spk14: Thank you, Operator. Hello, everyone. Welcome to ChainGator Group's 2022 First Quarter Earnings Conference Call. This is Don from the Investor Relations Team of the company. With us today are Mr. Hua Peng Wu, our CEO, Mr. Nick Wang, our CFO, and Ms. Zoe Zhuang, our Finance VP. During this call, Nick will take you through the quarterly review of our operation performance, and Zoe will present our financial results. Management team will be here to answer your questions afterwards. Now I will quickly go over the safe harbor. Some of the statements that we make today regarding our business, operations, and financial performance may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors discussed in our filings with the SEC. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in our earnings press release, which is distributed and available to the public through our investor relations website located at investor.chingdatagroup.com. We have also updated our quarterly presentation on the company's investor relations website, which you can refer to as a supplementary material for today's call. Without further ado, I'll now turn over the call to Nick. Nick, please go ahead.
spk06: Thank you, Don. Hello, everyone, and thank you for joining the call. Despite a headwind in micro-environment and COVID-related issues, we continue to manage the challenges and grow our business. Our business momentum remained very strong in the first quarter, and here are the highlights to begin with. On slide four, by end of the first quarter of 2022, our total capacity reached 704 megawatts, an increase of 31 megawatts during the quarter. We put one new project under construction, rating our total number of data centers up to 28. Specifically, in the first quarter, our in-service capacity increased by 58 megawatts. to 498 megawatts. Our contracted capacity increased by 54 megawatts, bringing our total contracted and IOI capacity to 619 megawatts. And our utilized capacity increased by 40 megawatts to 344 megawatts. Our total capacity maintained a high contracted and IOI ratio of 88%. We continued our energy efficiency performance with year-to-day average PoE by the first quarter at 1.21. The number of our approved and pending patents was 310 compared with 231 in the same quarter last year. Financially, our top and bottom line remained strong and healthy. Revenue was RMB 920.6 million for the quarter. which is 43.1% year-over-year growth. Adjusted EBITDA was RMB 494.5 million, a 60.7% year-over-year growth, with a margin of 53.7%, a historical high. Net income was RMB 94.6 million per quarter, which is a 62.5% year-over-year growth. with a margin of 10.3%. We have achieved net profit performance for five consecutive quarters. In terms of our financing, we have successfully finalized a $500 million U.S. syndication loan financing in May, ensuring sustainable financing for our future development. With such performance, we have been beating market consensus for seven straight quarter since IPO. On top of this, with the current momentum and taking into numerous factors, we are raising our full year 2022 revenue and adjusted EBITDA guidance. My colleague Zoe will share more details later. Now, let me walk you through more details of operation. And I will start with our product delivery in the first quarter and our expectation going forward. We have put two projects totaling 58 megawatts into service as originally scheduled. One of them is CN12, a 6 megawatt project that supports an existing key international client system and is located in one of our campuses in Hebei, China. The other is CN15, a 52 megawatt hyperscale project that supports the business of the anchor client and is located in our campuses in Shanxi, China. You can refer to slide seven for the profile of these two projects. We also started the construction of a new project, GN18, a 30 megawatt hyperscale project located in one of our campuses in Hebei. This project will support a business of the Anchor client and is scheduled for delivery in 2023. Progress is also achieved in our deployment in APAC emerging market as we have successfully completed business acquisition in Thailand. The project is located in Bangkok and is currently running minor capacity for a local client. With further technical upgrade, we expect to bring the total capacity of the project to 5 megawatts to better serve our potential clients in the region. With these new projects, And as you can see on slide 9, we had brought our total capacity to 704 megawatts by the end of the first quarter. In-service capacity by quarter end stands at 498 megawatts compared with 440 megawatts in the previous quarter and 291 megawatts in the same quarter last year. For the 206 megawatts under construction capacity, Around 50% of them is scheduled for delivery in 2022 and 2023, respectively. The COVID prevention and control measures currently taken in different locations in China has more or less affected supply chain, logistics, and outside labor work, bringing challenges for the company. However, the company has taken active measures, and our assessment now is is that such impact is confined to a very limited range. We believe the experience we have gained in early days of the pandemic in the year 2020 with more region control matters would also help us better respond to the current situation. We have therefore kept the delivery schedule of the majority of the project unchanged. Project CN-13 was slightly delayed. but was put into service in May 2022. We're expecting delay in project CN16 and CN17 due to customer-related reasons. As for our overseas pilot project, M106 Phase 1, where we are shipping our entire solution overseas, we have been carefully managing the challenges, and the schedule remains unchanged. On slide 11, in terms of client commitment, our major clients continue to grow healthily, and we continue to receive commitment from them. This quarter, we have an additional 54 megawatts contracted capacity, mainly contributed by a 52 megawatts IOI capacity conversion on project 15. This project is now fully contracted and is supporting the anchor client. Meanwhile, we also added 27 megawatts of new IOI capacity from two Northern China projects for the anchor client as well, one of which will be supporting their high-density deployment with 32 kilowatt cabinets. These developments bring our total contracted and IOI capacity to 619 megawatts, with an 88% contracted and IOI ratio. It is also our ongoing effort to further look for hyperscale demand and opportunities from enterprises clients and cloud service providers, while at the same time to further penetrate the APAC emerging market. With these recent developments, the commitment profile of our total capacity remains very healthy. On slide 12, for all of our in-service capacity, 95% of them is either contracted or with IOI commitment from the client, and this ratio has been stable. The ratio for our total capacity in this quarter is 88%, compared with 87% in the previous quarter and 88% in the same quarter last year. Again, our healthy commitment profile can be attributed to the advantage of our helpers goal business. which is credible demand from the leading players in the industry, a long-term contract that guarantees sustainable revenue streams. To share more color on this, by end of the first quarter, over 90% of our contracts are 10 years contracts, while the weighted average remaining term of a per contract megawatt is around eight years. Now, Coming to customer moving on slide 14. Thanks to our client's excellent and resilient business performance, we are able to keep a steady and healthy ramp-up pace. We added 40 megawatts of utilized capacity in the first quarter, bringing our total utilized capacity to 344 megawatts, compared with 238 megawatts in the same quarter last year. which is a 45% year-over-year growth. New utilization mostly came from projects in the greater Beijing area, specifically in Shanxi and Hebei. Utilization ratio at the end of the first quarter was 69%, which is healthy and similar to previous level. Finally, let's take a look at our business geographically. In terms of our utilization, or revenue generation related capacity. The majority of them are in greater Beijing area in China, which are exactly in or very close to the design of clusters under the East Data West Computing National Policy. Looking ahead, we currently have a total of 206 megawatts capacity under construction, among which around 50% of them is in the APAC emerging market. Take a closer look at our current deployment in APEC emerging market, which is around 70% of our total capacity, or a total of around 117 in Malaysia and India, among which 89% are either contracted or with IOI by the end of the first quarter. And we are serving international clients or domestic clients that are going aboard in this region with great growth potentials. We believe our existing deployment, both in China and APAC emerging market, were enabled to go further. If you would like to learn more about the details of our assets and our growth plan, et cetera, feel free to refer to the other pages of our IR presentation. Lastly, another key event for the company recently is definitely our 500 million U.S. dollar syndication loan financing project. We have finalized the financing. The deal was oversubscribed, and we're having reputable international and domestic banks selected as lenders. Interest rate is around 4% to 5% handle, which is in line with our unique investment grade rating that we gained previously. Proceeds will be used for business development and to refinance one of our existing debts. We expect the deal to be fully completed in the second quarter. This deal is definitely improving our financial experience under the current macro environment and will better support our growth going forward. With this concludes our business review. I will now hand over to Zoe for discussion of financial performance. Zoe, please.
spk10: Thank you, Nick. Now, let me walk you through our quarterly financial performance. Our financials remain its healthy momentum. On slide 21, revenue in the first quarter increased by 43.1% year-over-year to RMB 920.6 million, driven by the robust growth of the company's call-out services. On slide 22, in line with the company's revenue growth, Total cost of revenue in the first quarter of 2022 increased by 29.1% to RMB 499.6 million from RMB 386.9 million in the same period of 2021, mainly driven by increase in utility costs and the depreciation amortization expenses. Selling and marketing expenses in the first quarter of 2022 increased by 6.8% year-over-year to RMB 22.4 million, primarily due to higher share-based compensation expense. General and administrative expenses in the first quarter of 2022 increased by 32.9% year-over-year to RMB 127.8 million, primarily due to higher share-based compensation expenses. Research and development expenses in the first quarter of 2022 increased by 5.4% year-over-year to RMB 19.2 million, primarily due to higher personnel costs, as the company continued to invest in its research and development initiatives to further enhance its service offerings. With this, Operating income in the first quarter of 2022 increased by 107.9% year-over-year to RMB 251.6 million with a margin of 28.3%. And net income in the first quarter of 2022 increased by 62.5% year-over-year to RMB 94.6 million with a net margin of 10.3%. We achieved net profit performance for five consecutive quarters. Now, let's take a look at the core expense and the cost on slide 23. Utility cost was at a similar level to the previous quarter, indicated by a similar percentage of revenue of 28.3%. compared with 28.5 in the fourth quarter of 2021. Again, as a reminder, we have taken into consideration last year's tariff hike when we setting up our 2022 guidance. The economies of scale of our business is further improving, indicated by a smaller percentage of revenue taken by our maintenance costs and adjusted FG&A expenses. The percentage of revenue for maintenance and other costs was 8.5% in the first quarter, compared with 9.9% in the fourth quarter of 2021 and 10.8% in the first quarter of 2021. The percentage of revenue for adjusted FG&A was 9.5% in the first quarter compared with 11 in the fourth quarter of 2021 and 13.6 percent in the first quarter of 2021. With this, on slide 24, our NANGAP profitability continued to improve. Adjusted EBITDA in the first quarter of 2022 increased by 60.7 percent to RMB 494.5 million from RMB 307.8 million in the same period of last year. Adjusted EBITDA margin in the first quarter hit a new high at 53.7%. Adjusted net income increased by 62.4% year-over-year to RMB 177.5 million, also hitting a historical high margin at 19.3%. Details in the gap to non-gap reconciliation on EBITDA and net income would be available in our 6K filing or the appendix in our IRPPT. Now, let's take a look at our cash and debt position and our CAPEX on slide 25. We continue to work in our business expansion to meet the increasing demand from our customers by investing more capital into our under-construction data centers. CapEx in the first quarter was RMB 1,224.9 million. We have a cash and debt position of RMB 4,372.3 million and RMB 5,535.5 million. by end of first quarter respectively, ending up in a net debt position of RMB 1,192.4 million. Cash dynamics during the quarter was contributed by a net operating cash flow of RMB 168.2 million, net financing cash flow of RMB 39.3 million, and mostly offset by a RMB 1,063 million, investing cash outflow. Again, we grew with high quality, healthy cash flow, leverage, and coverage. On slide 27, by end of the fourth quarter, our total debt to capital ratio was 35%. Our total debt to last 12 months adjusted EBITDA ratio was 3.4%. compared to 3.9 in the previous quarter and 4.8 in the same quarter last year. Our last 12 months adjusted EBITDA to last 12 months interest ratio was 6.1, compared with 6 in the previous quarter and 4.5 by end of the same quarter last year. Finally, our business momentum, together with other factors, that we have taken into consideration lead us to raise our revenue and adjusted EBITDA guidance for full year 2022. On slide 28, we lifted both revenue and adjusted EBITDA guidance range up by RMB 60 million, making revenue guidance range now at RMB 4,130 to 4,230 million and adjusted EBITDA guidance range at RMB 2,100 to 2,130 million, implying a midpoint increase of 1.5% and 2.9% respectively. This forecast reflects our current and preliminary views on the market and operational conditions. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
spk01: Thank you. To ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. please ask one question at a time. Again, that's star one to ask a question. Our first question comes from Yang Lu with Morgan Stanley. Your line is open.
spk13: Thank you very much for the opportunity to ask a question. First of all, congratulations to the company for its very strong performance. My question is about customer demand. Because in I will translate my question. The question is about the demand from the anchor customer, Biden. At the beginning of this year, management indicates very strong demand from this customer. But in the past few months, a lot of things happened, including the COVID and lockdown in several tier one cities. And now at the end of May, what's the current new outlook in terms of the demand from this customer? Thank you.
spk05: Thank you, Liu Yang. I'm going to refer this question to my colleague, our CEO, Hua Peng. Hua Peng, please.
spk03: I'm going to answer it, right?
spk05: Yes.
spk03: I think from the point of view of the customer experience, we are aware of the customer experience. In fact, the epidemic has brought more business growth to the entire industry. So their entire demand is growing. And it may be a little faster than the previous growth. Including the time of exchange, including the amount, there will be an increase.
spk07: This is the translation for Huapeng's remarks. Thank you for your question.
spk03: You can arrange someone to translate.
spk05: It's already translated. Joy is translating.
spk07: Hi, can you hear me? So translation for Hua Peng's words?
spk04: Yeah, go ahead.
spk07: Thank you. Translation for Hua Peng's words. Thank you for your question. In our view, the pandemic has actually given finance an increase in its actual business growth. And in turn, the demand that it has on its suppliers is actually increasing as well. We have been discussing and experiencing a more urgent demand from our customers, no matter in terms of timing, delivery schedules, and also the quantity are also giving us more incentives. Thank you.
spk13: Thank you.
spk01: Our next question comes from Tina Huo with Goldman Sachs. Your line is open.
spk08: Hello, Director Guan. I also congratulate you for achieving a very strong EQ performance. EBITDA also has a 13% strong performance, so congratulations. My question is about the EBITDA margin. In the first quarter, we saw that it was the highest in history at 53.7%, and in the past five quarters, Also, in comparison, the EBITDA margin for each quarter has increased. But our current new guidance is that the EBITDA margin for the whole year is 51.2, which is about 2.5 points lower than that of the first quarter. So I would like to ask if we can see any additional costs or expenses in the next two, three, four quarters. Okay, so thank you very much, management, for your time, and congrats on very strong 1Q result, which EBITDA beat consensus by 13%. So my question is regarding your EBITDA margin, which, as management mentioned, has been historical high at 53.7% in the first quarter, and we've also observed that during the past five quarters, the EBITDA margin has been increasing sequentially each quarter. On the other hand, according to your latest EBITDA margin guidance, which is at 51.2% for 2022, which then implies that over the next three quarters, there might be some expenses or other things that's dragging down the EBITDA margin, so wondering what those potential expenses will be. Thank you.
spk06: Thank you, Tina. Maybe I'm going to ask my colleague Zoe to answer your questions, and I will try to make some comments as well. Zoe, please.
spk10: Okay. Yeah. Tina, thank you for your question. As you know, if we look at EBITDA, we'll go into the component factors. And for this quarter, also last quarter, utility cost versus revenue remain at a very steady range. And as we mentioned just now in the script, we take a very conservative consumption in the utility cost. And in the first quarter, the actual utility cost is slightly lower than our original expectation due to we attend the special for beating the green power. So this is one of the reasons. And for the rest of the year, we still take the conservative assumption. And second reason is, you know, that with the economies of scale, the maintenance costs and the management expenses, SG&A expenses versus revenue, have been in a decreasing trend. And plus, the first quarter, the special situation, especially in mainland China, there is almost no movement, no travel, no selling and marketing events or affairs occurred. We expect this will be loosened in the second half of this year, and we will come back to the normal operation of selling and general administration expenses. So we reserve these expenses as well. So that is... in all that we will remain very stable and a steady EBITDA margin for the full year guidance. Thank you. We tend to be conservative.
spk06: Yeah, we tend to be conservative, Tina. And definitely every time we give out the guidance, you know, there are always the upside, the potential upside.
spk08: Thanks. Yeah, just one quick follow-up about the green energy certificate, which you obtained in first quarter. Wondering if that's just one-off or that's ongoing?
spk10: The mechanism is ongoing, but a quarter, we beat. It depends on the demand and also depends on the supply side. So it might have some slightly fluctuation among quarters.
spk08: I understand. That's very clear. Thanks.
spk10: Thank you.
spk01: Thank you. Our next question comes from Hongzhi Li with CICC. Your line is open.
spk09: Thanks, management, for taking my questions. Congratulations on such a bidding consensus. I have three questions. Let me speak Chinese first. 那很感谢这个提问机会啊,恭喜这么好的业绩。 那第一个问题就是这个上半年就国内这个疫情还是很反复嘛, 那虽然我们就是大部分都不在这个华东或者是这个深圳北京这些地方, 还是想了解一下就是这个对我们的这个交付落地是不是有延期的影响。 然后第二个问题是我们这个海外的有一些 peers 也在, uh uh uh uh uh uh uh uh uh uh uh uh uh uh uh uh uh My first question is about the lockdown impact. Should we expect any external factors to impact our capacity delivery plan? And my second question is about the overseas demand profile, because many peers are expanding fastly in Southeast Asia and the other regions. So what are our competitive advantage to grasp such opportunities? And my third question is for Mr. Hua Peng Wu. And since you're onboarding for a while, do you see any, like, for improvement or adjustment on the strategy focus. Thank you.
spk06: Thank you, Eko. I'm going to answer your first and second questions, and Bob, I'm going to answer your third question. Your first question about COVID and its impact. I can tell you we're in good shape. We're in good shape. There have been some challenges, but overall, the lockdown in China, in some key Tier 1 cities, so far has actually a very minimum impact in our operation. Because our unique advantage in data center, in terms of data center locations, I always said that our data center locations are energy-abundant regions, but actually those regions are less populated regions. And these factors, location factors, definitely plays a key role, putting us in a much better position than our peers, for sure. To be specific, in terms of customer moving or capacity ramp-up, there was no negative impact. And quite contrary, like Kuafeng just said, we observed a faster moving and ramp-up rate from our key clients during the lock-off period. And in terms of on-site operations, Obviously, the experience we gained back in early part of 2020 when COVID pandemic just broke out have enabled us to, with a lot of necessary measures and tools, to better handle the current acute situation. In addition, most of our hyperscale data centers are managed and operating in a concentrated and enclosed campus environment in normal days anyway. So this operational model, definitely makes us better adapt to all stringent government requirements in a COVID lockdown environment. And in terms of project delivery for domestic projects, the lockdown has some slowdown impact on supply chain and logistics, therefore creating some challenges for project delivery. But we believe the risk is well within our control. The company has been taking very proactive measures to make sure right personnel can always be available on a 24 hours a day and seven days a week basis is all about on the world division works. Our overseas project faces some challenges on export related supply chain. For example, slower customer clearing, you know, in some key tier one cities and outbound logistics is also a little bit slower than expected on the China side. But again, we have been taking appropriate measures on other part of the supply chain process, the entire project management process to make up for the time we may lose. So based on these remedy measures and also thanks to our unique location and operation model, we're very confident that we can deliver almost all of the domestic and overseas projects on time based on original schedule. as long as our client doesn't ask for a, you know, deliberately, voluntarily ask for any postponement. That's your first question, and your second question related to our overseas business. We have a very strong business momentum in the APAC emerging market, or Southeast Asian market, as I can tell from our script description. Our current projects in the region are going very well, In Malaysia, Johor State, we are actively developing the phase one and phase two of MY06 project, and we're committed to deliver them on time. We're also making positive progress on securing phase three of MY06 project, which you haven't seen in our asset table or capacity table. And we expect to start development once we receive customers' commitment in near future. In the Kuala Lumpur area, The development work for MY03 is on track to be delivered on original schedule. At the same time, this discussion on expansion of this project MY03 with our key client is ongoing smoothly. We also expect some good news in the near future as well. In the meantime, we are also actively in discussion with potential clients in Indonesia and Thailand. And we expect to set up our initial presence in this market soon. At the moment, I can tell you our overseas business represents 117 megawatts capacity present in the region, or around 17% of our total capacity for the photo. People have been talking about their strategy in Asia, but the 117 megawatts is already a significant presence in the region, which people tend to ignore. At the same time, we also have a very strong demand commitment, not only for the current capacity, but also for the future. And these commitments are actually coming from the leading Chinese company, as I said, have an ambitious growth plan in the overseas market, and also international cloud players as well. All those big names under, you know, U.S.-based or European-based, we're talking with them. And also, the close discussion is underway. to support their ambitious goals in the region as well. Without any doubt, I want to re-emphasize, APEC emerging market is the most important growth engine for Qing data. And we're not satisfied with our current presence of only 117 megawatts, which is already in the leading position among peers. We aim to become the biggest hyperscale data center service provider in this region. And our objective is to have overseas business accounting for 30% of our total portfolio in the long run. And thank you. I will ask Bob, our CEO, to answer the third part of the question.
spk03: The third question. Yes. Regarding the company's new strategy, actually, since Q1, in this stage of the company, we are mainly focusing on the main business in Shenzhen, maintaining business, uh, uh, In terms of strategy, I don't think we have too many new changes that we can introduce to you. But we can also share information with you. In the second half of the year, we should do some strategic management teams, do some strategic consultations. This strategic direction may be more focused on how we can better realize our diversified development.
spk07: Thanks. Translations are fast forward. From Q1, we have been focusing on our IDC main business. We are trying to keep on delivering very stable operation and delivery schedule. And evidently, from the financials and operation figures, I think we have made it. We have also spared some of our efforts in setting up, building, and optimizing our entire management and execution team. From the strategic point of view, we do not have very material change to our overall growth strategy, but from the second half of the year, we anticipated that there will be more internal discussion and research on our further amplify an implementation of the diversification on our business.
spk01: Yeah, thanks. Thank you. Our next question comes from Sarah Wang with UBS. Your line is open.
spk11: Thank you for the opportunity to ask this question. Congratulations to Huali for achieving such a strong performance. I have two questions I would like to ask. The first one is about our demand. As you just mentioned, the demand from our main customers is still very strong. I would like to ask if this demand is more from our customer's main business? Have you seen any new ones? Thank you, management, for the opportunity to ask a question. So I have two questions. First is on the demand. So congratulations on the solid result. I'm just wondering on the mix of the demand. Do we see a diversified demand from our customers? For example, is there more demand related to the cloud services provided by our anchor clients? And then my second question is that is there any update on our plan to do a list or list back in Hong Kong? Thank you.
spk06: Thank you. For the first question, I'm going to refer to our CEO, Faofeng, to answer, and I'm going to address your second question.
spk03: Regarding the growth of our main customers, I think the core is still the growth of their main business, the current main business growth. As for their other related business, we are currently communicating very closely with the Houshan team and the Faisal team and their 2B team. Everyone is working together to expand some new customers. But at present, there are no results that we can share with everyone. But I believe that if China expands with them, we will achieve some results. This is what we are doing with Zhijie. In terms of his new business, we are working with him to expand some opportunities. And then the main growth is still his main business.
spk14: Okay, translation for Huatong's work.
spk04: Yes.
spk14: Yeah, go ahead. Nick, would you do it? Go ahead. Yes. Okay. So I think that the demand from our anchor client is mostly driven by their core business. While at the same time, we also are actively in talk with our anchor client on their new business initiatives, such as their cloud business, as well as their enterprise services business. But so far, we are not making substantial progress, but we believe that as we keep in touch with them and we try to work together to look for opportunities, we expect to have some positive results going forward. Thank you.
spk06: Oh, regarding the Hong Kong listing, and as we commuted the last time in our Q4 2021, the earliest release call, I think I already said that there was a internal consensus we're going to do this. And we haven't changed at all. You know, so there's still internal consensus we're going to do this. And the most likely kickoff time is going to be third quarter this year.
spk11: Hello? Yes, hello. Yeah, thank you.
spk06: Yeah, operator, go ahead with some other questions, please.
spk01: As a reminder, to ask a question, please press star 1 on your telephone. We have a question from Harry. Zhang with DBS Bank Hong Kong, your line is open.
spk12: Thank you for the opportunity to ask a question. Congratulations, the company has achieved a very strong performance. I have a question about customer diversification. We see that the growth of self-management is very fast, but investors may be more worried that the current company's income from self-management is relatively high, and it is still more than 80% in 2021. Thanks, Benjamin, for the opportunity to ask questions, and congratulations on the strong results in the first quarter. My question is, we can see that the blood dance is expanding fast in China, but the market is also concerned on the customer concentration risk, as we can see the revenue contribution from ByteDance was still over 80% in FY21. So does the company have any plan to further reduce the revenue contribution from ByteDance to a certain percentage in the next few years? Thank you.
spk06: Thank you. Again, I think Hua Peng should be the best person to answer this question. I'm going to make some other comments.
spk03: I think we should New customers have been growing, and we will continue to focus on large-scale digital demand. At the same time, we will use a multi-billion-dollar cooperation model to expand to other film factories and customers. In fact, we are not only paying attention to the domestic demand for this kind of water. We are also paying attention to the demand for customers to go out into the sea, especially in the more advantageous areas of Southeast Asia. We have been communicating with customers recently. Okay, so I can go back to this one.
spk07: So we're making progress on our business development. We keep on focusing on the hyperscale build to suit demand and exploring opportunities with other cloud clients with various collaboration models. We not only keep an eye on the domestic opportunities, but also strategic opportunities overseas, especially in Southeast Asia where we have particular edge arms. We hopefully will have good news in the second half of this year, which we will probably share with the market. To the question on the reducing concentration, it will happen along with our client diversification efforts. However, as a side note, I want to still emphasize that our anchor client's growth is still very healthy so far. Thank you.
spk06: I think one additional comment to make is actually people always try to emphasize concentration risk, but for us, you know, this concentration is a good concentration and brings a lot of opportunity instead of risk. And also in the short term, you will see that our business with our customer is very healthy, very strong, very robust. Our older banks are also very strong. And in the short to midterm, the concentration risk or bring our long-term benefits as well. Because most of the contract, we with our anchor client, a 10-year base. So as much as we can get, you know, the business with them now, it basically means over the next 10 years, we'll have that solid base. Thank you.
spk12: Thank you, President Wu. Thank you, Nick.
spk01: Thank you. Our next question comes from Kaifeng Jia with Critics. Your line is open.
spk02: So I will translate it for myself. So would you consider more aggressive M&A in an environment of lower market valuation? Thank you.
spk06: Thank you, Kaifeng, for questions. To answer your questions, our principle for doing any merchant acquisition project are pretty simple and straightforward. There's two points. It can provide complementary long-term strategic value switching data, especially if that merge acquisition target can provide potentials for diversified customers and also can cover our currently underrepresented geography. That's number one. Point two, whatever the final merge acquisition price, price can need to be justifiable for its long-term value, period. That's two principles, simple principles. And I won't say that we're looking at the merger acquisition opportunity more aggressively, but we have been looking at some very interesting merger acquisition of community states based on our simple principle. A few of them, actually recently a few of them have pretty much drawn our deeper attention. And I can tell you that some positive progress has been made so far, and we'll do the proper disclosure to the public when appropriate. Thank you.
spk02: Thank you. Thank you.
spk01: Thank you. Our next question comes from Yang Lu with Morgan Stanley. Your line is open.
spk13: Thank you for the opportunity to ask a question. I have a question about the margin. Because I see that the cost of maintenance and other costs are actually decreasing. And from an absolute value point of view, Let me translate my question. It's about the margin. We see the maintenance and other cost, other percentage of revenue keep declining. And actually, the absolute amount is running similar to fourth quarter last year and actually even lower than second and third quarter last year. And my question is what is the long-term static ratio of this cost item and what is potential upside for the margin or from the operating leverage on this one. Thank you.
spk04: Thank you, Luyang. Zoe, do you want to answer this question?
spk10: Okay. Thank you for your question. As you can see, for the first quarter, we have two new additions for the in-service data centers. And as Nick introduced, one is located in Hebei. very adjacent or almost in the same position. You have a current operating hyperscale data center classes. And the other one, which is 52 megabytes, is in Shanxi province. It's also in our existing hyperscale data center classes. And this well explains the benefits of the economies of the scales. And also, you can see we will have new data centers to be operated in the second half of this year in our overseas market. And considering this, the SG&A, sorry, the maintenance and the maintenance expenses, I think we will slightly change a little bit with our new data centers in new exploring hyperscale clusters in the overseas market or in the new location. But the overall trend will be when it comes to the steady stage, and we assume this will be around like 10% or will be like around in a very healthy range as well. Thank you.
spk04: Thank you.
spk06: The one additional comment I'll try to make is actually we're, our model, business model in all of our data center cluster are pretty much in a concentrated energy abundant, energy efficient region, provide a huge, much bigger economy of scale. So if you, based on this economy of scale, the larger scale our business grows, the fixed portion of our expenses and costs like maintenance, operations, expense, cost, and also SDNA, R&D, human capital costs, percentage-wise, they will keep decreasing. That's actually the certain trend moving into the future. So if you ask me what's my long-term projection for our, for this sort of a percentage-based expense, it's going to go in there, for sure.
spk13: Thanks for the additional comment.
spk01: Thank you, and that's all the time we have for the the Q&A session. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
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