Good morning and good evening, ladies and gentlemen. Thank you, and welcome to VNET Group, Inc’s Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. With us today are Mr. Samuel Shen, Chief Executive Officer and Executive Chairman of Retail IDC; Mr. Tim Chen, Chief Financial Officer; and Ms. Xinyuan Liu, Investor Relations Director of the company. I’ll now turn the call over to the first speaker today, Ms. Liu, IR Director of VNET Group, Inc. Please go ahead, ma'am.

Hello, everyone. Welcome to our third quarter 2021 earnings conference call. Our earnings release was distributed earlier today and you can find a copy on our website as well as on newswire services. Please note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other documents filed with the SEC. VNET does not undertake any obligations to update any forward-looking statements except as required under applicable law. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will also be available on our IR website at ir.vnet.com. I will now turn the call over to our CEO, Samuel.

Thank you, Xinyuan. Good morning, and good evening, everyone. Thank you all for joining us on our earnings call today. Despite regulatory uncertainties, we delivered a milestone financial performance this quarter achieving historical highs for both revenue and adjusted EBITDA, with both figures exceeding the high-end of our guidance. Our results demonstrate the strong momentum we have generated through the execution of our dual-core strategy. By leveraging our integrated strengths in both wholesale and retail IDC services, we were able to unlock additional demand from the ongoing marketing migration towards digitalization and capitalize on more growth opportunities across diverse industry sectors. Since 2019, we have implemented our dual-core growth engine strategy, utilizing our foresight on market trends and our competitive edge in providing carrier-neutral and cloud-neutral IDC services. By executing the strategy, we have continuously expanded our market reach and diversified our customer base to better position ourselves from managing the regulatory changes spanning across various industry sectors. We successfully expanded capacity while driving significant improvement in utilization rate for our ramp-up and newly-built cabinets. We added 2,388 cabinets on the net basis during the third quarter. Utilization rate for our ramp-up and newly-built cabinets increased by 5.5 percentage points to 34.7% and compound utilization rate remains stable at around 60%. With our track record of success over the last three quarters, we are confident in our ability to continue delivering strong operating results and expect to achieve our full-year target of delivering 25,000 standard cabinets and a compound utilization rate of 60% in 2021. Now, let me provide more detailed business updates for the third quarter. As companies across the nation continue their migration towards digitalization, we have seen growth in overall demand for IT infrastructure from both existing and new customers across all of our business segments. For…

Thank you, Samuel. Good morning, and good evening, everyone. Before we start our detailed financial discussion, please note that we will present non-GAAP measures today. Our non-GAAP results exclude certain non-cash expenses, which are not part of our core operations. The details of these expenses maybe found in the reconciliation tables included in our press release. Please also note that, unless otherwise stated, all the financial numbers we present today are for the third quarter of 2021 and in renminbi terms, while percentage changes are on a year-over-year basis. We delivered stellar revenue growth and improving operating margins in the third quarter, driven by our organic business development, dual-core growth engine, diversified customer base, and a strong IDC market demand. Our net revenues and adjusted EBITDA rose by 25.3% and 22.2% respectively, both exceeding the high-end of our previously announced guidance range. Net revenues in the third quarter of 2021 increased by 25.3% to RMB1.56 billion from RMB1.25 billion in the third quarter of 2020. This increase was mainly due to increased customer demand for a highly scalable carrier and cloud-neutral IDC solutions from both wholesale and retail IDC customers, as well as the notable growth of our cloud business. Gross profit in the third quarter of 2021 was RMB375.2 million, representing a year-over-year increase of 36.4% from RMB275.1 million in the same period of 2020. Gross margin in the third quarter of 2021 was 24% as compared to 22.1% in the same period of 2020. The year-over-year increase in gross margin was primarily attributable to our continued efforts in optimizing our operating efficiency. Adjusted cash gross profit, which excludes depreciation, amortization, and share-based compensation expenses, was RMB674.5 million in the third quarter of 2021, compared to RMB526.2 million in the same period of 2020. Adjusted cash gross margin in…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Yang Liu from Morgan Stanley. Please go ahead.

Thanks for the opportunity to ask a question. First, congratulations on the good results. I have two questions here. The first one is regarding the customer demand because we see quite unfavorable regulation towards most of your customers, especially on the wholesale side. Would you please share with us the demand outlook going into fourth quarter and next year? Especially, we see the overall wholesale under MoU or – and service number stay at 230 megawatts this quarter. So I would like to hear what is your expectation in the wholesale sales momentum going to next quarter and the next year? The second question is do you see any risk on margin from the utility costs? Because with your liberalization of the industrial electricity in October, whether it will have some margin – bring some margin pressure to VNET? Thank you.

Okay. Yang, thanks so much. This is Samuel. I may just take the first question and then – and see whether Tim you want to chime in to provide the comments for the second question. So first of all from the high-level perspective, they are, I would say, several trends for the investors and analysts to pay attention to. Number one, I would say the datasets. The datasets continue to be generated, I would say, doubling in 18 months period. At the same time, I think the COVID-19 basically accelerated the enterprise digital transformation. So ensure more and more businesses or even their business model are moving from the pure physical world to both physical and digital world. So that's number one. Number two, the cloud adoption is getting to be very standard in [fraud practice] for most enterprises. Unlike the rest of the world, which was predominantly by three different cloud service providers, but in China, we have more than a dozen cloud service providers providing the services and so on and so forth. So in China, what happened is, we've seen a lot of a dedicated cloud adoption both from the on-ramp, off-ramp opportunities. And then – so the trend basically, given the fact of the number of clouds in China government policies, data sovereignties concern and even total cost of ownership. So a lot of the customers when they started to adopt the public cloud services, they will consider. When they grow their business, we will consider about the dedicated cloud. And the third thing is about the regulatory impact. As Yang mentioned earlier, first of all, the China's economy is highly regulated, therefore, all the way from the government policy regulations on the platform company's concern and also some of the vertical impact or even a power tariff. And those will become, I would say, general concern for most of the investors and analysts. From our point of view, again, kudos to our dual-core because we already have very long track records from operation point of view. We also have a very comprehensive service offering and plus our diversified customer base. So from our point of view, we are bullish about the demand in the quarters to come. That being said, we also want to be cautiously paying attention on the potential regulatory impact, but the net-net, I would say we are bullish about the quarters to come and it will be ready to meet a customer's needs. For the second question, Tim, do you want to chime in with your input?

Yes. Sure, Samuel. Yang, thanks for the second question. I think second question related to power tariffs. To date, there have been no increases in power tariffs. There have been some power control measures. But as you correctly point out, there is expectation that some tariffs will increase in 2022. In terms of the impact to the overall business, I think I would say impact to the wholesale side of the business will actually be rather limited. These are mainly pass-through or the utilities are paid directly by the customer. And for our retail customers, actually number of our contracts there have automatic adjustment clauses. For the rest, we expect during the normal course of business that will have those discussions and the adjustments pass-through upon renewal. These are shorter contracts. And just like an increase in tax or any of the other sort of basic costs of providing a service, these are things that we fully expect will be pass-through. So again, we're expecting very limited impact to our margins in relation to potential sort of tariff increases in China.

Thank you, Sam, and thank you, Tim.

Thank you.

Our next question comes from [indiscernible] at Jefferies. Please go ahead.

Hi. Actually, this is Edison. Hi. Congratulations on the results. I have two questions. Number one is on your CapEx. So you're guiding 2021 CapEx of RMB1.8 billion roughly. I think previously you were talking about potentially RMB5.5 billion. So can you explain why it has come down so much from your previous soft guidance? And my second question is on your retail MRR. Can you explain why it has been pulling up? Because I think the year-on-year and q-on-q growth in 3Q was actually pretty big. So if you can talk about the trends and what investors should expect to see in 4Q and 2022, that would be great. Thank you.

Sure. Well, I’ll take the first one, and then maybe Samuel, if you want to comment on the MRR part. So Edison, morning to you. And in terms of the CapEx, the question about what is the sort of key drivers of the CapEx. And look, for us really, there's two parts, right. There's the delivery of the cabinets and as we deliver our data centers, there is a CapEx-related expenses there. And then there's also another portion, which I would put in the securing resources for future years, whether that's 2022, 2023 or even beyond that, the land and the power resources related to those including the power infrastructure and the build out of that. So I would say, for this year, as the investors will know, we had more [consequated delivery] schedule in the second quarter and in the fourth quarter. And so we expect obviously that those were the two areas where there would be a more substantial increase in the CapEx. We did guide sort of a general soft guide in terms of overall CapEx, but frankly at the end of the day it boils down to especially the second part, which is on the future resources 2023, 2024 and beyond. There has not been as many of those that have popped up. And also the other point that we try to factor in is opportunistic M&A and again, there has not been anything in the first three quarters of the year. So we'll keep the investor base closely informed. But again, I think we would expect that we would end up somewhere close to where we were last year in terms of the total amount of CapEx for the year. But again, some of this could slip into January and then be [indiscernible] first quarter of next year. I hope that helps. I'll pass to Samuel on the MRR question. But before that, I'll probably say that, that – we've kind of had the related questions in the previous quarters. Why did it go up, why did it come down quarter-to-quarter? I think some of it is product mix. But Samuel gave you a little bit more. But I would say, trend wise, is something that we would encourage investors to really focus on rather than, let's say, quarter-to-quarter fluctuation. That's all. I’ll pass it to Samuel now.

Yes. Thank you, Tim. Yes. Thank you, Charlie, for the question. I think that's a very excellent question. As Tim pointed out, when investors and analysts look at our retail MRR, we wouldn't recommend to look at that quarter-by-quarter. But half year – or over a half year or year-over-year, you're going to see that number continue trending up, for sure. Part a reason because we're not just providing customers the co-location services. We have a lot of the value-added services on top of that, including a networking bandwidth, value-added services in bare metals, hybrid multi-cloud. Especially today, I would say hybrid multi-cloud become a new norm. So a lot of the customers not just from an Internet sectors, but also from a different vertical industry coming to us, requiring a full stack services. And then – so that give us a great opportunities because we have a large customer base and then we have a full stack service, and then we have a very strong ecosystem. And most of the ecosystem when they provide the hardware solutions, software solutions or even management type of services, majority happened to be a recite in the data center. And then, so we can basically kind of glue them together and provide to the customers, of course, with the operation and maintenance on top of that and making sure customers would have a peace of mind. They can just forget about the infrastructure pieces and focus on their business innovation, so become a greater win-win-win situation. So part of the value-added services that occupied, customers contributed quite a bit to our retail MRR this quarter. So hopefully, that addresses your question, Charlie.

Okay. Yes. That's good. Thanks, Samuel and Tim.

Thanks, Edison.

Our next question comes from Tina Hou at Goldman Sachs. Please go ahead.

Hi, management. Thanks for the time. So I have two questions. The first one is that actually in the third quarter of last year's earnings call, management laid out a plan to add 25,000 cabinet each year in 2021, 2022 and 2023. So wondering, if we are at this point still maintaining that guidance. And if yes, maybe because we're at the end of this year now, so I think we have probably already have some insight into the type of resources that we have secured next year. So wondering if you could share some of that information with us. And then the second question is a follow-up to a previous analyst’s question. So looking at your 4Q guidance, implied EBITDA margin is around 26%, which is lower by about 2 percentage points’ y-o-y and q-o-q. So wondering, why is that? Thanks.

Sure. Thank you. Thanks for the question, Tina. Let me take these two questions. First, would be, in terms of your question on the 25,000 center cabinet guidance. I would say that we provided that number and I would say going forward that number would change a little bit, but that's really a matter of projects being finalized. And then you look at our mix of wholesale and retail customer, they are different power density requirements, so you'll end up with different numbers of cabinets. However, I would say that we maintained the 25,000 for next year as well. And for 2022, your question around kind of how much of the resources were secured. As of now, we've secured about 80% of the resources towards the 25,000 cabinet target for next year. In terms of margin and the reason for the reduction in margin in the fourth quarter. Frankly, that's really with the company deliveries that we have in the fourth quarter. So you will have naturally the scale-up of costs to support the delivery of the cabinets. And then that will then be mitigated over time as those cabinets ramp up. So we do have a lot of cabinets as you can sort of reverse calculate delivering in fourth quarter. So that's the main reason.

Thank you, Tim. So does that mean that our utilization rate in 4Q would likely trend down as well?

I would say that we would still keep to around 60%, but there maybe a small trend down, you’re correct.

Okay. Thanks.

Our next question comes from Ethan Zhang at Nomura. Please go ahead.

Thanks for the opportunity for me to ask a question. My question is also around the utility cost. So I just wonder, what's the impact of the power restriction to our margin during the third quarter and what's our outlook for the power supply situation for the fourth quarter and next year? And also I just want management to give us more view on our outlook for migrating to green power and our current penetration rate of the green power utilization? Thank you.

Hi, Ethan. Let me take the first question, and then I'll take a stab at the second and see if Samuel has anything to add as well. In terms of the power control, those were some of the power control measures throughout parts of China. And the impact actually to our IDCs or IDCs in general is that the IDCs had to burn diesel in the areas that were impacted. To VNET, impact was actually rather limited. And as of now, no long lasting impacts to us. The second, I guess, in terms of looking forward, what do we expect. Similar to the general market, we actually expect that these power control measures to be largely eased as the government actually has been actively tackling these issues around thermal coal supply and around thermal coal pricing. So again, we don't expect this to be sort of a continuing trend or problem in terms of power control. As I mentioned before, yes, overall market does expect that there will be some power tariff increases in 2022. But as I mentioned earlier on, the impact in terms of margins should be rather than just given how the IDC business running and our contract with our customers. Green power maybe I'll open with the fact that, as of today, the ability to increase the proportion of green power is constrained by the fact that we purchase power from the grid. And so that's one sort of constraining factor that we are actively addressing, obviously the overall countries goals 2030, 2060. And again, at this point, we have not gone down the road of necessarily building our own power generation. We do not believe that that is a core competency for VNET to be builders and developers of power generation. But it is something that we look to find partners where we can actually then be able to help towards the overall goals of the country. Samuel, I don't know if there's anything else you want to add to that?

Yes. So a couple of things. Again, Ethan, thanks for the questions. I think everybody knows that China was strived to peak carbon dioxide emissions before 2030, and achieved carbon neutrality before 2060. So from the renewable energy usage point of view, Tim, I think it can do well. We would generally increase the usage of a renewable energy and ensure to comply with the local requirements. But as of now – because the operators are limited to purchasing electricity from the grid, therefore, the percentage of renewable energy will vary based upon the province and grids own sourcing of renewable energy. For example, [indiscernible] high data centers, now we have 30% renewable energy usage, again, that was basically due to the Shanghai grid energy mix. Having said that, we do have our own efforts from a PUE improvement point of view because the energy consumption in data center is on the rise, so no doubt of that. So due to the fact that spread of cloud computing and society is paying a lot of a great attention to the environmental performance of data centers. So that being said, we will continue to optimize our IT power, optimize the data center space, optimize the data center cooling, eliminating the data center power and cooling inefficiency, utilizing the DC ion tools, which is data center infrastructure management tools, and also using the AI controlled air conditioning to control the cooling and making to be more efficient. So while – we will partner with the grid to adopt the renewable energy, but we will continue emphasizing on our PUE efforts. So hopefully, that addresses your question, Ethan.

Okay. Thank you very much.

Our next question comes from Arthur Lai from Citi. Please go ahead.

Hi. Good morning, Samuel and Tim. Congrats, VNET and whole team to deliver the strong result even in quarter three. We know that quarter three has a lot of pickup from the power side. So I have two questions. And first question, I want to quantify the impacts from the power supply. So we are seeing your competitors reaching [indiscernible] maybe around RMB19 million to use the bigger power. And I wonder, if we also have a similar one-off cost. That's my first question. Thank you.

Hi, Arthur. Yes, I would say that the power control did have impact in terms of data centers having to burn diesel. But it actually was extremely varied region-to-region and even data center to data center. So it's not something that I would say it was a one-off, but not enough to move the sort of EBITDA margin needle. And again, thankfully, we do not expect that these power control measures will be continued as the government seems to have tackled the underlying problem around thermal coal. So yes, I did see the similar remarks from some of our peers, but it was not something that impacted us enough to move the needle on our side in third quarter.

Okay. Cool. And secondly, you mentioned that we should invest in AI controlled AC and try to improve the PUE. Can you also let us know that how much or how bigger scale of these [indiscernible] should we need to invest and how we can see the results and when we can see the results? Thank you.

Okay. I can probably tackle the question, Arthur. So basically, as I said earlier, because energy consumption in data center is on the rise, it is a big topic. And then today, we have more than 32 data center around the countries. And then the beauty of the AI control, it is about more like data-driven, machine learning type of technologies because in the past, we tend to rely on the labor to managing, I would say, air cooling, air conditioning control and so on and so forth. But now, we have to use the tools in the systems. And so Tencent for example is something that we invested. Tencent is something that which industry referred to a data center infrastructure management. It is basically combining the operational needs of the physical IT equipment and also the physical facilities, namely building environment controls, combining together. So we will be able to use a data-driven to control the air conditioning. That being said, we started with the four data centers in our pilot and we have 32. So hopefully, we can go through a few iteration to see the improvements, and we started to roll out to all the data centers countrywide. We are seeing some promising impact, which I could share with you more updates in the coming quarters.

Okay. Thank you. I do have some chain questions, but I will stand by the queue, maybe ask later. Thank you.

Thank you, Arthur.

Thank you. Arthur.

Our next question comes from [indiscernible] from CICC. Please go ahead.

Hi, management. Thank you for taking my questions. My question is regarding the acquisition of Tencent Cloud. So how is the development in cloud service business? And can you share the revenue and growth based on your cloud and IDC business? Thank you.

I can probably take the questions and definitely welcome Tim to chime in with additional input. Yes, I think early July, we announced that we acquired one of the leading cloud native companies in China, the Tencent Cloud. And then the Tencent Cloud move in and also working with the usage team, providing the customers better solutions from the cloud native point of view. Today, we look at the whole industry. As I said earlier, cloud adoption is now become a standard procedures for every single enterprise when they want to go through the digital transformation. And then based upon the faster trend analysis, it shows 30% of the enterprises when they go through the digital transformation, they will be applying and adopt a cloud native technology, namely container-based microservices or even server labs, we're seeing the trend pumping up as well. And then ever since Tencent Cloud joining us, we're seeing a great synergy in between because what happened in the past, we have a very good cloud migration solutions, which is primarily virtual machine based. But now, we have Tencent Cloud coming in, basically provide additional puzzle to resolve the issue for a cloud native. Unlike the cloud migration, which is more lift and shift, not much architecture or re-architecture efforts have to be done by the customer side. But cloud native would be a different animals, meaning the customer has to go through re-architecture of their solutions in order to raise the beauty of the cloud native. And then – so we've seen a great synergy in between. Based upon the latest internal reviews, the revenue is pretty much on the target to achieve by the end of the year, but because we don't provide the breakdown numbers, so I don't have the detailed numbers that I could share with you. I'm not sure, Tim, you have additional input you want to say.

Yes. Samuel, I'd say, your last point, we don't provide the breakdowns of each of the value-added services within the retail enterprise piece. But what I can sort of add to Samuel's is that, obviously this is a relatively recent acquisition. It is additive to our overall business and we expect that it will become an increasing part of the value-added service solution set to our customers. So again, it will be a driver of MRR growth, and helping to make our business even stickier for our end customers. Thank you.

Okay. Thank you.

Our next question comes from Clive Cheung from Credit Suisse. Please go ahead.

Hi. Thank you, management for taking my question. My question is also on the power. I think, Tim, mentioned that earlier we have a portion of the future utility costs that can be passed through to the customers. Can I get a sense that what portion of current existing contracts have these kind of pass-through clauses? That's number one. And number two, for those that does not have these pass-through clauses, what is the strategy? Obviously the price hike uncertainty for next year, are we looking to renegotiate with these customers or at what certain point, will we evaluate and kind of resigning and re-negotiating with them? Thank you.

Sure. Let me take the first part, and I know that Samuel has some sort of live examples in terms of the customer strategy as well. I think, look, overall, you can safely assume that all of the – of the wholesale contracts have either a pass-through mechanism or they're paying the utilities directly, as I mentioned earlier on. For our retail enterprise customers, as I mentioned, it does vary quite a bit. But again, I would say in general, the longer contracts will have adjustment mechanism clauses built into those contracts, whereas our shorter contracts, those are the ones where they don't have an automatic adjustment, but those are things that also where upon renewal we would fully expect. It will be part of the discussions. Ultimately, just like tax, just like power tariff, I mean, these are non-discretionary and it's a cost that we face in providing you that service and it's a cost that must be borne by the customer. In terms of how that discussion is, in terms of the – if you call it a renegotiation or the renewal, I guess, I'll leave for Samuel to give you some color on that part.

Yes. I think as Tim pointed out, because if we breakdown by the customer taxonomy for the wholesale, that's a pass-through. For the scale retail because tend to be a one to three years contract that we already have building clauses, so negotiating with customers is a zero problem. And therefore, I would say for the retail, even within the contract for the year one, we still putting – put down some clauses basically for some unforeseeable reasons. We will be able to sit down with the customer to negotiate. So I think the net-net is because we were going to balance, there's a part – on one hand, we have a customer experience, on the other hand that we also have the margin, right. And then so if that's kind of marginal and we probably going to satisfy the customer experience and we opened the door when a contract is due or that becomes a material, we're going to sit down with the customers. And the conversation would be fairly easy because as Tim pointed out, the cost element in a sense is non-discretionary, so it is fairly, fairly transparent. So for us, we haven't seen any impact to sit on this customer’s ultimate dialogue.

Okay. Thank you very much. That's very clear. Thank you.

Thank you.

Thank you, Clive.

Our next question comes from Albert Hung from JPMorgan. Please go ahead.

Yes. Hi, management team. Thank you for taking my question. My first question is your peers comment that it is getting more difficult to get power codes for new [indiscernible] to build. I'm wondering whether you see the similar trend. If yes, what will be the alternative way to grow topline in the future? And my second question is follow-up on the 25,000 cabinet addition commentary next year. I wonder if there's any slowdown in moving rate, how fast the local VNET expansion point and mitigate the margin impact. Thank you.

Okay. I might take the power quota one and then…

I will take the second one, Samuel.

All right. Okay. It sounds good. For the power quota one, I think it is true. I think it would be overarching statement. Keep saying that the China’s economy is highly regulated. And then given the fact that the government has the national policy to strive the peak of carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. Therefore, the power quicker, I would say case-by-case, location-by-location would be different. The good thing is I think, because we have been in the industry for so long, literally over 25 years. And within our data centers, we have a very credible customers with a very serious workloads. And because – again, kudos to our dual-core. So other than the Internet giants or cost service providers, we actually have a lot of very serious enterprise customers in our data centers. And then in government's policy, on one hand, is to drive a very healthy industry ecosystem, harness the ecosystem and so and so forth. But on the other hand, they also want to reward long-term players like us. So albeit, I would say, getting power quota is going to be challenged. But we're confident in a way to continue moving down the road to get what we need. So again, we have our high hope and we're going to continue working our buds off to get the power quota on the location that we have resources. So that will be my answer to you. Excellent question. Tim, do you want to take on the part two?

Sure. In terms of part two and 25,000 cabinets for next year, and I guess the ability – the question is around the ability to slowdown. Is it to sort of match if there's any slowdown in customer ramp up and how do we sort of slowdown? And I would say, yes. Look, the ability is there to the extent that we have the visibility from the customers where their demand needs a change. And I would say that's both speeding up and slowing down. Within sort of fiscal possibilities if a customer tells us, look, we need a month or two months earlier. Absolutely, we can factor that in. And if the customer says, look, I need it a quarter later or two quarters later, there is fully that capability to shift. And so that will – again, we look to our guiding kind of overall 60% utilization rate and we monitor that to make sure that we're not just building cabinets, but also making sure that those IDCs are then filled. And so that's something we keep a close eye on, and we managed to that. So we're not just stuck on one variable. I think there's a number of different operational variables that we managed to and making sure that what we build and the money that we spend does then generate the correct returns to us and our stakeholders. So I hope that answers your question.

Thank you. That's helpful.

Our next question comes from Guohan Wang at Daiwa. Please go ahead.

Thanks, management for the opportunity to ask the question. I’m Guohan Wang from Daiwa Capital. We noticed that [indiscernible] capacity ramp up for mature IDC [indiscernible] built before 2019 and 2020. So want to know the reason for the capacity ramp-up. And also we know that given the testing the subs high of power quota in Beijing and Guangdong. And from management’s view, do we have any additional acquisition for high quality access in some Tier 1 cities, I mean, 2021 or maybe 2022 because we know you guys reduced capacity [indiscernible] CapEx for this year significantly. So I want to have a better understanding of our competition strategy, maybe [indiscernible] competition and also the weaker demand? Thanks.

I guess, Samuel, let me take the first part. I guess the question was around a ramp up of the mature cabinets utilization rate. Yes. I mean, I would say, look, we continue to deliver cabinets, and obviously as IDCs click past into these two years and older, you will see some small fluctuation. But no we have not seen necessarily a very large difference in terms of the ramp up of our customers for these mature data centers. Sorry, what was the second part of that question? Something about Beijing, Guangdong power quota?

Yes. Just about our allocation of our CapEx result because we have reduced our CapEx this year significantly. So we want to reserve for the – maybe future development or maybe in the second half of next year or 2023 due to the fierce competition and maybe some overlay – oversupply in some regions due to a more interests of new players in 2020 and 2021. Yes, so that's my question.

Okay. If I understand correctly sort of impact or relationship between CapEx and then competition. Is that correct?

Yes.

Well, look, I would say, I mean, we had I guess a short discussion earlier on the CapEx side. For us, again, there's two parts of that CapEx. One is actually the building of the data center and a large part of that actually is the power infrastructure to connect to the data center to the power source. So that part of it is related to our overall rollout of our plan. To that second part is going to be related to the acquisition of land and power resources for the future. And like I said, what we're building out and developing today largely was acquired years ago. And so, if you're saying that have we sort of slowed down or have we not spent as much in relation to 2023, 2024 land and resources. I'd say that it is not necessarily the two competition, but rather actually making sure that we're acquiring the land and other resources in the right places to meet our customer's demands and the customer demand does change. So what we don't want to do is actually go out and buy a bunch of land that we won’t do building for another three, four years in wrong places because that would just be idle land and I mean capital. So I think that's the kind of the main point I would make there.

Thank you.

Was there a third part or was that also linked to, I guess, overall competition?

Yes.

Sorry. Lastly, was there a third part of the question? I wasn't sure if that was linked also then to the overall competition point that I was making earlier on.

Yes. Just have a balance on our longer-term competition and the development strategy. So yes, you just mentioned the points, yes. Thanks.

Okay.

Thank you so much. Ladies and gentlemen, this will conclude our conference for today. Thank you all for participating. You may now disconnect.