Chindata Group Holdings Limited (CD) on Q2 2022 Results - Earnings Call Transcript
Operator: Good morning and good evening, ladies and gentlemen. Thank you and welcome to Chindata Group Holdings Limited Second Quarter 2022 Earnings Conference Call. We will be hosting our question-and-answer session after management's prepared remarks. Please note that today's conference is being recorded. I would now turn the call over to the first speaker for today, Mr. Don Zhou from Investor Relations of Chindata Group. Please go ahead, Don.
Don Zhou: Thank you, operator. Hello, everyone. Welcome to Chindata Groupâs 2022 second quarter and half year earnings conference call. This is Don from Investor Relations Team of the company. With us today are Mr. Huapeng Wu, our CEO; Mr. Nick Wang, our CFO; Ms. Zoe Zhuang, our Finance VP; and Ms. Joy Zhang, our General Counsel. During this call Nick will take you through the quarterly review of our operational 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 investors.chindatagroup.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 will now turn over the call to Nick. Nick, please go ahead.
Nick Wang: Thank you, Don. Hello everyone. And thank you for joining the call. During the second quarter, our business continued to grow in a healthy manner. Let's take a look at some key highlights first, and we will share more lights and details afterwards. On Slide 4, by end of the second quarter, our total capacity expanded to 776MW, an increase of 72MW during the quarter. Thanks to the inclusion of two new under construction projects. We now have a total of 30 data centers in our asset portfolio. We put one project into service bringing our total in-service capacity to 511MW, which is an increase of 13MW. We continue to see healthy demand from our clients as our total contracted and the indication of interest capacity increased by 32MW during the quarter to 619MW, leading to still a healthy commitment rate for our total capacity at 84%. Ramp up remains strongly on track as another 57MW was put into utilization in quarter, bringing our total utilized capacity to 401MW and a solid utilization rate of 78%. Our capacity buildup effort is constant as we now have a total of 361 approved and pending patents by end of the quarter, compared with 256 in the same quarter last year. Meanwhile, recently in July, the company released a new waterless cooling technology jointly with our partner. And we would go into details of that later. Financially, our top and bottom line remains strong and healthy. We believe we have delivered upbeat revenue and adjusted EBITDA results for eight straight quarters since IPO. Revenue was RMB1,038.1 million for the quarter, which is a 51.2% year-over-year growth. Adjusted EBITDA was RMB544.3 million, a 60.8% year-over-year growth with a margin of 52.4%. GAAP net income was RMB199.6 million for the quarter, which is a 206.3% year-over-year growth, with a historical high margin of 19.2%. Our US$500 million syndication loan was officially closed in later June bringing the company necessary financing for further expansion. Meanwhile, credit agencies have also reconfirmed our ratings with Fitch rating reaffirming our BBB- rating investment rate with a stable outlook, and Moodyâs reaffirmed our rating as BA2 with a stable outlook. Now let's go to the details of the quarterly performance. I would like to bring your attention first to our client commitment dynamics in the first quarter â in the second quarter. During the second quarter, we received an additional 32MW commitment from our client, including both new contracts, as well as new indication of interest. From our perspective, our general client base in particular, our anchor clientsâ business remains very healthy. A total of 45MW of IOI capacity on project CN09, CN11-C and CN14 for the anchor client was fully converted into contracted capacity in the quarter. Well, another 30MW capacity was also contracted in a quarter on product CN18 to support the anchor client. With these the aforementioned four projects for the anchor clients are now 100% contracted. In addition to our anchor client, we have also received a 3MW indication of interest on project CE01 in Yangtze River Delta region to support one of our key international clients. With these changes, the commitment status of our asset portfolio continue to look very healthy. On Slide 8, we have a 95% contracted & IOI ratio for our in-service capacity. A similar level compared to that of the previous quarter. On Slide 9 for our total capacity, the contracted & IOI ratio by quarter end was 84% compared with 88% in the previous quarter. The inclusion of the two new under construction project, which are under â currently under discussion with potential clients on demand details brought some dilution to the figure, but essentially the commitment status for our total asset portfolio is generally healthy. For your further reference, by end of the second quarter, over 90% of our contracts, on 10 years contract. Well, the way the average remain in terms of our contracted megawatt is around eight years or to be specific 8.26 years. Now, letâs look at our delivery schedule, starting from Slide 10. We have put one project in services in the quarter, which is a 13MW hyperscale leased project that supports the business of the Chinese cloud service provider client in their campus in Tianjin. We also added two new under construction projects into our asset portfolio with a total capacity of 73MW. These two hyperscale projects are located in our Hebei and Shanxi campus respectively each with a capacity of 26MW and 47MW and are scheduled for delivery in 2023. These projects are expected to support our existing client and the demand details are currently under discussion. Looking at our deliver schedule on Slide 11. We now have a total under construction capacity of 265MW by end of the second quarter, among which 93MW are expected to be delivered in year 2022, and another 172MW to be delivered in year 2023. Our India project, which is BBY-01 was slightly delayed into the third quarter of this year, while we expect other projects to stay in line with our regional schedule. You can refer to the Slide 12 and Slide 13 for the design profile of some of our selected under construction projects. Now coming to customer move in on Slide 14. Thanks to our clientâs excellent and resilient business performance. We are able to keep a steady and healthy ramp up pace. We added 57MW of utilized capacity in the second quarter, bringing our total utilized capacity to 401MW compared with 251MW in the same quarter last year, which is a 59.6% year-over-year growth and 16.6% quarter-over-quarter increase. Additional moving was mostly contributed by project in our Northern China Shanxi and Hebei campus supporting the anchor client as well as in clientâs campus in Tianjin supporting one of the Chinese cloud service provider client. And in our Malaysia campus supporting one of the key international clients. With these steady ramp up, our utilization ratio by end of the second quarter remain very healthy standing at 78% compared with a 69% in the previous quarter and an average of 71% since the listing of the company, which the quarterly dynamics mentioned above. Now, letâs take a general look at our capacity geographically. By the end of the second quarter, our APAC emerging market capacity deployment now accounts for around 15% of our total capacity. Well, 89% of these capacity in APAC emerging market is committed by clients. For the current and in construction capacity, 36 of them rest in APAC emerging market, and more than half of them recite in greater Beijing area. Again, showcasing our advanced layout in and committed â commitment to the APAC emerging market, as well as our further effort in strengthening our foothold in our key existing campus in China, and under the East Data, West Computation Policy. We will also like to share some other key recent development of the company. As set forth by the management team previously, the company will formulate further game plan around East Data, West Computation Policy to further strengthen our foothold in our existing campus and key hot regions of the policy, while at the same time through leveraging our differentiated advantage in technology and with the effort of building up business partnership ecosystem to gain access to more business opportunity in new key hub regions under the policy. The Game Plan is gradually working. In terms of further strengthening our foothold in existing campus on Slide 19, the company recently entered into agreement with local government in Datong, Shanxi Province on August 19th to further expand our existing capacity in a Datong campus. According to such, the company will build up a total of over 500MW capacity in our existing Datong campus going forward, which is around 2 times our existing capacity in the region. Once completed the campus is expected to become the single largest IDC campus in the entire Asia. On July 27th on Slide 20, the company entered into strategic corporation with Taiji Computer Co., LTD., one of the leading players in e-government, smart city and industrial internet in China. We have established corporation relationship with Taiji back in year 2017, when the company was working on its Beijing project CN02. We believe such strategic corporation has brought more vitality to the company's existing business ecosystem. And together with the partner, we seek to better utilize differentiated advantage of each party to expand service to more potential industry customers under the new national policy. The company also remains very committed to innovation, research and development to drive growth of a high quality business. On Slide 21, we have recently come up with more technical alternative for data center industry to better accommodate their energy performance to diversify natural conditions in different regions so as to achieve, improve the resource consumption of data center. On July 29th, the company and its technical partner, Vertiv Technology, jointly released a waterless cooling technology, X-Cooling. The solution with the integration of control and sensing technology makes cooling system capable of automatically adjusting itself to variables such as: outdoors environment, workload, various operation modes so as to run with optimized energy and water efficiency performance. Under the testing in the company's data center in Hebei province, the solution yielded a PUE performance of less than 1.1 and a WUE or Water Use Efficiency performance of zero, indicating a potential save of 1.2 million tons of water per year for a 100MW data center in a real world scenario. Such solution has offering favorable evidence for massive application of the solution going forward. On financing, the company's 500 million syndicated loan was officially closed in late June, which is offering more resource for our capacity expansion going forward. At the same time Fitch and Moody's have all reaffirmed their existing credit rating for the company with Fitch reaffirming its investment grade BBB- with stable outlook. And Moody's reaffirmed its Ba2 with stable outlook. We believe these reaffirmation of our credit rating has kept all options for the company, should we decide on future financing activities therefore safeguarding our business development. With these I have concluded my part of business update. And I will now turn over to Zoe for detail in our financial performance. Zoe, please.
Zoe Zhuang: Thank you, Nick. Now let me walk you through our quarterly financial performance. Our financials remain on a healthy momentum. On Slide 23 revenue in the second quarter increased by 51.2% year-over-year or 12.8% quarter-over-quarter to reach RMB1,038.1 million, which is in line with our steady ramp app. Looking further down on Slide 24; total cost of revenue in the second quarter increased by 47.7% to RMB602.2 million from RMB407.6 million in the same period of 2021, mainly driven by increases in utility costs and depreciation and amortization expenses. Selling and marketing expenses in the second quarter of 2022 decreased by 33.5% year-over-year to RMB15.4 million primarily due to less share-based compensation expenses as well as less marketing activity. As the company went through of almost one month ground work-from-home mode in Beijing during the month of May due to citywide COVID-19-related administration. General and administrative expenses in the second quarter of 2022 increased by 5.3% year-over-year to RMB91.1 million primarily due to the increased personnel cost as the company grew its business with this operating income in the second quarter of 2022 increased by 109.2% year-over-year to RMB310 million with a margin of 29.9%. Net income in the second quarter of 2022 increased by 206.3% year-over-year to RMB199.6 million with a historic high net margin of 19.2%. For further breakdown of core costs and expense items on Slide 25. Regarding utility costs, we experience the similar cost level during the second quarter as the first quarter as indicated by the similar revenue percentage that we see. For maintenance and other costs due to the resignation of one-off service that we provided to our customer in the quarter. We are seeing an increase in this cost item, excluding this specific other item, our maintenance at other cost intensity is generally in line with our past performance. Adjusted SG&A also slightly decreased on both year-over-year and quarter-over-quarter basis due to the reasons that we just introduced. With this on Slide 24, our non-GAAP profitability remains healthy. Adjusted EBITDA in the second quarter of 2022 increased by 60.8% to RMB544.3 million from RMB338.5 million in the same period of 2021. Adjusted EBITDA margin in the second quarter was 52.4% slightly lower than the previous quarter. Adjusted net income increased by 114.1% year-over-year to RMB241.9 million hitting a historically high margin at the 23.3%. Details in our GAAP to non-GAAP reconciliation on EBITDA and net income could be available in our 6-K filing or appendix in our IR PPT. Now, letâs take a look at our cash and debt position and our CapEx on Slide 27. 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 second quarter with RMB1,007.8 million and the CapEx in the first half of 2022 added up to RMB2,232.7 million. As we have successfully closed this indication loan. We are seeing our cash and a debt position both went up to RMB5,763.9 million and RMB7,460.8 million by end of second quarter respectively. Ending up in the net debt position of RMB1,758.8 million. Cash dynamics during the quarter was contributed by a net operating cash flow of RMB475.5 million. Net financing cash flow of RMB1,819.7 million offset by RMB974.8 million investing cash outflow. Now, letâs take a look at some key leverage and coverage ratios on Slide 29. By end of the quarter, with the close of this indication loan of a total debt-to-capital ratio increased to 41.6% compared to 35% in the previous quarter, debt-to-EBITDA related ratio also went up while the interest coverage ratio continue to improve with last 12 months adjusted EBITDA to interest ratio went up to from 6.1 to 6.7. With the above and take into consideration of relative factors. We are reiterating our 2022 full-year revenue and adjusted EBITDA guidance. By the end of the second quarter, our half year revenue and adjusted EBITDA is around 47% to 49% of our full year guidance by midpoint. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
Operator: Thank you. . We have the first question is coming from the line of Yang Liu from Morgan Stanley. Please ask your question.
Yang Liu: Well, I will translate my question into English and my question is regarding the utilization rate ramp up. We understand that most of the data center Chindata build have a customer commitment of moving to mature stage within nine months actually the ramp up speed is faster than that. And what is the outlook for this speed, should we expect some normalization? Or should we expect this fast speed to sustain going into a second half of the year? Thank you.
Nick Wang: Thank you, Liu. I think I can answer this question in a quick manner. I think the accelerated or faster moving reflect a strong business demand from our customer and also show, that there are momentum about business going really, really strong. But the companies, that our company tell is really conservative. So moving forward, we still put it roughly on average nine months of moving rate into our entire forecast. Thank you.
Yang Liu: Okay. Thank you.
Operator: Our next question is come from the line of Tina Hou from Goldman Sachs. Please ask your question. Your line is open.
Tina Hou: Okay. Iâll translate my questions. And so the first one is regarding the IBM market because we see that Chindata has already had several campuses in Malaysia, as well as in India. So wondering besides our anchor customer, is there any other potential customers with pretty significant demand that we are in the progress of like trying to win orders and also in terms of the competitive landscape in the Asian market, who are some of the other data center companies globally that have already had some footprint or are preparing to enter this market? And then the second question is regarding the strategic partnership with Taiji Computer, wondering if there is any like quantitative target from this partnership, any several, like number of projects already under discussion if thereâs any like quantitative target we can get that will be very helpful. Thank you.
Nick Wang: Thank you, Tina. I think for the overseas related question, I can answer that. And Iâm going to refer to your second part of the questions to my â to our CEO, Mr. Huapeng Wu. Okay. So starting to answer your first questions about your Southeast Asian market. We have a very, very bullish view about the opportunity in the Southeast Asian market, potentially in the foreseeable future. We think that the demand and supply actually will be a pretty balanced and the, I think the oversupply situation, youâll see currently in China may happen some years later. And also that the, I think the fast growing digital economy driven by the population by the economy grows will drive up the hyperscale data center demand from all major global internet and high tech players. And on top of the Chinese internet companies going to that region. And we have every confident that will become the key, I think, hyperscale leader in the marketplace, and all these international internet and high tech players will become our key targeted customers as well on top of all these domestic customers going to the region as we currently have. As a matter of fact Chindata has set up a clear growth strategy in Southeast Asia market two years ago much earlier than anybody else. As of the second quarter of this year, as we repetitively introduced, we already have 117MW capacity either in service or under construction, in the region in reality. A significant portion used to serve international customers, such as Microsoft and Google. And we are in the process of landing more capacity with international customers, which we will do proper disclosure in the proper manner in the near future. Now, Iâm going to refer the second part question to our CEO, Mr. Huapeng Wu. Huapeng?
Huapeng Wu: Translation for Huapengâs words. And so our collaboration with Taiji has taken each otherâs advantage and promoted to the biggest edge. For our company, we are very long at technology innovations, data center construction, and operation, and for Taiji in China, their clientele are mostly focused on the governmental smart city, et cetera. So this becomes our basis or foundation for our collaboration. Currently we are having some specific project in discussion and we will report the progress to the market when it comes to you. We do set up a frequent periodical communication system. And we believe this communication system, and also the entire collaboration will take us to a further, longer win-win situation.
Tina Hou: Thank you. Yes. Iâll just get back into the queue for another question. Thanks.
Operator: We have the next question is coming from Mingran Li from CICC. Please ask your question. Your line is open.
Mingran Li: Thanks for taking my questions. Hi management thanks for your time. And I have two questions here. My first question is regarding the expansion plan of campus in Datong and the total IT capacity expected to reach 500MW going forward. So can you give us more color about the delivery schedule and the demand profile here? And my second question is regarding the utility costs. Can you share more detail about the future trends of utility costs in different campus, like Hebei and Tianjin province?
Joy Zhang: Thank you. For the first question, I will invite our CEO, Huapeng to answer. And I believe the Zoe can answer the question about the regional power issues. Please go ahead, Mr. Wu.
Huapeng Wu: Translation for Huapengâs words. Our agreement with Datong government was a prepositive gesture of mutual understanding on future collaborations. We aim to secure the resources for future development in the area, through these efforts. And the Datong City also as its own government effort applying for the second batch key experimental point under the national â East Data West Computation national policy. On the demand side, as a general practice, we have been communicating with our clients at every critical point, along the project development process. We expect our projects in Datong will continuously support the needs of our key clients and other potential ones.
Joy Zhang: Okay. So I will take your second question. As we all know that recently in some regions in China, for example, East or South part of China there is power supply shortage where you know, that Chindataâs data centers are mainly located in areas with resource supply very sufficient. So that's the power supply of the company's main campus are relatively adequate. And also since July, we noticed a certain degree of utility cost increase in some areas due to the power policy adjustment among part of our campuses. For this part we have considered the potential impact already in the previous quarter release, the full year guidance. And also, meanwhile, the company has taken some initiatives to optimize the data center, power design structure, which aims to hedge some utility cost increase to a certain extent. So, all in all, although we have out beat market consensus for the first half of this year, but the company still maintained the full year revenue and adjusted EBITDA guidance range not changed in a very prudent way. Thank you.
Mingran Li: Thank you, very clear.
Operator: We are going to proceed with the next question. The next questions come from the line of Sara Wang from UBS. Please ask your question. Your line is open.
Sara Wang: Let me translate myself. I understand that the IDC campus to be built in Datong will be one of the largest in Asia. So just wondering if Chindata has any agreement with Datong government? And when do we back the completion of this IDC campus? And my second question, the quick one, is there any update on our Hong Kong listing plan? Thank you.
Joy Zhang: Thank you. Sarah I think Huapeng is going to answer â answer the questions related to Datong. I'll address the question on second and third.
Huapeng Wu: Yes, to your first question we estimated that by the end of 2025, our Datong campus will have a total capacity over 500MW and in the same campus under construction and they will be delivered annually for this year and next year gradually. We estimated that for a single â counted by a single campus, it will be the largest in Asia. Thank you.
Nick Wang: On the CapEx related questions, it's pretty simple and straightforward. I think as we previous communicated to market this year's, we forecast to spend the CapEx in a range of the RMB4.5 billion. And moving forward, given that the very strong pipeline CapEx needs, we forecast for the foreseeable future the CapEx spending is going to be in the same range between RMB4 billion to RMB4.5 billion. And your third question is regarding our Hong Kong listing. There is some progress. First of all, there have been a very strong consensus among the company management, the board and our key shareholders that the Hong Kong listing itself will bring clear benefit to all stakeholders concerned. Especially it can effectively mitigate potential delisting risk brought by this potential act of Holding Foreign Companies Accountable Act legislation against a Chinese companies listed in U.S. But we have a pretty positive view about the development of this legislation. And our current assessment is that this HFCAA legislation is more than likely to be effective in 2024, instead of 2023 in the acceleration scenario. And also the latest development what we heard from the market is that there is also a big chance that the U.S. and China government can reach an agreement later this year. But nevertheless, we still think that we should start the internal process now, including setting up internal task force, performing some pre A1 consultation, and also further assessment of some listing options, for example, primary or secondary listing or by offering or by introduction method. And we are also in the process of the preparation of a preliminary documentation and data room as well. So if everything goes as currently expected, the external work stream may start in as early as October, and we will then work with external parties to do proper preparation for external A1 filings potentially in Q1 2023. And after we submit A1 and pass the hearing of Hong Kong and SC the listing will more than likely take place in early April, 2023. Obviously all this kickoff of this internal work stream to filing to listing requires the authorization from our board. And we will make proper disclosure to the market once we reach that stage. Hope I can answer your question on this.
Sara Wang: Thank you.
Operator: We are going to proceed with the next question. The next questions come from the line of Edison Lee from Jefferies. Please ask your question. Your line is open.
Edison Lee: Okay. Thank you for the opportunity. I have two questions. The first one is about power cost, and I found that in the second quarter of this year, your power cost actually grew faster than your revenue. So, I want to know for the next few quarters, what is the outlook? And number two is on the tax rate, because I think that in the second quarter, your tax rate is lower than that the second quarter last year, as well as the first quarter of this year. So, I want to know what kind of drivers are behind this tax rate of volatility? Thank you.
Don Zhou: Thank you, Edison. I'm going to refer to my colleague, Zoe Zhuang to answer your two questions.
Zoe Zhuang: So hello, Edison. I'll answer your first question. So, as we mentioned in the script that if we compare the second quarter with the first quarter on the utility cost to the total revenue percentage is roughly for the second quarter is around 29% and the first quarter is around 28%. So it's almost down the same cost level. And also if you are referring to our adjusted EBITDA margin, for the first quarter and the second quarter is in the range of 52% or 53% for the full year guidance this is slightly than the first half. That is the reason we have already take this effect for the potential utility cost increase in certain areas in some of our campuses. And so I think this will solve your question, first question. And the second one is on the tax issue. We have tax question, we have the operation in different countries, which apply to different tax rates and also for certain countries, there is some tax policies or which you can use if you have prior loss that can be offset for your future revenue â for your future profit gain. So this is like in China, we have this tax policy. So that is the reason why you can see previously the group net income has been gradually from negative to almost balance then to the positive. So this is a compound effect of different countries in conjunction with the tax policies of different countries. Thank you.
Edison Lee: I just want to know for the full year of 2022, what is the reasonable tax rate we should be looking at?
Zoe Zhuang: So the tax rate is a compound rate, which will be also like take the other like EBITDA factors like depreciation and also share-based compensation. So the tax rate will be fluctuated based on the real tax policies. So it's not like the utility cost of percentage revenue in the fixed range.
Nick Wang: One thing I want to add is actually, instead of looking at a tax rate or a tax burdens or whatever, but you should look at we have achieved historical event margins. So, we are probably have a leading profitability profile among all IDC companies got listed and you receive, so please focus on that point as well. Thank you.
Edison Lee: Okay. Thank you.
Operator: We are going to proceed with the next question. We have the next question is coming from the line of Albert Hung from JPMorgan. Please ask a question. Your line is open.
Albert Hung: I will translate my question in English. My first question is about the customer degradation GDS has revised from the full year guidance as made two days ago, due to the hyperscale server domain slowdown and macro headwinds. Theoretically actually impact their intention for other customer to do supply chain fiber application. How does Chindata feed their impact? And my second question is, could you share some colors on the recent dilution in their market, mentioned some ongoing deals last time, is there any update on left? Letâs say if Chindata becomes a target for other â for others, what's the management or large shareholder initial takedown list? Thank you.
Don Zhou: I will refer â thank you. And I will refer your first part of question to our CEO, Mr. Huapeng Wu, and I will address your second question. Please go ahead Huapeng.
Huapeng Wu: Translation for Huapeng Wu. From the company's perspective, we have been communicating our forecast through the market in a very cautious manner, and that's why we have been able to live up to or updating the market expectation along the way. As you comparing to our peers, probably they adjust their expectation or forecast because the methodology they're making their forecast is basically rely on the industrial trend. But for us, we actually making our forecast by adding up the actual commitment or the actual confirmed order from our client. We add them up and then making a concrete and cautious conclusion. So probably the difference comes from the different methodologies. From our perspective we believe that the market can also share the view with our historical performance app. Our key client has been making healthy demand costs, and we believe that it will stay; it will stay so in the near future. From the industry perspective, the platform economy has hit â what was hit in the past two years. But we have witnessed some positive regulatory movements and news in the recent news as well. We will keep on watching for more market opportunities and promote our diversification strategy. Thank you.
Don Zhou: Thank you, Huapeng and Joy. Now the questions related to mergers and acquisitions, I think first of all I want to lay on some context, I think as you probably know, that the Chindata is a business model, our business growth is quite different from the rest of peers. Our business model on growth is primarily through organic growth on Greenfield development projects, and we believe this gives us a huge advantage and will keep providing this advantage in the future on a sustainable basis in terms of efficiency, in terms of cost and in terms of the power and other relevant IDC infrastructure integrations. This is why you see that our financial performance in terms of the operating result, in terms of a project IRR or IRS, whatever measure you are talking about is very good is actually better than the industry average for sure. Having said that though, we also keep this merger and acquisition as the good alternative, but not core. And we also keep a very close eye on what happens in the marketplace. But so far this quarter, second quarter compared to the previous quarter, we have not observed a significant pickup of merger and acquisition activities. Therefore, the price we â based on our observation has not changed too much compared to our quarter ago. For the previously mentioned merger and acquisition cases, we are still working on them and we have also made some further progresses. Hopefully, Hua will have more to tell you next time, okay. On CD â on the issue of CD being the potential acquisition target I don't â to be honest, I don't think the management here â anybody here in the position can be in the position to comment a lot. But we all think, we all think that given that company's strong fundamental and prospect, we believe our stock price is way undervalued and a lot of the market participants and employer holding the same deal. And also we heard that there have been quite a few speculative interests in Chindata in corporation, merger and acquisition whatever, but I don't have knowledge at the moment about any material development out of these speculative interests, but we will do the proper material disclosure when they become material. Thank you.
Operator: We are going to proceed with the next question. The next question comes from the line of Yang Liu from Morgan Stanley. Please ask a question.
Yang Liu: I would do the translation. We noticed that in the news report talking about the Datong campus, Chindata will build some new energy or solar farm or wind farm. Could management update us in terms of what is the format for doing this? Is this another JV or build the farm yourself and what is the related CapEx for that? Thank you.
Don Zhou: Thank you, Liu. I'll referred to Mr. Huapeng to answer questions on Datong, okay.
Huapeng Wu: Translation for Hyapeng's word. On the green power generation and data development focus that's actually in line with our consistent green power development strategy for our group. For this specific Datong project, we're actually going to focus on collaboration with our partners on the ecological power development. We will be the â we will be the consumption guide particular in this project. We are not going to make excessive success at investment into this project, but we will focus on bridging the government and utilize our local resources for the future collaboration
Operator: We'll now proceed with the next question. The next question come from the line of Tina Hou from Goldman Sachs. Please ask a question.
Tina Hou: Let me translate for myself. And so we saw that the X-Cooling technology obviously is going to be very energy efficient in bringing down the PUE below 1.1. So just wondering, have you done any analysis the full life cycle analysis of adopting this kind of what X-Cooling technology? On the one hand we think it's going to save the electricity expense, but on the other hand it might be more expensive than, than some on the traditional or existing cooling equipment. So just wondering if you have any plans to adopt this technology on the large scale going forward? Thank you.
Don Zhou: Thank you, Tina. Yes. I can answer those questions. I think first of all, I think this kind of technology, when we â when we do the internal research and development, we actually always find the balance between the cost, the CapEx cost and also saving on potential operating cost. I can tell you that on this technology the balance it's very, very good, okay. So there won't be a significant pickup of the cost, if not reduction that's number one. Number two, I think it will save the power assumption in the â consumption in the future. But most importantly, it's also going to save the water. So in the region we operate, especially North part of China, I think the water consumption is also closely monitored by the government and relative agencies. So with this technology, we can save tons of water, which actually further provide our expandability and scalable potential in the future. And so one minor thing I want to correct you is that previously, I think we always communicate our, our corporate wide â our company wide average PUE number is standing â has been standing as 1.21, not 1.24; 1.21 is our number. And it's actually â we think its industry leading positions. Thank you. And moving forward, it's â with this technology applied in more places and more project, we anticipate this number is going to further down.
Tina Hou: Thank you very much
Operator: As there are no further questions at this time; ladies and gentlemen that does conclude our conference for today. Thank you for participating. You may now disconnect your lines. Thank you, and have a good day.
Don Zhou: Thank you everyone. Thank you for your time.
