Wasion (3393.HK) - Transformational contract with DayOne?

An ORCL/Bytedance CAPX play

I’ve recently been scouring for East Asian-listed equities and came across this great blog article, flagging Wasion (3393.HK), as an under-the-radar data center beneficiary, that has yet to be rerated. The firm recently obtained some big contracts to participate in the build out of a large data center for Oracle and Bytedance. The street does not seem to be baking upside numbers from this contract and even without it, we have the entire market cap of the equity at present, covered by an equity stake subsidiary listed on the Shanghai Stock Exchange. Management hopped onto the 1H25 call and constantly reiterated potentially surprising investors bigly and should they deliver, there is ample upside on the stonk.

Before fleshing out the idea, lets lay the foundation on some key players within the data center space, which will tie into the opportunity we have today.

Collaborations with GDS’ DayOne

Let’s establish the foundation for understanding the scope of this opportunity.

We’ve all probably heard of GDS Holdings, headquartered in Shanghai, the major developer and operator of data centers in domestic China, servicing some of the largest domestic hyper-scalers such as Alibaba and Tencent. Reportedly, there has been a supply glut of computational power in China, with utilization rates at around 20-30%, and thus, it appears that domestic demand for additional constructions at GDS, have been on the decline. Moreover, given licensing requirements/bans on high-end chips going into China, Chinese hyper-scalers have been leasing/building capacity abroad instead, namely the nearby Southeast Asia region.

Within GDS’, is nestled its international unit, which the firm had carved out and rebranded as “DayOne” early this year, essentially holding all of GDS’ data center operations and assets outside China. Notably, DayOne has seen significant sequential growth in its computational power backlog as well as well as deliveries through 2Q25. As per SemiAnalysis, DayOne’s largest customer is ByteDance, followed by Oracle. SemiAnalysis expects DayOne to reach >1GW of committed power within this year, with at least half of it operational, serving the two Western and Eastern giants, Oracle and ByteDance, respectively.

This sets the foundation for the opportunity at Wasion.

We are all aware of Oracle’s over-the-top RPO backlog consisting of cloud contracts with some of the biggest names in AI; but what has, perhaps, flown under the radar is Oracle’s partnership with its largest customer, Bytedance, one of the fastest-growing GPU users in the world today.

In Asia specifically, Oracle and Bytedance had partnered to create the Singapore-Johor-Batam AI hub, which would be expected to reach 600-700MW of power within a year, and a scaled up nameplate power capacity of 2GW by 2028. This would be the world’s second largest AI hub.

And of course, the key partner for development of this AI Hub, would be GDS herself, and more specifically, the international subsidiary, DayOne.

This entire setup is extremely important for the company we are discussing at hand because GDS/DayOne had worked with Wasion for data center projects in Shanghai for over a decade. Given the long-standing business relationship and trust, Wasion had been recontracted for this large-scale Johor project and in April this year, announced the establishment of its subsidiary, Weyoung Technology, a medium to for collaboration with both the Johor State Government, as well as DayOne. As we shall see in a bit, the sheer size of this project and potential future collaborations are worth a huge sum of equity value that is, in my view, not being factored into the stock price at hand.

Before we attempt to quantify it, let’s discuss a quick overview of the business.

Quick business overview

Wasion was founded in 2000, by Mr Ji Wei, who also owns ~54% of the company’s share capital.

Wasion operates three reportable operating segments:

• Power Advanced Metering Infrastructure (PMI)

  • Development, manufacturing and sale of smart power meters and the provision of respective system solutions.

  • Respectable revenue growth through the years with around ~20% pretax profit margins

• Communication and Fluid Advanced Metering Infrastructure (CFMI)

  • Development, manufacturing and sale of communication terminals and water, gas and heat metering products.

  • Operated under the Willfar Info Tech, listed on the Shanghai Stock Exchange, of which Wasion owns 59.6% of its share capital.

  • Highest profit margins of the group and growing low teens as per 1H25.

• Advanced Distribution Operations (ADO)

  • Advanced power distribution products, energy storage, artificial intelligence data center (AIDC) products and solutions covering the cooling and power products (see image below; highlighted parts are covered by Wasion).

    

  • The firm had a long-standing partnership with Siemens spanning more than a decade, and recently established a partnership to develop modular data center solutions.

  • Whilst topline growth and profit margins unimpressive, this is the key segment that will be the opportunity for the stock going forward.

Financials over the last couple of years is captured below:

Overall, Wasion has been consistently profitable over the better half of the past decade with a decent operating income to free cash flow conversion. Moreover, the firm has consistently returned capital, with sizable common dividends, >RMB200m on average, over the last half a decade or so.

The actual addressable opportunity set

As mentioned, GDS/DayOne’s Malaysian project is a significant and transformational project for Wasion. Synthesizing the latest earnings call (albeit a little hard to decipher the translation) would be instructive for painting a picture of that future.

I suggest readers read these quotes word for word so it would be easier to paint the go-forward opportunity set from here.

My favorite block quote (key points in bold):

“GDS, just like you might be aware, now they -- they have 2 components. One is GDS, the other one is DayOne, and all of the overseas projects are upon DayOne. So from last, last year, we started to work with the GDS in a very in-depth partnership. We were working with GDS -- with a domestic projects in Shanghai. That was our first collaboration. And then today, in the beginning of the year, we were working with DayOne in Malaysia on -- we signed the agreement with their Malaysian factory. So we are lucky.

We are fortunate enough to have won the recognition of this customer.

So this year, we’ll be working with the broader GDS and DayOne with orders accounting for less than 20% of our overall revenue. This may translate into 200 megawatts in the data center. So this magnitude now only accounts for the full year -- accounts for less than 1/10 of GDS combined with DayOne. Now their Finland in-store capacity has achieved 1.5 gigawatts; and United States is 1 gigawatt; and in Thailand, 1 gigawatt; in Malaysia, 700 megawatts. But in Malaysia, we are working with them, we will be participating with them in tailoring the data center for Malaysia 10 years from now to produce a white paper. So this might translate into 5 gigawatt installed capacity from the previous 1.5. So these overseas projects are far more than what we have today.

And then combined with what we have done this year with ByteDance internet giant and also including the [indiscernible] data center and also the [indiscernible] data, I believe in this sector on this front, by the end of the year, we might have been able to share with you some surprise. And then next year, we might be able to share with you a significant big surprise. Because just like I said before, the business volume [indiscernible] translates to 200 megawatts. And not all of the products we can do, but maybe just 50% because when we talk about CDU cooling, the cooling products, if we translate all the cooling products, the total business volume may further double.

So I believe this sector maybe, for the whole Wasion Group, is a whole new gene to us, a whole new part of our DNA because that’s different from what we have reinforced before in powered equipment. I think this kind of horizontal upgrade is quite smooth and we have won the recognition of many top clients. So in this regard, I believe in the 3 years from now, we will continue to grow and give the investors some surprises, great surprises and also wonderful data.”

Another quote from the recent earnings call:

“Okay. Let me answer the question of your concern, the contract. Now we have a hand at GDS contract, maybe just 500 million but in Q4, after Q3, I will be further secure 800 million. So there will be maybe 1.3 billion orders from GDS. Apart from GDS, we’re working with 3 major carriers and also other sectors. We are also working on data centers for them. So on this front, we are now approximately 600 million orders, but in the whole year, we’re looking at 1 billion. So it’s fair to say that for the year, our data center orders will go beyond 1 billion.

And in terms of delivery, we may be able to deliver just 500 million this year. And then Q4 and Q3, the 800 million from Q4 and Q3 may be able to at best million. And then with the 3 major carriers and also other data centers from other sectors, we anticipate about more than 60% of the 10 billion orders we will be able to deliver, so this year, we may be delivering over 1 billion data center.”

To summarize the key takeaways from both blocks of quotes:

• As mentioned earlier, Wasion had began working with GDS in Shanghai for more than a decade

• The current partnership with GDS for FY25, should yield about RMB 1.3bn of orders.

  • This consists of RMB 500m already secured at present, and will flow through the income statement this year, plus another RMB 800m in Q4, which will likely be delivered in FY26.

• This GDS orderbook covers about 200MW, i.e. each 100MW of power would yield the firm ~RMB 600-700m of revenue.

• The scope of this orderbook is miniscule relative to the ultimate design capacity for Malaysia, not to mention across all its overseas projects; as per management, this current order book represents less than 1/10 of the scale of projects at GDS + DayOne.

• Moreover, Wasion is only providing half of its product catalogue which is just 50% of the liquid products it would be able to supply. Note, Wasion has constantly reiterated (pg29) to aiming for being a one-stop data center service.

• There is another ~RMB 1bn of orders generated from three other major carriers, with RMB 600m to be delivered this year.

• In sum, GDS expects ~RMB 1.1bn of order delivery this year, with the remaining RMB1.2bn to be delivered next year and so forth, not counting additional backlog down the line.

Given the above, it’s understandable why management is excited regarding the potential opportunities available in coming years, and consistently reiterated the word “surprise”, and I quote “we will continue to grow and give the investors some surprises, great surprises and also wonderful data.”

One thing worth highlighting is that DayOne, leveraging modular datacenter construction techniques from its parent, GDS, is able to build data centres from zero to fully operational within 12 months, so construction should be relatively swift and the ramp, quick.

Valuation

At ~HK12, the stock trades at a market cap of around HK11.9bn and and EV of ~HK14bn. Annualizing 1H25 EBITDA, gets us to around RMB1.8bn and ~7.8x FY25 EBITDA (note this EBITDA does not account for the flow-through on its upcoming GDS orderbooks).

In terms of where data center beneficiaries trade, one of which we wrote a quick note on at the start of the year (PSIX):

One way to think of where we can go with Wasion is to envision how big the Johor GDS orderbook can grow to. Recall DayOne’s plan of 600-700MW of power within a year for its Johor facility, and a scaled up nameplate power capacity of 2GW by 2028.

Assuming an approximate RMB600m of revenue per 100MW and growth of three times the current FY25 orderbook (to 2GW), (on the assumption that Wasion is booking 200MW of revenue on 600-700MW of power build this year), we can pencil ~RMB3-4bn of revenue which will comprise ~35-40% of the current revenue base (assuming RMB9-10bn of revenue on average). With an estimated ~10% EBITDA margin (in the ballpark of its current ADO margins), and a 12-15x EBITDA multiple (data-center beneficiary with big-name contracts), this gets us to an approximate RMB 5bn of mid-point value conservatively estimated.

Note this estimate does not incorporate additional DayOne projects abroad, as well as its other sizable orderbook with three disparate carriers, which we had mentioned earlier - recall another RMB 1bn of orders outside of its DayOne book.

With regards to its other business segments:

• PMI. Wasion had an unlisted equity investment of which the investee is engaged in manufacturing of smart meters and tech utilities products, similar to PMI. Wasion had valued that at a 11-12x EBITDA multiple.

  • 

• CFMI is operated under the Willfar Info Tech, listed on the Shanghai Stock Exchange, of which Wasion owns 59.6% of its share capital.

  • Based on the last trading price under the Shanghai stock exchange, that stake is worth an equity value of RMB11.8bn which essentially cover the entire market cap, leaving ~RMB2bn for the residual EV.

A simple SOTP with some very conservative assumptions, namely using:

• A conservative range of 7-11x EBITDA multiples on the core PMI business as per the multiples on the similar unlisted equity that Wasio owns; note PMI has been growing >20% over the last two years and has aggressively expanded its margins.

• Imputing a 50% haircut on the Willfar public market stake (A/H discount as well as illiquidity on monetization)

• Penalizing the low growth, low margin ADO business with a mere 5x pretax profits

• Imputing a range of values for potential artificial intelligence data center (AIDC) work with GDS (DayOne) in Malaysia only, according zero value for additional contracts in its other countries as well, and the order-book with other carriers.

This gets us to an easy >$15 per share even with draconian pessimistic assumptions, with ample upside past $20 in the base and bull scenarios.

Why this opportunity exists

I’ve perused some domestic sell-side notes and can’t find much mention at all of the GDS contract despite how big and important it was such that management conducted its first earnings call ever this last 1H25; so the lack of any such discussion seems rather odd to me. Moreover, even estimates, had remain unchanged from notes released in July, prior to the call, and notes after.

Nevertheless, street estimates are guiding to ~RMB 2.1bn of FY26 EBITDA, and $1.17 of FY26 EPS - regardless of actual P&L composition - with the actual booking of profits from DayOne, the market should be awarding said company with a higher multiple; even a 12x EBITDA and 15x P/E would yield a stock price of $23/share or $17.50/share, respectively.

A larger chunk of operating cash flow will be consumed this year as management is guiding to around RMB500m of capital expenditure, higher than previous years. However, the dividend payout ratio of ~50% of net income will be unaffected; annualizing ~RMB900m of net profits to common equity this year and assuming a 50% payout ratio (as like FY24), gets us to around RMB 0.45/share, or a 3.8% dividend yield. Street estimates are around ~4.5% yield.

The key risks to be aware of are the usual i.e. hyperscalers scaling back on CAPX, or Wasion is squeezed on margins and actual go-forward EBITDA margins is much less than our estimated ~10%.

The catalyst for rerate going forward would, in my mind, be simply discovery of this equity in my view, ignited by management actually delivering on the “surprises” i.e. the company continuing to execute on its data-center contracts. It is a wonderful sign that DayOne had re-contracted Wasion after long partnerships in domestic China, and it would definitely be a great outcome for shareholders should Wasion be again called-on for additional work ex-Malaysia; again, not mentioning the other clients ex DayOne.

Disclosure: Long Wasion